The business was set up to import and distribute hoverboards, which are self-balancing battery-powered scooters with motorised wheels.
Hoverboards were developed in China but also became vastly popular elsewhere, initially in the US, but also in the US and Europe. The company wanted to capitalise on this and so set up a trading venture based in Burnley, Lancashire. The premises were leased from an associated company on a rent-free arrangement.
Damaged goods
Finance via a short term loan from an external investor of £150,000 was obtained and this was bolstered by personal funds from the director. This capital was used for set up costs and stock, as the supplier in China wanted payment in advance of delivery. Despite the fact that the hoverboards were provided with warranties, there were times when they had arrived damaged and the company had to meet the cost of repairs. Some of the fixes required taking parts from other new stock because the supplier did not supply replacements or pay compensation for faulty goods. The repairs were mechanical and not electrical.
Despite their initial popularity, hoverboards started to fall out of favour more widely. There were also safety concerns and incidents involving other suppliers where batteries and electrical systems had caught fire or malfunctioned.
The company’s hoverboards appeared safe and there were no dangerous incidents reported. However, the company was contacted by Trading Standards, which had responsibility for making sure imported consumer products were compliant with product safety laws.
Company was placed into Creditors’ Voluntary Liquidation
Checks on sample products revealed areas of non-compliance. This meant that 10,019 units that the company had ordered and paid for were now under a Suspension Notice while further testing was carried out.
Once testing was completed, Trading Standards told the company that tests showed the hoverboards were unsafe. The company was then issued a Withdrawal Notice, which stipulated that all the units needed to be destroyed.
The director, together with the Chinese manufacturer, proposed a range of changes and modifications to the hoverboards and their packaging that it was believed would rectify matters. But even though the Withdrawal Notice was extended, Trading Standards was not satisfied, and the company was given a final deadline for destroying the hoverboards.
By this time, there was no way back for the company and it did not have the funds to meet the costs of the stock disposal, which were around £75,000. The company met with Company Debt to find a way forward and the company was placed into Creditors’ Voluntary Liquidation.
