Member Article

Risk With Christmas Gift Cards Highlighted By North East Debt Expert

North East Christmas shoppers buying gift cards for family and friends need to make sure they understand the risks involved with purchasing them - and that they could lose their money if a retailer becomes insolvent.

That’s the advice from Alexandra Withers, North East chair of insolvency and restructuring trade body R3, as more shoppers return to the region’s High Streets after the lockdown to search out Christmas gifts and retailers look to maximise their festive sales.

In several previous instances, retailers that have gone into administration or liquidation have been unable to honour gift cards that were been bought before it happened, with shoppers losing their money as a result, or have stopped honouring them at a given point as the insolvency has progressed.

With a number of well-known stores entering insolvency during 2020, and with many others facing severe trading difficulties, Alexandra Withers is advising regional shoppers to do all they can to not leave themselves open to losing their money.

She says: “While gift cards are convenient and can be easily bought both in stores and online, it is really important for consumers to make sure they understand the risks of using them as they aren’t without their downsides.

“Customers with gift cards or vouchers from any retailer which enters insolvency 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 do so sooner rather than later, especially as stores may be earmarked for closure or the situation across the whole organisation may change without warning.”

Recent research by property firm Savills found that 4,158 retail and leisure units had been through an insolvency procedure for the seven months of 2020, compared to 4,283 units throughout the whole of last year, while industry forecasts are suggesting a very significant rise in business insolvencies in 2021.

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

Alexandra Withers, who is an associate solicitor in the insolvency department of Short Richardson & Forth Solicitors in Newcastle, continues; “It is understandably frustrating when a retailer won’t accept gift cards during an insolvency process, but 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.

“Insolvency practitioners overseeing a retail insolvency 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.

“Accepting large volumes of gift cards could also hurt other creditors or make business rescue harder to achieve, and there is no guarantee that any insolvent retailer which is continuing to accept them will continue to do so indefinitely.

“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 it is once again up to the new owners of the retailer whether or not to honour gift cards and vouchers issued prior to the administration.

“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.”

This was posted in Bdaily's Members' News section by Julian Christopher .