When a restaurant goes out of business, what happens to its unused gift cards? —Mike K., St. Louis
The above question gets asked every time there are restaurant closures or transfers…which means almost every week.
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In general terms, restaurant gift cards represent a double win for the issuing restaurant: 1. Its value is collected in advance, and 2. There’s a decent chance that the card will never be redeemed.
The situation gets especially thorny when a gift card is sold or issued one week and the restaurant closes the next. On one hand, there are less-than-scrupulous restaurant operators who allow this to happen. On the other, many restaurant owners live in denial; although deep down they know their place is in trouble, they hope and pray that better times are around the corner. They just don’t know the exact month or day when the landlord, bank, or sheriff will show up and slap a padlock on the front door.
Regardless, while the short answer to the question is “the gift card holder is most likely out of luck,” there are several options:
1. See if the grantor has an alternate restaurant or business. Although there is no obligation to do so, many businesses will honor gift cards at an alternate location as a sign of good faith. Any business owner who is concerned about his or her reputation will do just that.
2. Contact the credit card company, if applicable. If the gift card was purchased with a credit card, there might be some recourse. Some credit-card companies will cover such a loss.
3. Contact bankruptcy court. If the operating company has filed bankruptcy, you can file as a creditor with that court. Unfortunately, gift cards are low-priority. High-priority creditors, such as the IRS, mortgage holders, employees due unpaid wages, and vendors, are often paid first; after those obligations are met, the money tree has often been shaken clean. Since most restaurants are run by limited liability corporations, by definition the corporation is liable for any losses—the individual operating the restaurant is not, so there’s little point in chasing down an owner for what’s usually a small obligation.
4. Hold onto the card. Many restaurant operators will open another restaurant somewhere else, and while there is no legal obligation to do so, they may honor an old card at the new business. If the restaurant were to get a new owner, it’s also possible that, as a sign of good faith, that owner will honor such a card. Call it a peace offering—and smart marketing.
Retired restaurateur and restaurant broker Kent Hirschfelder describes one way that the latter took place when he was brokering deals. “The restaurant being sold had had the good sense to ‘voucher’ the gift cards they sold,” he says. “They kept track of them, so they knew at any point in time how many were still outstanding. When the restaurant was sold, the outstanding dollar amount was known, and the buyer and seller would agree on what percentage would be credited to the buyer (usually no more than 60 percent or so). And, of course, the restaurant buyer, if he or she was smart, would encourage people to use their old gift cards as a sign of good will and to get customers to try the new establishment, even if the card was past its expiration date. It was a win-win-win.”
Editor’s Note: This article was updated from a previous version.
If you have a question for George, email him at [email protected]. You can also follow him on Twitter @stlmag_dining. For more from SLM, subscribe or follow us on Facebook, Twitter, and Instagram.
