When a high street retailer enters administration, it is currently not required to honour vouchers or gift cards. Consequently customers often simply become unsecured creditors and do not receive any recompense. It is solely a matter of discretion for the administrators as to how they deal with such gift cards and often will depend upon the extent to which the company is able to continue trading. For example in the recent BHS administration, where the business was continued, the administrators accepted gift cards as payment for up to 50% of the transaction value. However, in many cases customers are left out of pocket.
In response to a number of recent high profile retailer administrations, the Law Commission has produced a consultation paper containing proposals for increased protection for consumers in administration. The proposals are available in full here (http://www.lawcom.gov.uk/project/consumer-prepayments-on-retailer-insolvency/). In summary, we have set out below some of the headline proposals.
- Greater transparency about chargeback protection. A consumer has a right to claim against a credit card company for any payments, ranging from £100 to £30,000, made using his/her credit card under section 75 of the Consumer Credit Act 1974. Chargeback protection is often also available on purchases below £100 or on those made by debit card on a voluntary basis. The proposals provide that insolvency practitioners, card issuers and voluntary chargeback schemes should provide clear guidance on when the chargeback will actually apply.
- Savings schemes to offer increased protection for consumers in the event of insolvency. For example, where consumers pre-pay into Christmas savings clubs (such as Farepak, which collapsed in 2006), it is proposed that such consumer funds be protected by a trust arrangement or through insurance.
- Preferential status for consumer creditors who have pre-paid in excess of £100 for goods or services in the 3 months leading up to insolvency and where no other protection is afforded. In practice, this means that preferential status will largely be limited to payments made by cash, cheque or bank transfer as payments made by debit/credit card already benefit from chargeback protection. Such creditors would rank after employees, but in priority to floating charge holders.
- Clarification of when title to goods will pass. It is proposed that for specific goods, ownership should pass to the buyer on conclusion of the contract. For unascertained and future goods, ownership should pass to the buyer where goods have been “identified” for the fulfilment of that contract (i.e. labelled or segregated).
While some of the proposals have been welcomed as affording greater protection for consumers, some argue that the proposals go too far; for instance, by affording preferential status for consumer creditors, floating charge-holders and ordinary unsecured creditors (including business and trade creditors) will be prejudiced.
Further commentary by R3 on the proposals is available here (https://www.r3.org.uk/index.cfm?page=1114&element=27326&refpage=1008).