Wokingham shoppers giving gift cards to family and friends for Christmas are being warned they need to understand the potential risks for buying them – and that includes losing their money if a retailer goes out of business.
Garry Lee, chair of insolvency and restructuring trade body R3’s Southern and Thames Valley Region, says: “Gift cards are really convenient and can be easily bought both in stores and online. It is vital consumers in Wokingham understand how they can be affected if the retailer that offers them enters an insolvency process.”
If a store enters an insolvency process, and is still trading, or has undergone a pre-pack administration, the vouchers may no longer be valid.
“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,” Mr Lee said.
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.
Mr Lee, an associate director at accountancy firm Smith & Williamson, 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.
“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.”
And if a retailer changes hands, it is up to the new owner as to whether they will honour gift cards and vouchers issued prior to the administration.
“Al 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,” Mr Lee said.
Financial pressures on retailers can also be increased by the rental payments due to their landlords around December 25, which is one of four Quarter Days in each year on which these bills are due to be settled.
