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Disclaimer: Educational purposes only. Not legal advice. Consult a qualified NZ legal practitioner for your specific circumstances.

SimplifiedLaw.co.nz
consumer

What to do if a store goes bust before you use your gift card

Key Takeaway

If a store goes out of business before a gift card is used, the cardholder typically becomes an unsecured creditor in the insolvency process. New Zealand's consumer laws, such as the Consumer Guarantees Act 1993, generally do not provide specific protection for the unredeemed value of gift cards in these situations. The Fair Trading Act 1986 may offer recourse if the gift card was sold through misleading or deceptive conduct.

Gift Cards and Store Insolvency in New Zealand

When a store ceases trading due due to insolvency (meaning the business is unable to pay its debts as they fall due) and enters into liquidation (the process by which a company is brought to an end, and its assets are distributed to creditors) or receivership (a process where a receiver is appointed to take control of a company's assets, usually by a secured creditor, to repay a debt), customers holding unredeemed gift cards may wonder about their rights. In New Zealand, the situation for gift card holders is primarily governed by general insolvency law, with limited specific protections under consumer legislation.

General Position: Unsecured Creditors

When a business becomes insolvent, individuals holding unredeemed gift cards are generally considered unsecured creditors. An unsecured creditor is a person or entity that is owed money by a business but does not hold any security over the business's assets. This means they are typically among the last to be paid after secured creditors (e.g., banks with mortgages), employees, and preferential creditors have been satisfied during the liquidation or receivership process. Due to this priority order, it is often unlikely that consumers will recover the full, or any, value of their unredeemed gift cards [Source: Companies Act 1993, Part 16 and Part 7; Receiverships Act 1993, s 29].

Consumer Guarantees Act 1993 (CGA)

The Consumer Guarantees Act 1993 (CGA) provides guarantees for consumers (a person who acquires goods or services ordinarily acquired for personal, domestic, or household use or consumption, and not for resupply in trade or to consume in the course of a manufacturing or production process [Source: Consumer Guarantees Act 1993, s 2]) when they purchase goods or services from a supplier in trade. While the CGA offers significant protections for faulty products or services, it generally does not directly address the issue of unredeemed gift cards when a business becomes insolvent.

The CGA's guarantees apply to goods supplied [Source: Consumer Guarantees Act 1993, s 6] and services supplied [Source: Consumer Guarantees Act 1993, s 28]. An unredeemed gift card represents a promise for future goods or services, not the supply of goods or services themselves. Therefore, if no goods or services have been exchanged for the gift card value before insolvency, the CGA's specific guarantees regarding acceptable quality or fitness for purpose do not typically apply to the monetary value held on the card itself.

Fair Trading Act 1986 (FTA)

The Fair Trading Act 1986 (FTA) prohibits misleading and deceptive conduct in trade. While it does not guarantee the value of a gift card in an insolvency scenario, it may offer potential recourse if the gift card was sold under specific circumstances.

  • Misleading or Deceptive Conduct: A business must not, in trade, engage in conduct that is misleading or deceptive or is likely to mislead or deceive [Source: Fair Trading Act 1986, s 9]. If a business sold gift cards when it knew or ought to have known it was on the verge of insolvency and would not be able to honour them, this could potentially be considered misleading or deceptive conduct.
  • False Representations: A business must not make false representations (claims that are untrue or misleading) in connection with the supply of goods or services. This includes false representations about the nature, characteristics, uses, or benefits of goods or services [Source: Fair Trading Act 1986, s 13(a)]. Selling a gift card implies an ability to redeem it for goods or services. If the business lacked this ability due to impending insolvency at the time of sale, and this was known, it might constitute a false representation.

Proving that a business had prior knowledge of its impending insolvency at the time of a gift card sale can be challenging. However, if a contravention of the FTA is established, a court can make various orders, including directing the payment of the amount of loss or damage suffered by a person [Source: Fair Trading Act 1986, s 43(2)(d)].

What Steps Can Be Taken?

If a business that issued a gift card goes into liquidation or receivership, the cardholder may:

  1. Contact the Liquidator or Receiver: The liquidator or receiver is the person or entity appointed to manage the insolvent business's affairs. Their details are usually publicly available through the Companies Office website. Cardholders can contact them to register their claim as an unsecured creditor [Source: Companies Act 1993, Part 16; Receiverships Act 1993, Part 3]. They will be required to provide proof of the gift card's purchase and value.
  2. Monitor the Insolvency Process: The liquidator or receiver will provide updates on the company's financial situation and the likelihood of any returns to creditors.

It is important to understand that even with a successful claim under the FTA, recovering funds can be difficult if the business has no assets left to pay creditors.

When to Seek Independent Legal Advice

If a consumer has lost significant value due to an unredeemed gift card from an insolvent business, particularly if there is reason to believe the gift card was sold under misleading circumstances, seeking independent legal advice is advisable. Consumers can contact Community Law Centres for free advice or consult a private lawyer to understand their specific rights and the feasibility of pursuing a claim.

Key Resources