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Dick Smith stops accepting gift cards

Direct quote from the PDF :

He also stated that due to the financial circumstances of the Group, unfortunately, outstanding gift vouchers cannot be honoured and deposits cannot be refunded. Affected customers will become unsecured creditors of the Group.

All people who bought Dick Smith gift cards now have dead money because the store said they won't accept gift cards. Is this a legal action?

  • In the UK it is certainly legal if they are being liquidated. An example would be Zazzle. In this example the debtors decided to just remove items from the store in frustration. Here in the UK you would be lucky to get much back in value. – Terry Jan 7 '16 at 8:15
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Sadly, in the case of insolvency, yes. Insolvency is when a company is unable to pay its debts as and when they fall due. When the directors believe their company is in this state it is their duty to apoint an administrator.

Dick Smith passed into external administration a few days ago. At that point all creditors (including people who have gift cards/paid deposits as well as suppliers and employees) are no longer entitled to payment except in accordance with the insolvency provisions of the Corporations Act.

From that date the administrator is responsible for any future debts but not anything in the past. The administrators have indicated that Dick Smith will continue trading while they look for a buyer of the business.

Let's assume (and these are purely hypothetical) that Dick Smith owes $50m, say $10m to employees (leave, severance, superannuation etc.), $20m to secured creditors (banks etc.) and $20m to unsecured creditors (including gift card holders and the tax office). If Ferrier Hodgson are successful in selling the business for say $36m then the money gets distributed like this:

  • $1m (say) to the administrator for doing their job
  • $10m to employees
  • $20m to secured creditors
  • $5m to unsecured creditors or 25c in the dollar.

This would be an extremely good result for unsecured creditors. A far more likely outcome is nothing or fractions of cents in the dollar.

Of course, this dividend, if it comes, will be 2-5 years from now and only to people who have proven their debt.

The moral is: don't lend money to people who can't pay it back. Oh yeah, buying a gift card is lending money, didn't you know?

  • If the company know about the insolvency situation, before issuing the gift card then you may have a case. They do not have to have filed for bankruptcy, only to know the state of the company. – ctrl-alt-delor Jan 9 '16 at 15:35
  • I think that you may be on the list of investors ahead of the banks that demand interest. Certainly ahead of unsecured investors (share holders). – ctrl-alt-delor Jan 9 '16 at 15:36
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    No, you are an unsecured creditor and rank behind the secured creditors - the banks are not as silly as you; they insisted that the retailer give security before advancing the money. You do rank ahead of shareholders who are not creditors of any kind. – Dale M Jan 9 '16 at 19:56

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