Monday 18 December 2017

Pressure on HMV Ireland after UK arm decides to honour gift vouchers

HMV in Ireland will come under pressure to honour gift vouchers after the administrator of the UK arm of the music chain said it would allow customers to use the cards in store again.

Administrator Deloitte, also announced that the retailer, which collapsed into administration last week, will pay the proceeds that were raised by HMV through the sale of charity releases, including the Hillsborough Justice Collective single, "as soon as possible".

However, HMV in Ireland is actually a separate company and has not yet announced whether it will follow the UK example on both gift cards and charity singles.

Nick Edwards, joint administrator, said Deloitte had been "urgently assessing" HMV's financial position since being appointed last Tuesday.

"I am pleased to confirm that, having concluded this assessment, we are able to honour gift cards," he said.

"I can also confirm that all money raised by HMV for various charities will be paid in full. We recognise that both of these matters have caused concern for individuals and organisations affected and are pleased to have reached a positive outcome.

“We will continue to assess the longer term options for the business whilst continuing to trade. I am hopeful this process will result in the business continuing as a going concern.”

The refusal to accept vouchers has incensed customers and led to angry scenes, with irate grandfather taking three computer games from a Dublin HMV store after staff refused to accept a gift voucher. In England, two customers in an HMV shop in Oxford refused to leave until police were called.

The gift cards are important because their treatment will affect the scale of losses faced by suppliers, whose support will be vital for any business that survives administration.

The record companies are desperate to see a high-street chain survive because, despite the rise of digital downloads, physical sales still make up three quarters of the entertainment market. They are concerned that the absence of an important chain will act as a catalyst in the decline of CD and DVD sales.

Deloitte initially said that it would not honour the gift vouchers.

Gift vouchers are in effect a debt owed by the company. If the issuer goes bust, anyone with a voucher becomes an unsecured creditor, with a long and uncertain wait to get any money back. However, administrators have discretion to carry on accepting vouchers after a company has failed.

Customers with products that fail after the warranty has expired, who still have rights for up to six years under the Sale of Goods Act, can also expect problems if they seek redress from a company in administration.

If administrators sell all or part of a failed business, the new owner is a separate legal entity and is under no obligation to honour the obligations – including vouchers – issued by the original concern.

There is no guarantee scheme for vouchers, unlike there is for bank deposits, which are protected by the Financial Services Compensation Scheme if a bank goes bust.

Hilco has emerged as one of the front-runners to buy HMV out of administration amid suggestions that some of the world’s biggest music labels and film studios are willing to back a bid from the restructuring investor.

Deloitte is still "hopeful" of rescuing the 92-year-old entertainment retailer. Deloitte is thought to have received "well over 50" expressions of interest from potential bidders, amid hopes of retaining between 50 and 100 of the high street stores.

HMV was not the only retailer to collapse last week, as DVD rental company Blockbuster also fell into administration. Plans were announced over the weekend to shut 129 of Blockbuster's 528 stores and make 760 of the company's 4,190 employees redundant. Deloitte is also running the administration.

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