Stephen Lewis, Laura Burgoyne & Conor McLaughlin on proposals for greater consumer protection on retailer insolvency
When the Christmas savings club Farepak collapsed in 2006, it owed £37m to financially vulnerable consumers, who rank as unsecured creditors on insolvency. Subsequently, the failure of high street retailers such as HMV and Land of Leather has brought the issue to the fore: what happens to gift vouchers and deposits when a retailer ceases to trade?
Consumer loss
The Law Commission examined 20 well-known high street insolvencies occurring between 2008 and 2014, as well as a number of smaller retailers. It found that most gift vouchers holders were not significantly disadvantaged when the issuing retailer became insolvent. Depending on commercial and legal considerations, administrators may decide to accept gift vouchers during a period of trading in administration, and the amounts held tended to be relatively small (for example, an average of £8.12 in the case of Zavvi).
Where prepayments took the form of deposits for pre-ordered goods, the value of individual prepayments and the total amount of consumer funds held by retailers tended to be greater: £25m in the case of furniture retailer
