Gift Vouchers and Insolvency

Michael McCann Excerpts

Tuesday 12th February 2013 Commons Chamber

[Mr Michael McCann (East Kilbride, Strathaven and Lesmahagow) (Lab)]

I beg to move,

That leave be given to bring in a Bill to amend the Insolvency Act 1986 to make purchasers of gift vouchers preferential creditors during the administration of a company; and for connected purposes.

Christmas has been described as the season when we buy this year’s gifts with next year’s money. HMV nearly rewrote that proposition, as the season when we buy this year’s gifts with next year’s money, and end up with no gift. I bring forward this proposal for consideration in the light of the recent experience of all our constituents in relation to the well-publicised case of HMV and gift vouchers. For a short time HMV refused to honour gift vouchers. That position was quickly reversed by the receivers after a public outcry, and gift vouchers will now be accepted, but it led me to look into the matter in more detail.

The issuing of vouchers is widespread in the retail world. Last month we sadly saw the demise of another respected company in our country. The photographic firm Jessops also issued gift vouchers, and on the administrators’ website, the following message is displayed:

“If you are owed money by Jessops (e.g. due to vouchers not honoured, deposits, returns, pre-paid courses etc) you can register an unsecured creditor claim with the administrators using the form below. Please note, there is no guarantee that there will be any payment to unsecured creditors of the company. If there is a dividend paid, this will be in many months time and is likely to be only a small proportion of the claimed amount.”



The last two sentences of the message are emboldened, with the intention, it appears to me, to deter claims. The message is that people can claim if they want, but they probably will not get anything for months, and even if they eventually do, it will be peanuts.

Jessops and HMV are by no means the only companies in this country to issue vouchers. Every high street or out-of-town shopping chain has its own scheme. Let us remember that in 2012 other high street names went to the wall, including Comet, JJB Sports, Game, Peacocks and Blacks Leisure. Supermarkets now have racks of vouchers that shoppers can choose from. Some of the names have had difficulties in the past, but are thankfully back in business and offering vouchers to the public. We might expect that names such as Marks and Spencer will be with us for ever, but who would have predicted a year ago what would happen to some of the well-known names that I mentioned earlier?

HMV, for example, was a solid high street name, established in 1921, with its first store in Oxford street, which grew to a business of 235 UK stores, a number of live music venues and around 4,350 UK employees. That is a key point, because if HMV can go under, so can any of the other big names that invite us to part with our money in return for a promise that they will honour future purchases that we wish to make. The HMV vouchers were estimated to be worth around £7 million, and the company’s debts totalled £176 million.

The gift voucher industry is worth a reported £4 billion per year, and in the first half of last year that business grew by around 5%. That is a significant contribution to the retail sector, worth around £220 billion a year, and means that consumers are now advancing the sector around 2% of the value of sales in the form of prepaid vouchers. That is clearly a benefit to the cash flow of retail businesses, but it raises the question of what security consumers get in return. What guarantee do they get that, if they part with their money in this way, they are going to be in any stronger position than those punters who on Derby day a few years ago placed their bets on the hill with a certain John Batten, only to find that he had run off with all their money, without paying any bets out?

The law on insolvency does not seem to provide any protection at all. My aim in introducing the Bill is to strengthen the rights of consumers in this area so that if and when companies unfortunately fail, consumers are not left high and dry, or at the mercy of administrators who decide whether or not to honour the commitments entered into when those vouchers were sold. We should remember, too, that most vouchers are bought as gifts for family members, and it is particularly unfortunate that in those circumstances a gift meant to mark a birthday or other significant event ends up disappearing into the miasma of administration.

It has been pointed out that there must have been people in charge of the companies concerned who knew that the writing was on the wall before the final collapse, and who must also have known that there was a very strong possibility that vouchers would not be honoured, yet the companies continued to sell them. Leaving aside the morality of such decisions, one must consider the negative impact on the rest of the industry. The mere suggestion of this amendment to the legislation has prompted a response from those involved in insolvency, which would give greater consideration to consumer protection. The Association of Business Recovery Professionals, known as R3, has been in touch with me with suggestions for ways in which consumers could be protected in the event of a business collapsing, including purchase of protection bonds by the company, putting money into a separate client account, or including responsibility for vouchers as part of the transfer of business obligations.

R3 does not seem to have come down in favour of any of these proposals, and even if it does back one or more of them, it will take some time for the proposals to come into effect, but something should be done now. This amendment to the legislation would provide for an additional category of preferential creditors who, in the winding up of any company, go higher up the queue for the distribution of any remaining assets. Those categories currently include a range of tax, excise and national insurance liabilities, and remuneration of employees, including holiday pay. But the ordinary consumers, who have given their money to the company in good faith, are not currently included in the list of preferential creditors.

That seems a regrettable omission, no doubt accounted for by the considerable growth of this form of payment in the past decade or so. Certainly when the Insolvency Act was conceived in 1986, the voucher industry was barely in its infancy, and may not therefore have seemed a sufficient issue to be included in the priority list. However, that is no excuse for failing to prioritise the issue now. By way of analogy, only last week, the Trading Standards Institute announced that its approved codes of practice for consumers will require retailers

“to ensure that the gift cards…are protected in the event that the business fails.”

The TSI has accepted that there has been a lacuna in its provisions on vouchers and we should also accept that the provisions on insolvency need to be updated to reflect the current retail environment.

I seek the support of the House in bringing forward legislation that will rectify the situation. The advantage will be greater confidence that, when the inconceivable happens, there will be some protection for the unfortunate consumer. Administrators may well become more willing to see vouchers honoured, which should help to restore confidence in the sector.

I do not claim that this measure alone will provide all the necessary guarantees to reassure those who buy vouchers in good faith, but it would be a start. The voucher industry itself needs to do more, but a modest change in insolvency legislation could provide a fillip to the economically pressed British public. It will reflect changes taking place elsewhere—in trading standards codes, for example—and show that the House takes seriously the concerns expressed by constituents of Members from all parties about the issue.

Question put and agreed to.

Ordered,

That Mr Michael McCann, Pauline Latham, Jeremy Lefroy, Steve Rotherham, Hugh Bayley, Mr Ronnie Campbell, Mr Ian Davidson and Chris White present the Bill.

Mr Michael McCann accordingly presented the Bill.

Bill read the First time; to be read a Second time on Friday 22 March 2013, and to be printed (Bill 136).