What exactly are gift cards and how do they work? They’re usually credit-card sized plastic cards which are preloaded with money – they can generally be spent at a single retailer online or in stores, although some can be spent at multiple retailers.
They’re increasingly popular, too – research from the UK Gift Card and Voucher Association found 57% plan to give a gift card or voucher this Christmas.
That’s nice. A gift card makes a much nicer present than cold hard cash, doesn’t it? Er, no, not really. You may not like giving cash as a Christmas present, but it’s a much better way to give than purchasing a gift card. Cash is less risky, more flexible and guarantees the person you’re giving to will be able to spend the amount you’re giving – even if their favourite store goes under.
But we’re out of the recession. Surely there’s little chance of a retailer going bust? It’s easy to say that, but in fact a number of large high street companies have gone into administration in recent years – Phones4U, La Senza and Kiddicare were the latest casualties in 2014.
So what happens to gift cards/vouchers when a retailer goes bust? Insolvency law means it’s perfectly legal for a retailer to refuse to accept gift vouchers and gift cards if it goes into administration. (See our Administration Help guide for full on your rights when this happens.)
This is because the retailer no longer exists in the same form as it did when it sold you the gift card or voucher. So it doesn’t have to honour all its past obligations.
Ultimately the decision is down to the appointed administrator, not the retailer. And even if you lodge a claim with the administrator (you’ll be what’s known as an “unsecured creditor”), you’re only one person in a long line of people owed money by the firm – it’s not guaranteed you’ll ever get the money back.
The Association of Business Recovery Professionals says that once an administrator’s appointed, it has a statutory duty to maximise returns to business creditors, such as banks, giving them priority over individual customers and employees.
What does an administrator consider when deciding whether gift cards should continue to be accepted? The administrator’s decision is based on a number of factors, including how many gift vouchers or gift cards are in circulation, the impact of accepting gift cards on other creditors, the likelihood of achieving a rescue package for the retailer and the relationship between the business and its customers.
Accepting vouchers could ‘hurt’ other creditors by reducing the value of assets available to them. It could also deter potential buyers of the firm who may not wish to take on the obligation to honour vouchers.
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