Dorset and Hants debt expert highlights risks with gift cards at Xmas

R3 Southern and Thames Valley - Garry Lee
R3 Southern and Thames Valley - Garry Lee

Dorset and Hampshire shoppers giving gift cards to family and friends for Christmas need to make sure they understand the potential risks involved with buying them - and should be aware that they could lose their money if a retailer goes out of business.


That's the advice from Garry Lee, chair of insolvency and restructuring trade body R3’s Southern and Thames Valley Region, including Dorset and Hampshire, as the festive season gets into full swing and greater numbers of shoppers start hitting the region’s high streets.


He said: “Gift cards are really convenient and can be easily bought both in stores and online.


“But it is also vital consumers in Dorset and Hampshire understand how they can be affected if the retailer that offers them enters an insolvency process.


“Customers with gift cards or vouchers from any retailer which enters an insolvency procedure and is either continuing to trade, or has gone through a pre-pack administration, must check with store staff whether they can still redeem them.


“If this is possible, it’s generally a good idea to spend them sooner rather than later, especially as your local store may be earmarked for closure or the situation across the whole organisation may change quickly, if the firm becomes insolvent.”


A number of retailers that have gone into administration or liquidation over recent years have been unable to honour gift cards that were been bought before their insolvency process began, with shoppers losing their money as a result.


Other cases have seen failing firms refusing to honour gift cards after a given point in their insolvency process.


Several well-known stores having entered insolvency during the pandemic, while the wider sector is continuing to face severe trading difficulties as the economy has begun to open up again.


Garry, who is an associate director in the recovery and restructuring services department at accountancy firm Smith & Williamson’s Southampton office, added: “It is understandably frustrating when a retailer won’t accept gift cards during an insolvency process.


“However, the insolvency practitioners in charge of the process are obliged to look after all creditors’ interests according to a strict hierarchy set out in law, and unfortunately customers are just one of many affected creditors.


“Insolvency practitioners overseeing a retail insolvency have to make their decisions regarding accepting gift cards on a commercial basis and it is not a decision that they will take lightly.


“On the one hand, accepting them could lose the business more money, but on the other, not doing so could hurt the relationship between the retailer and its customers.


“If a retailer has been sold as part of a pre-pack administration, where a company enters administration and is immediately sold to another buyer, then whether or not gift cards and vouchers issued prior to the administration are still honoured is up to the new owners.


“While the name above the door will usually stay the same when a major retailer goes through the pre-pack process, legally it is a new and distinct entity and has no obligation to allow gift cards sold by its former incarnation to be used.


“However, all may not be lost if a new owner decided not to honour existing gift cards as the purchaser may be able to make a claim to their bank if the card was purchased via a credit or debit card, depending on when the original payment was made.”


Financial pressures on retailers can also be increased by the rental payments due to their landlords around 25 December, which is one of four Quarter Days in each year on which these bills are due to be settled.

 

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