With Dick Smith being placed into voluntary administration and receivership last week, Independent Senator Nick Xenophon has proposed a number of changes to better protect customers who have purchased gift cards, or paid deposits (including lay-bys).  The proposal comes as Dick Smith’s receivers have indicated that they will leave gift card holders and those who have paid deposits to line up as unsecured creditors, forcing consumers to seek remedies through their place of purchase or credit card company.

Xenophon’s proposal would require changes to the Corporations Law and the Australian Consumer Law to ensure that:

  • external administrators be required to honour gift cards and give customers greater priority;
  • retailers place money from gift cards sales or deposits in a separate account; and
  • directors of companies that collapse should be personally liable for the value of gift cards and deposits.

This would represent a significant change from the current legal requirements in each respect.  It would also see customers prioritised over employee entitlements (which can be significant for long serving employees) and over creditors who have contributed in a more significant and long term manner to the viability of the business, which may be difficult to justify in many cases.  On the other hand, creditors are likely to be closer to the company and in a better position to judge their financial position, and have opportunities to protect themselves through cash-on-delivery terms or insurance which are not available to gift card holders.

Minister for Small Business and Assistant Treasurer Kelly O’Dwyer said all the facts would be carefully reviewed before proposing changes to the law, while Shadow Minister for Competition Andrew Leigh said Labor was open to considering ways to improve consumer protections in the event of bankruptcy but would “need to look more closely at the changes… to see what impact they may have beyond the specifics of this case.”

Certainly, any priority of gift card holders over outstanding employee entitlements would need to be given careful consideration.  We will watch this space with anticipation, particularly as the Dick Smith case develops!