• Sat. Jun 22nd, 2024

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R3 North East chair Chris FergusonR3 North East chair Chris Ferguson

North East shoppers giving gift cards to family and friends for Christmas need to make sure they understand the potential risks involved with buying them – and should be aware that they could lose their money if a retailer goes out of business.

That’s the advice from Chris Ferguson, North East chair of insolvency and restructuring trade body R3, as the festive season gets into full swing and greater numbers of shoppers start hitting the region’s High Streets.

He says: “Gift cards are very convenient and can be easily bought both in stores and online, but it is also vital consumers understand how they can be affected if the retailer that offers them enters an insolvency process.”

“Customers with gift cards or vouchers from any retailer which enters into an insolvency procedure and is either continuing to trade, or has gone through a pre-pack administration, must check with store staff to see whether they can still redeem them.

“If this is possible, 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.”

A number of well-known retailers that have gone into administration or liquidation over recent years have been unable to honour gift cards that were been bought before their insolvency process began, with shoppers losing their money as a result.

Other cases have seen failing firms refusing to honour gift cards after a given point in their insolvency process, while the wider retail sector is continuing to face severe trading difficulties.

Chris Ferguson, who is head of recovery & insolvency at Gosforth-based RMT Accountants & Business Advisors, 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 order of priority set out in law, and unfortunately customers are just one of many.

“Insolvency practitioners overseeing a retail insolvency have to make their decisions about 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.

“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 the decision of whether or not gift cards and vouchers issued prior to the administration will still honoured is up to the new owner.

“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.”