Receivers were called in last week. Photo: Josh Robenstone Senator Nick Xenophon is keen to see changes to the law to protect consumers. Photo: Christopher Pearce
Retailers would place money from gift cards sales in escrow to protect customers in an event of a corporate collapse – like that of Dick Smith – under changes to the law demanded by Independent Senator Nick Xenophon.
In the wake of electronics retailer Dick Smith’s collapse last week, Senator Xenophon has called for legislative changes so that customers with gift cards and who have paid deposits are not left in the lurch. This is in addition to calls for a senate inquiry.
He has proposed a three-pronged approach. Firstly, there should be an obligation on external administrators to honour gift cards and to give customers greater priority.
At present, receiver Ferrier Hodgson considers gift card holders – some holding ones worth $1200 – as unsecured creditors of the group.
Secondly, money from gift card sales and deposits should be kept in a separate account.
“It won’t be unfair, it won’t be burdensome for companies to have that. It’s important for this money to be held in trust so that if a company does go belly-up, consumers are no doubt protected,” he said.
And thirdly, directors of companies that collapse should be personally liable for the value of gift cards and deposits, including lay-by.
In response, Minister for Small Business and Assistant Treasurer Kelly O’Dwyer said all the facts should be carefully reviewed before proposing changes to the law.
“As a starting point, ASIC is working closely with the Voluntary Administrators and the Receivers to get to the bottom of the matter and establish what the rights of the gift card holders are,” she said.
Senator Xenophon called on Ferrier Hodgson to honour Dick Smith gift cards, saying it would remove consumer uncertainty at a time when stores need ongoing sales.
Dick Smith announced on Tuesday that advisory firm McGrath Nicol had been called in as administrator, while Ferrier Hodgson was appointed as receiver to try to claw back debt owed to the company’s creditors.
Questions abound as to how Anchorage Capital Partners was able to purchase the 393-store chain for a bargain price and float it on the stock exchange a year later for $520 million.
Senator Xenophon foreshadowed the terms of reference for the inquiry to the Senate Economics References Committee, saying aspects it would “forensically examine” include “the conduct of private equity firms during such takeovers”, “the adequacy of current laws that provide oversight for such deals”, and “whether current accounting standards provide enough information to the market place”.
He said the senate inquiry would look at whether the n Securities and Investments Commission and the n Competition and Consumer Commission need additional powers.
“ASIC needs to tell us whether their accounting standards are adequate or whether it has adequate powers and resources to look at this. We also need to look at the whole issue of private equity,” he said.
Shadow Minister for Competition Andrew Leigh said Labor was open to considering ways to improve consumer protections in the event of bankruptcy.
“We would need to look more closely at the changes Senator Xenophon has proposed to see what impact they may have beyond the specifics of this case,” he said.
Senator Xenophon plans to write to the Turnbull government, urging it to support and adopt the three-point plan.
He believes amendments to both the Corporations Law and the n Consumer Law are required.
“These proposed reforms, which will be contained in legislation I will be introducing into the Senate next month, will finally give consumers the protection they deserve,” he said.
“The reforms, if passed, will also have the effect of strengthening consumer confidence in gift cards which has been shaken with this collapse.”
Fairfax Media has contacted Ferrier Hodgson for comment.