A simple guide to how Dick Smith's troubles affect you as a customer

On the bright side, a big sale is coming. Picture: Getty Images

Electronics retailer Dick Smith went into voluntary administration yesterday.

You probably already know that isn’t a good thing for the business but you may not know what it means to you as a consumer, especially if you have a product on lay-by or a Dick Smith gift card.

Voluntary administration is when an external administrator is called into a company that is experiencing cash flow issues and having serious trouble with paying off its debts. The administrator looks at the company’s assets and assesses the business to determine the best course of action.

The aim is to give companies breathing room to restructure and recover without having to deal with debt collectors.

So being in voluntary administration doesn’t necessarily mean Dick Smith will die. The administration process usually takes around a month and store are likely to continue trading as per usual.

According to Griffith University’s Asia-Pacific Centre for Franchising Excellence, the administrator will make one of the following recommendations to creditors, who have the final say on what happens:

  1. Liquidate the company, or
  2. Execute a deed of company arrangement (DOCA) – meaning compromise the debts in some way and allow the company to continue in existence, or
  3. Return the company to the control of the directors.

This third recommendation rarely comes to fruition so it’d either be liquidation of Dick Smith’s assets or selling the business off so that it can live on.

So back to what it all means for you, the customer.

If you have goods under lay-by with a Dick Smith store, paid for a product in full or have an unused gift card for the retailer, you may fall into the category of “unsecured creditor”.

According to the Australian Competition and Consumer Commission (ACCC), the administrator will prioritise recovering debts for other classes of creditors, such as employees and shareholders, before compensating you in any way.

But if the company is still trading, you should be able to recover the money that is owing to you in – one form or another – for the goods you paid for. Expect the administrator to soon give instructions to consumers on how to do so.

If the company has stopped trading, then it can become a bit tricky. Here’s what the ACCC has to say:

If the company ceases trading, you will need to register with the external administrator as an ordinary unsecured creditor to recover your money. The insolvency process will determine whether you receive the goods paid for, a full or partial refund, or possibly nothing at all.

There is also a chance that, during the administration process, there will be big sales at Dick Smith outlets to get rid of inventory and make some money to ease the cash flow problem.

We’ll be sure to keep an eye out for those.

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.