Gift vouchers and insolvency

When you buy a gift voucher, you enter into a contract. You give the retailer money in exchange for a promise to give back an equivalent amount in physical products in the future.

Vouchers can become worthless if the retailer becomes insolvent, because they might not have any money to pay you back – but the exact outcome depends on the retailer’s situation.

If the retailer goes into administration (and so tries to avoid collapse) it can continue to trade, but the administrator can and often will refuse to accept the voucher. If the retailer goes into liquidation (which closes it down) its assets will be distributed in accordance with a defined order of priority. Holders of gift vouchers rank as unsecured creditors, who are low on the list of priorities, so they often get little or nothing.

Similar concerns apply to other types of consumer prepayment. For example, a consumer may pay a cash deposit when ordering an expensive new sofa. If the business then goes into administration or liquidation, the consumer may not receive the sofa and may also lose their deposit.

If a consumer makes a prepayment of over £100 using a credit card, they may be able to get back their money from their lender. If they use a credit or debit card, they may be able to make a “chargeback” claim to do this. But if they use cash, cheque or bank transfer, their only option is likely to be to make a claim with the administrator or liquidator and hope there will be enough assets in the insolvent company to pay them back, but there rarely is.

In 2016 the Law Commission recommended making changes that would provide more protection to consumers. The Government responded in December 2018, noting that it would consult on new laws to protect Christmas savers and to change the rules on when property passes to consumers. But it rejected the Law Commission’s proposal to move some consumer prepayments up the insolvency priority list.