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Alex J.
Alex J., Solicitor
Category: Law
Satisfied Customers: 3497
Experience:  Solicitors 2 years plus PQE
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Hi there, I would require some advise and support. In

Customer Question

Hi there,

I would require some advise and support.

In essence I am the Managing Director of Sofaland Ltd.

Sofaland Ltd retail leather sofas on line and in our 2 showrooms in UK.

Sofaland Ltd currently offer a 12 month manufacturing warranty with our products.

Sofaland Ltd use a company called Castelan as a service provider. Castelan is a service provider with a network of upholstery engineers who we outsource our 12 month manufacturing warranty claims to.

Castelan will go out to customers homes and fix any manufacturing defects within the first 12 months and bill Sofaland Ltd accordingly.

Castelan also offer Sofaland Ltd “extended warranties” which we can retail to our customers. So at the time of sale of a leather sofa Sofaland Ltd sales team try to up sell a Castelan 5 year extended warranty to cover manufacturing defects and accidental damage.

Castelan charges Sofaland £15 per seat and Sofaland Ltd retails the extended warranty at £30 per seat. So for a typical order of a 3 seater and a 2 seater (5 seats) Castelan would charge Sofaland £75 and Sofaland would charge the customer £150.

With my entrepreneurial head on, I am thinking of cutting Castelan out of the picture and creating my own Ltd company to become the service provided for Sofaland Ltd.

I am looking to set up a company called “Sofa Care Ltd” who will then supply Sofaland Ltd with the same service which Castelan is currently providing.

So in essence Sofa Care Ltd will take care of Sofaland’s manufacturing warranty claims within the first 12 months (at a charge) and then also offer an extended 5 year warranty at £15 per seat for Sofaland to then retail to Sofaland customers at £30 per seat.

My concern is all the legislation surrounding it, such as:

• Would either Sofa Care Ltd or Sofaland Ltd have to be registered and authorised by the FCA
• Would Sofa Care Ltd have to be underwritten by an insurance provider or could Sofa Care Ltd underwrite itself as a Ltd company (through initial directors loan and then by making profit from sales)
• Would there be any legislation which would prevent Sofaland Ltd selling extended warranties via Sofa Care Ltd if I am the director of both Ltd companies
• Is there a difference between “extended warranties” and “insurance” and if so which would be the easiest to offer (less regulations)

Thanks

Michael Savva
Submitted: 2 years ago.
Category: Law
Expert:  Nicola-mod replied 2 years ago.
Hello,

I've been working hard to find a Professional to assist you with your question, but sometimes finding the right Professional can take a little longer than expected.

I wonder whether you're ok with continuing to wait for an answer. If you are, please let me know and I will continue my search. If not, feel free to let me know and I will cancel this question for you.

Thank you!
Nicola
Customer: replied 2 years ago.

Hi Nicola,


 


Yes i willing to wait a little longer for some advise as long as the lawyer is familiar with compliance law and can offer me some guidance.


 


Thanks


 


michael


 

Expert:  Nicola-mod replied 2 years ago.
Hello Michael,

We will continue to look for a Professional to assist you.

Thank you for your patience,
Nicola
Expert:  Nicola-mod replied 2 years ago.
Hello Michael,

I apologise as we have not yet been able to find a Professional to assist you. Do you wish for me to continue to search for someone to assist you or would you like for us to close your question at this time?

Thank you for your patience,
Nicola
Customer: replied 2 years ago.

i am happy to wait another 3 days and if not please refund my paypal account. thanks

Expert:  Nicola-mod replied 2 years ago.
Hello Michael,

We will continue to look for a Professional to assist you.

Thank you for your patience,
Nicola
Expert:  Alex J. replied 2 years ago.
Hi,

Thank you for your question and welcome.

My name is AJ and I will assist you.

I will answer your question as follows:

1. Would either Sofa Care Ltd or Sofaland Ltd have to be registered and authorised by the FCA - To have to register with the FCA - you have to carry on a regulated activity - a regulated activity includes the sale of insurance products. Unfortunately last year a case called Digital Satellite Warranty Cover Limited decided that extended consumer warranties counted as insurance products. Accordingly you probably would need to at least explore registering with the FCA

2. Would Sofa Care Ltd have to be underwritten by an insurance provider or could Sofa Care Ltd underwrite itself as a Ltd company (through initial directors loan and then by making profit from sales)- You would be providing the insurance product so not necessarily - however I imagine it would not make the warranty very attractive if it was not underpinned by insurance of some sport. Also it depends on what the FCA require from you in order to authorise you.

3. Would there be any legislation which would prevent Sofaland Ltd selling extended warranties via Sofa Care Ltd if I am the director of both Ltd companies - Not necessarily - however again this would depend on the terms of the FCA authorisation.

4 Is there a difference between “extended warranties” and “insurance” and if so which would be the easiest to offer (less regulations) - I am afraid not really this was determined in the Re Digital Satellite Warranty Cover Ltd and others case.

Can I be of any further assistance?

Kind regards

AJ

Customer: replied 2 years ago.

Hi AJ,


 


thanks for your response, however i am still not sure on a few points.


 


1. Considering the Digital Satellite Warranty Cover Limited case i suspect Sofa Care Ltd would need to be authorised by FCA - But my understanding of it is that Sofaland Ltd would not have to be regulated for "on selling" the extended warranty. Would you agree?


 


2. Taking out how "attractive" the extended warranty would be to the customer, technically could Sofa Care Ltd underwrite its self? Is it worth applying to FCA on that basis or can you envisage FCA insisting there is a insurance underwriter?


 


Also the application to FCA is approx £1,500 and it is non refundable. If the application is rejected because of one of the above, ie they require the warranty to be underwritten by an insurance, would i have to pay the £1,500 to reapply or could i just make the necessary changes and re-submit for free?


 


Thanks very much.


 


michael


 

Expert:  Alex J. replied 2 years ago.
Hi,

Thank you.

1. Yes I would agree with that as long as you comply with the FCA rules on advertising and marketing the warranty. http://fshandbook.info/FS/html/FCA/ICOBS - Also the warranty is incidental to the main service. It is likely you would have to make clear that there is a connection between the two companies

2. It is difficult to say. You will make the application and they will determine what level capitalisation the company will have to have and to what extent it must be insured. These applications can take up to six months. Based on the level of the fee I would strongly recommend you engage a solicitor to at least check the application for you. At least then if they do it negligently you can sue them and they will have professional indemnity insurance under pinning their advice.

I am afraid the fee is non refundable. It is charged for processing the application, so win lose or draw you will have to pay it.

Kind regards

AJ
Expert:  Alex J. replied 2 years ago.
Hi,

Can I assist any further with this?

Thank you.

Kind regards

AJ

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