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2016-01-doc2 Gift cards and insolvent retailers

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V&D gift cards, will its holders be left in the cold? On the last day of 2015 the District court of Amsterdam opened bankruptcy proceedings (‘faillissement’) against the Dutch retailer Vroom & Dreesmann (V&D). V&D is the largest and most historic Dutch department store chain, which entered the Dutch market in 1887 with a store in Amsterdam. It now has 67 stores all over Holland with a platoon of 10,000 employees. It is evident that the appointed insolvency office holders (‘curatoren’) are working around the clock to try to save the business, preferably via an acquisition of all its assets and liabilities in one go (a ‘restart’). In the newspapers mention is made of interest from Canadian, German and Chinese third parties.

In the light of these developments it is just a minor issue: what is V&D (so Vroom&Dreesmann, V&D does not mean venereal disease!) doing with its gift cards. It has been announced that V&D gift cards (as well as air miles) are not being accepted as payment anymore. We’re not talking peanuts here. These gifcards represent around 9.5 million euros. If the average value is € 40, that would mean over 2.3 million cards! The Dutch newspaper Het Financieele Dagblad reports a total of € 53 million debts owed to around 1800 creditors. It is clear that gift card creditors are not included in these numbers.

The decision not to accept gift cards was already made by the board of V&D during the moratorium proceeding (‘surseance van betaling’) that preceded the bankruptcy proceeding. The reason behind this strategy escapes me. Was V&D afraid of a ‘retail run’ (as in a ‘bank run’)? What is the justification of what seems an unjust enrichment? Here we are entering an other issue: ‘where is the money’? Is it just mingled with V&D’s other liquidity or are the amounts paid for the cards kept separately (in what way?) or held by a separate company? This is just one of the questions that lawyers are confronted with when talking about gift cards.

Unrelated to the V&D case, as far as I can see the legal qualification of a ‘gift card’ has not been addressed in Dutch legal literature. More generally, the alignment or tension between principles of insolvency and principles of consumer law has only scarcely been studied. A first matter is which contractual conditions apply, as in the Netherlands there are some strict rules for consumer protection in general sales law and for applicable general conditions to such contracts.

Other queries related to the topic of consumers’ prepayments and insolvency are for instance what happens with (i) payments – partially or in full – for goods or services, to be collected on delivered later, or with (ii) returned products and to possibility of issuing a credit note (I understand V&D does not accept returned products, which seem to violate mandatory consumer sales law).

The more principle matter would be whether, and to what extend, these types of transactions are excluded from the general principles underpinning most insolvency laws, i.e. the principle of paritas creditorum. There are other questions, e.g. what is the specific position of a consumer when the company, being its counterparty, during its insolvency is still trading. Here it would fit to discuss the consequences of insolvency on guarantees or warranties on goods purchased or services rendered. Back to gift cards or vouchers bought, but not accepted for use. Its legal nature is unsecure. Could a gift card be seen as a security (‘effect’) in the sense of a ‘negotiable financial instrument’ (‘waardebewijs’) in the meaning of the Act of financial supervision? Probably not, as the criterion here seems to be participation in a company’s capital. Or should the card (or a certain amount of its nominal value) receive a specific priority treatment instead of leaving the cardholder just being an unsecured creditor?

Any third party buying the whole V&D business would at one stroke gain a tremendous goodwill from its future customer base if it would decide to accept gift cards (for instance to a certain percentage). V&D’s administrators could also decide to honour gift cards (to a certain amount; under certain conditions), but they are bound by their legal task that any action taken by them should pass the test of being for the benefit of the body of creditors.

However, an example of such an action can be found in the USA, where some six years ago as a part of an overall settlement (proposed by the RadioShack stores), all gift cards also would be honoured at these stores, good for half of the purchase price of merchandise being bought. A holder of a $30 card could use it to cover an $8 of a $15 purchase, but could redeem the full amount of the card for a purchase of $60 or more. V&D gift cards represent some value, as on websites such as ‘marktplaats’ (‘Marketplace’) there seems to be a lively trade. Buyers provide around 10% or 20% of the value.

Is this ‘claim trading’ a sign of a leg up to a collective action? See my blog on such an action for the unsecured creditors of DSB Bank, at leidenlawblog.nl/articles/act-on-the-collective-settlement-of-mass-claims-applies-in-insolvency-cases.

One advice in the troublesome Dutch retail market seems appropriate: if you have gift cards, go to the shop now and don’t save it for a rainy day.