What happens to gift cards when a business goes bust?

Unsecured creditors

If a retailer goes into voluntary administration, receivership or liquidation, an external administrator will be appointed to manage the business. That administrator will try and save the business, sell it or wind it up and look to pay back its debts.

As a gift card holder, you are an unsecured creditor. When you bought a gift card, it’s like you gave the store a loan – they took your money for goods or services that you could claim later.

A secured creditor, such as the business’ mortgage bank, gets priority.

You can register as an unsecured creditor with the administrator to try to get back some money at the end of the process. However, there’s unlikely to be any money left once the business has paid back its other, bigger debts.

If the business is sold, the new owner may not take on the old business’ liabilities.

Can they make you spend more to use your gift card?

Lately, we’ve heard of some stores making gift card holders spend more in store to use their gift cards.

Administrators aren’t legally obliged to honour gift cards. They may do this to try and claw back some money for the business. While it’s disappointing when you’re in that situation, it’s arguably better to spend more than lose the value of your gift card completely.

The rules could be about to change

Back in 2017, we called for changes to insolvency laws so gift cards wouldn’t become worthless when a business became insolvent but continued to trade. Since then, Cabinet has approved changes to make insolvency practitioners honour at least 50% of the value of gift cards. But we’re still waiting for this to become law.

When we asked the Ministry of Business, Innovation and Employment for an update, we were told the change will be made as part of other improvements to insolvency law.

Here’s a 1 News story we helped with on this topic.

Our advice for buying gift cards

• First, avoid buying someone a gift card. Cash might seem less thoughtful, but it’s also a less risky way to treat someone.
• If you really don’t want to give cash, choose a gift card that can be used at more than one business. That way, there are still options for spending it if one of the businesses gets into trouble.
• Pay by credit card. If the gift card becomes worthless soon after you’ve bought it, you can ask for a chargeback with your bank.

Our advice if you receive a gift card

• Use the gift card as soon as possible.
• If you hear rumours the gift card’s business is having money troubles, spend your card before it’s too late.