Gift Card Creditors

Last February, REDgroup in Australia entered into voluntary administration after finding it difficult to pay off debts. Owning the Borders and Angus & Robertson bookstore chains in Australia, the administrators demanded that gift cards issued by these stores only pay for half the cost of purchases; the remaining half would have to come out of the customer's pocket.

As customers are accustomed to gift cards' applying to the full cost of a purchase, this caused quite an uproar, with sales staff being abused despite no fault of their own. However, this gesture may well have been a generous one considering how liquidation works, for gift card holders are creditors to the issuing business.

Gift cards are debt
The Framework for the Preparation and Presentation of Financial Statements (AASB) concisely defines a liability as:

...a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits.