Gift vouchers are often considered an easy and convenient option when purchasing gifts for friends and family. For the relative with unusual taste, the friend who lives in another part of the UK or the husband and wife to be who already have everything, a gift voucher may appear to be the ideal gift. But what happens if, before the recipient has the opportunity to redeem the voucher, the relevant retailer becomes insolvent?
In terms of current insolvency law consumers are ordinary creditors who rank at the bottom of the statutory hierarchy of creditors.
They will not generally receive anything from the retailer's insolvency until secured creditors (typically banks) and preferential creditors (mainly employees) have been paid.
A recent Law Commission analysis of insolvent retailers found that distributions to ordinary unsecured creditors tended to be derisory and often less that 1p in the pound.
For example, in the case of JJB Sports' insolvency, the distribution was 0.34 pence in the pound, meaning that a consumer with a claim for £100 (representing the value of an unredeemed gift voucher) would have received 34p. In that case, and many others, it would seem that it is not worth the hassle of making a claim.
However, gift vouchers may not always be worthless on a retailer's insolvency. Insolvency practitioners may, at their discretion, continue to accept gift vouchers during a period of trading in the retailer's insolvency.
That was the case in the administration of HMV, which had £6.5m of vouchers in circulation when administrators were appointed. Although having initially announced that gift vouchers would not be accepted, after reviewing the financial position, HMV's administrators confirmed that gift vouchers would be redeemed at their full face value. In other cases, including BHS and Borders, gift vouchers were accepted as part payment.
If the purchaser of the gift voucher paid for it by credit or debit card then they (rather than the recipient) may be able to recover the value of the voucher through their card issuer. On realising that a gift voucher will not be honoured, the purchaser can contact their card issuer and request a refund. Where payment (or part payment) was made by credit card and the item cost between £100 and £30,000, Section 75 of the Consumer Credit Act 1974 renders the credit card provider jointly and severally liable with the retailer for any misrepresentation or breach of contract.
Where payment was made by credit or debit card, irrespective of the value of the transaction, the card schemes (e.g. Visa or Mastercard) provide a voluntary system of "chargeback" which allows the card issuer, on behalf of the card holder, to ask the merchant acquirer (the entity which processes card payments) to reverse a card payment. A recent Law Commission analysis of retailer insolvencies showed that card issuers have made substantial refunds to consumers following the collapse of major high street retailers.
So, if you are thinking about purchasing a voucher for an upcoming wedding or birthday, remember to pay with plastic and, if possible, club together with friends and family to meet the threshold required in order to obtain the benefit of the statutory protection afforded by the Consumer Credit Act. Or if, like me, you still have some Christmas or birthday vouchers, think about treating yourself sooner rather than later.
Otherwise, you may find yourself at the mercy of an insolvency practitioner or trying to find out whether your old Auntie Jeanie paid cash or card for the voucher in the first place!