news Independent Senator Nick Xenophon has announced a possible solution for Dick Smith gift card holders following the electronics retailer’s collapse.
The senator has called for urgent legislative changes to Australia’s corporations law to protect the consumers who face to lose out in the affair, as well as moving for an urgent Senate inquiry into the collapse when the Senate resumes next month.
Dick Smith entered receivership just over a week ago, with the receiving firm Ferrier Hodgson saying it is “business as usual” while it looks at the restructuring and realisation opportunities for the group.
Although employees will continue to be paid, Ferrier Hodgson said outstanding gift vouchers cannot be honoured and deposits cannot be refunded. Affected customers will become unsecured creditors of the group, however.
Xenophon has proposed several ways in which gift card holders and consumers who paid deposits to retailers can be protected.
Firstly, he said, there should be an obligation on external administrators to prioritise gift cards as creditors.
Secondly, there should be a requirement that funds used to purchase gift cards or deposits paid for goods be kept in a separate account by businesses. Further, this account would be protected in the event of a corporate collapse.
Thirdly, corporations law should be changed with a presumption that directors of companies that collapse are to be personally liable for the value of gift cards purchased or deposits paid for goods.
“The Dick Smith Holdings collapse highlights the lack of protection for consumers when it comes to gift cards and deposits paid,” Xenophon said. “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 added that the reforms, if passed, will also have the effect of strengthening consumer confidence in gift cards which has been “shaken” with this collapse.
The senator also indicated that the Terms of Reference for the inquiry to the Senate Economics References Committee will include a “forensic examination” of other issues concerning corporate regulations, such as the conduct of private equity firms during such takeovers, whether current accounting standards provide enough information to the market place, and whether corporate watchdog ASIC needs additional powers.
“The Dick Smith stores collapse puts a spotlight on the role of private equity firms in takeovers where the long-term sustainability of a business is put in question by virtue of the structure of the deal that was done,” Xenophon said.
In 2012, the group was sold by its then-owner Woolworths to Anchorage Capital Partners for a mere $20 million – despite reported annual sales of $1.6 billion the previous year.