What happens to gift cards and loyalty points when companies go bust

With almost every Brit signed up to supermarket and high street reward schemes, shoppers are being urged not to stockpile points for Christmas or large purchases because they may not be protected if a company goes bust.

The warning could affect customers using schemes linked to major retailers including supermarkets, pharmacies and fashion chains.

According to insolvency specialist Molly Monks from Parker Walsh, many consumers wrongly assume loyalty rewards are protected like cash savings – when legally they often are not.

The warning comes as high street retailers continue facing pressure from:

1. Rising wage costs
2. Higher energy bills
3. Increasing business rates
4. Weak consumer spending

Research from the Competition and Markets Authority found 97% of shoppers belong to at least one supermarket loyalty scheme.

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But Monks warned those points may effectively become worthless if a retailer falls into administration or liquidation.

She explained: “Loyalty points and vouchers are essentially a liability on a retailer’s balance sheet, a promise to give you something in the future in exchange for your past spending.

“When a business enters administration or liquidation, that promise is not protected in the way most people assume.”

Why loyalty points may disappear

If a retailer enters administration:

• Stores may continue trading temporarily
• Administrators can refuse to accept vouchers or points

If a company enters liquidation:

• Assets are distributed in strict legal order
• Customers with vouchers rank as unsecured creditors
• Loyalty point holders are even lower down the queue

Monks warned shoppers are unlikely to recover anything.

“When a company collapses, the queue for its remaining money is long,” she said.

“Banks and secured lenders are at the front. Employees come next. Loyal customers with a points balance or a voucher saved up for Christmas are right at the back.”

Shoppers told not to ‘bank’ points for too long

The insolvency specialist urged consumers to stop treating loyalty points like savings accounts.

She said shoppers should:

1. Spend points little and often
2. Avoid stockpiling rewards for long periods
3. Check expiry dates on vouchers
4. Use rewards quickly if a retailer shows signs of financial trouble

“There’s a temptation to save up loyalty points for a big redemption,” Monks said.

“But the longer you leave them sitting there, the longer you are exposed to the risk that the business runs into trouble.”

Warning signs can include:

• Store closures
• Reports of financial losses
• Missed supplier payments
• Rescue talks
• Discounting or clearance sales

What happens to gift vouchers when a company goes into administration?

Gift vouchers with a cash value may offer slightly stronger protection than loyalty points, but shoppers could still lose money if a retailer fails.

Experts say many customers wrongly assume vouchers are automatically protected by law.

In reality, whether they are honoured often depends on decisions made by administrators after collapse.