North East shoppers holding gift cards from any retailer which has entered an insolvency process should try to use them sooner rather than later to reduce the risk of losing out.

That’s the view of Andrew Haslam, North East chair of insolvency and restructuring trade body R3 and head of the Newcastle office of specialist business advisory firm FRP Advisory LLP.

He says: “It is understandably frustrating when a retailer won’t accept gift cards during an administration, but the administrator is obliged to look after all creditors’ interests according to a strict hierarchy set out in law, and unfortunately customers are just one of a number of creditors that a retailer has.

“Administrators 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, which is the administrator’s primary responsibility, and there is no guarantee that any insolvent retailer which is continuing to accept them will be maintained 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 – again – it is 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 with no obligation to allow gift cards sold by its former incarnation to be used.”

Andrew Haslam continues: “While gift cards are convenient, it is really important that consumers think about the risks of using them as they aren’t without their downsides.

“Customers with gift cards or vouchers from a retailer which has entered administration and which is either continuing to trade, or which has gone through a pre-pack administration, should check with store staff whether they can still redeem them. If this is possible, it’s a good idea to do so sooner rather than later, especially as stores may be earmarked for closure.

“There is no obligation for administrators to honour refunds, although in practice this will be decided on a case by case basis. However, where goods are found to be faulty and are returned, the consumer still has a statutory right to a refund.”

For more information, see R3’s guide to consumers’ rights regarding gift cards, vouchers, and deposits in insolvency: http://bit.ly/R3VouchersInsolvency