CNA Explains: A company closes after selling you a prepaid package – can you get your money back?

SINGAPORE: In the last week or so, at least two businesses that collected prepayments from customers – UFC Gym Singapore and education chain Genius League – have abruptly shuttered.

Customers who paid in advance for gym packages or tuition fees were left stranded and scrambling for refunds.

Last year, consumers lost more than S$645,000 (US$482,000) in prepayments due to sudden business closures, mainly in the beauty and travel industries.

Unless the contract says otherwise, customers are generally legally entitled to the money paid in advance for unused sessions or membership, said Mr Alvin Tan, partner at Rajah and Tann.

But this does not mean a customer will always get their money back – a company may be in debt and wind up without any money left over for refunds, he said.

Here’s what you can do if you find yourself in this situation:

1. Contact the business for a refund

Try to contact the business to resolve the matter. You may have to show that you’ve done this in order to start other dispute resolution processes, so keep written correspondence of your attempts as proof.

If this doesn’t work, Mr Chia Huai Yuan, partner at Dentons Rodyk & Davidson, suggested concurrently pursuing other methods to get your money back.

“This is because it is hard to predict which option would work, and in cases such as this, time may be of the essence,” he said.

2. Claim a chargeback from your credit card issuing bank

A chargeback claim is when a credit card holder disputes a payment and initiates a reversal of the transaction. Common claims are for goods and services not received, defective goods and services, transaction errors and unauthorised transactions.

Cardholders should contact their bank as soon as possible. Most banks will require them to submit a dispute resolution form within 14 days of the card statement date, according to national financial education programme MoneySense.

If the claim is approved, the acquiring bank will deduct the chargeback amount from the merchant’s account and transfer it to the card issuer. Resolution generally ranges from four weeks for simple cases to 12 weeks for more complex ones.

Mr Chia warned that a bank may not always issue a chargeback, depending on the terms of the contract between the bank and the customer, and the terms of the contract between the bank and the merchant in question.

3. Get CASE’s help with mediation

The Consumers Association of Singapore (CASE) is a non-profit, non-governmental organisation that helps to mediate between customers and businesses.

You must pay membership and administrative fees to engage CASE to negotiate on your behalf, unless you belong to a union or organisation that is already a member.

The complaint can be submitted online, and you will need supporting documents like receipts, credit card statements and any contract that was signed.

CASE can warn the errant business or enter into a voluntary compliance agreement with them, where the business agrees in writing to stop the unfair practice and in some cases, compensate affected customers, said Ms Elsa Chen, partner at Allen & Gledhill.

This can serve as a starting point, but there are constraints as CASE cannot compel businesses to participate, said Rajah and Tann partner Mr Tan.

4. Take legal action at the Small Claims Tribunal

If the amount being claimed is below S$20,000, you can file it at the Small Claims Tribunals of the State Courts. This is meant to resolve claims more quickly and less expensively than a civil trial.

The claim must be filed within two years of the facts causing your legal action.

The court can arrive at different outcomes, including ordering the business to pay the customer a sum of money by a due date, or to make good any deficiency in the goods or services.

If the business does not comply with the order, the customer can start execution or enforcement proceedings.

“Enforcing an order does not guarantee an outcome. You should weigh the pros and cons before proceeding,” advises the Singapore Courts website.

5. Take legal action under the Consumer Protection (Fair Trading) Act

If the business has engaged in unfair practices, the customer may have a claim under the Consumer Protection (Fair Trading) Act.

A clear example is if the retailer had sold the prepaid package when it knew or ought to know that it would not be able to supply the goods or services, said Mr Daren Shiau, partner at Allen & Gledhill.

In such cases, the customer can start an action in the court under the Act if the claim amount does not exceed S$30,000, he added.

This claim can also be filed at the Small Claims Tribunal, said Mr Tan.

6. What if the business is insolvent?

You cannot take the aforementioned legal actions if the business is in liquidation or winding up, unless you get permission from the court. This is to avoid the business’ assets being dissipated under a multiplicity of suits, said Mr Tan.

Furthermore, customers, as unsecured creditors, are ranked the lowest in priority among creditors, said Mr Chia.

If the business has started insolvency proceedings and customers make a claim with the liquidators, they will only be paid after banks, landlords, suppliers and employees, said Mr Shiau.

“If the company’s debts surpass the funds earned through the sale of its assets, the sums owed to customers might not be repaid at all.”

7. Take other legal action

Another option is to take representative action with other aggrieved customers, said Mr Shiau. But he cautioned that there is uncertainty on the time needed to pursue the action and the outcomes.

Mr Tan said the customer can also apply to the court to make an individual personally liable for his or her loss.

“This is if, prior to the company winding up, the company’s business was carried on with the intent of defrauding the customer, and that individual knowingly participated. The success of the claim depends on whether that intent and knowledge can be proved,” he said.

8. Be more careful with future purchases

Consider avoiding prepaid packages that involve large sums or lengthy contract periods. 

“Bear in mind that by opting for longer-term packages, some money is saved but in exchange for more risk. Also, consider how long it will take to fully consume prepaid sessions and factor that into the decision-making. The longer it takes, the higher this risk is,” said Mr Tan.

If you decide to go ahead, CASE suggests negotiating for progressive payment instead of prepaying the full amount.

For example, with renovation, ask to pay a 10 per cent deposit, 80 per cent in stages at each step of renovation work, and the remaining 10 per cent of the payment 14 days after all the work has been completed satisfactorily.

Mr Tan also suggested taking time to make sure you understand the refund policy, check whether the business has any insurance or escrow arrangements to protect prepayment and read up on the business to avoid purchasing from those that are in trouble.

If possible, choose businesses accredited by CASE’s CaseTrust scheme. There are more than 800 of them in industries like spa and wellness, renovation, motoring and jewellery.

CaseTrust-accredited spa and wellness businesses are specifically required to protect customers’ prepayments by buying insurance.

When buying from these businesses, Allen & Gledhill's Ms Chen suggested asking for the insurance cover note or an EZ-Link Trust Card, which is a stored value card. Any unused prepaid package value in the card may be refunded.

CaseTrust-accredited renovation businesses are also required to protect customers’ deposits by purchasing a deposit performance bond – a kind of guarantee that the business will meet its contractual obligations.