Gift cards have solved a gift crisis with great ease countless times. It’s better than giving cash, right? Maybe not, as was recently highlighted by the appointment of administrators to Dick Smith Electronics Pty Ltd.
Good practice is to treat gift cards like cash. However they are not cash but a form of credit. As well has having an expiry date (unlike cash), gift cards are only a promise by the store to exchange goods up to the value of the card. Dick Smith gift card holders were told that the administrators would not honour gift cards. Instead, cardholders were invited to submit a proof of debt along with all the other unsecured creditors – because that’s what a gift card holder is, an unsecured creditor.
Also counted as “unsecured creditors” are: lay-by customers, customers who have paid a deposit but not taken goods and customers who have purchased online but goods not delivered before the administrator’s appointment. (Those point of sale extended warranties are also of no value unless provided by an unrelated party).
Unsecured Creditors stand behind secured creditors, employees and the tax office in order of priority and then share what’s left in the kitty in their respective proportions. A return to creditors of 8 cents in the dollar (which seems unlikely in a Dick Smith insolvency) would see a $50 gift cardholder recover $4.
So, we don’t call them “gift cards” any more. Instead you are giving “Unsecured Proof of Debts up to the nominated value”. Subject to the expiry date, of course. Maybe grandma knows best when she slips hard currency into a birthday card?