One of Yorkshire’s insolvency experts is highlighting the potential risks involved with buying gift cards for family and friends at Christmas – Yorkshire shoppers need to be aware that they could lose their money if a retailer goes out of business.
Eleanor Temple, chair of insolvency and restructuring trade body R3 in Yorkshire and a barrister at Kings Chambers in Leeds, is warning of the potential pitfalls as the festive season gets into full swing and larger numbers of shoppers hit the region’s high streets.
She says: “As gift cards can be easily bought both in stores and online, they seem like a really convenient solution to the problem of what to give at Christmas. However, it’s vital that consumers understand how they can be affected if the retailer that offers them subsequently enters an insolvency process.”
“We’ve seen a large number of retailers, both big and small, get into financial difficulties in recent years. It’s important that customers with gift cards or vouchers from retailers which have entered an insolvency procedure and are either continuing to trade, or have gone through a pre-pack administration, check with store staff whether they can still redeem them.”
“If it is possible to do this, customers would be well-advised to spend them sooner rather than later in case their local store is earmarked for closure, or the situation across the group changes quickly, should the business become insolvent.”
In recent years, a number of retailers that have gone into administration or liquidation and proved unable to honour gift cards bought before their insolvency process began, with shoppers losing their money as a result.
In other cases, insolvent firms have refused to honour gift cards after a given point in their insolvency process.
With the retail sector continuing to face challenging conditions post-pandemic and in the face of cost of living pressures, severe trading difficulties are once again likely to affect some shops.
Eleanor continues: “While it is understandably frustrating for shoppers when a retailer doesn’t honour gift cards during an insolvency process, 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, with customers being just one of many.”
“The decision taken by insolvency practitioners overseeing a retail insolvency about whether to accept gift cards will not be taken lightly – they will need to weight up commercial considerations such as the business losing money should they accept them, against possible damage to the brand if they do not honour them.”
“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 a decision for the new owners.”
“While the name will usually stay the same should 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.”
In addition to the financial pressure on retailers as they approach one of their quarterly rental payments around 25 December, more businesses in the sector are likely to be at risk this year given the recent removal of the government’s pandemic business support measures which has taken away a safety net that may have helped to keep many retailers in business over the last 18 months.