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Yorkshire insolvency expert highlights the risks of giving gift cards at Christmas

Eleanor Temple, Yorkshire chair of insolvency and restructuring trade body R3

As the festive season gets into full swing, Yorkshire shoppers planning to give gift cards to family and friends for Christmas need to make sure they understand the potential risks involved in buying them warns Eleanor Temple, Yorkshire chair of insolvency and restructuring trade body R3 and a barrister at Kings Chambers in Leeds.

Ms Temple says that consumers must be aware that they could lose their money if a retailer goes out of business. She continues: “While gift cards are really convenient and can be easily bought both in stores and online, itlso vital consumers understand how they can be affected if the retailer that offers them enters an insolvency process.

“If the retailer which has entered an insolvency procedure is either continuing to trade or has gone through a pre-pack administration, customers will need to check with store staff whether they can still redeem them. If the store is still honouring them, it’s generally a good idea to spend them sooner rather than later, particularly as there’s a risk that 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 bought before their insolvency process began, with shoppers losing their money as a result.

In other cases, failing firms have refused to honour gift cards after a given point in their insolvency process.

With several well-known high street stores having entered insolvency during the pandemic and the wider sector continuing to face severe trading difficulties, consumers would be well advised to take these risks into account.

Ms Temple 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 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.”

She adds: “In the case 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. Although the name above the door may have stayed the same, legally it is a new and distinct entity and has no obligation to allow gift cards sold by its former incarnation to be used.”

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, while the recent removal of the government’s pandemic business support measures has taken away a safety net that may have helped to keep many retailers in business over the last 18 months.