Investment bank proposes solution.
Australia’s largest investment bank, Macquarie Group, has backed a proposal to secure funds from the sale of gift cards in a trust to ensure customers are not left empty-handed. The suggestion was made after customers were left with thousands of dollars worth of unredeemable Dick Smith gift cards.
Macquarie Group has said that establishing separate trusts for funds from gift cards may be a way to protect their holders in the event of a collapse.
“If the trust was properly established and administered, the cardholder may have a much higher likelihood of being repaid in the event of insolvency,” Macquarie global head of corporate communications and investor relations, Kristine Neill, wrote in a submission to a Senate inquiry.
“These types of structures are used effectively in the real estate and legal professions. In principle, it may provide an appropriate safeguard for consumers.”
Neill said the benefit of protecting consumers would have to be weighed against the burden on retailers, including the cost of managing and establishing the trust. Retailers would also not be able to use the money as working capital, increasing the cost of running the business, Neill said.
Not a straightforward exercise
Turnaround Management Association Australia (TMAA) said it would be onerous on retailers and suggested the money could still fall into the hands of secured creditors instead of being returned to holders of gift card.
It said while trusts were generally excluded from the assets of a collapsed company, creditors could take priority over the money.
“The determination of priority with respect to the proceeds of a gift card trust fund would not be a straightforward exercise,” the association said.
Insolvency firm KordaMentha said most companies in administration did honour gift cards and Dick Smith was an exception.
It said the trust arrangement had some merit, but warned it could be costly to implement. Both KordaMentha and TMAA ruled out making administrators of collapsed retailers obliged to honour gift cards or directors made liable for their value.
“It is hard to argue that gift card holders or layby holders should be entitled to priority over an employee or other unsecured creditors,” KordaMentha director Mark Korda wrote.