Something interesting in the world of gift cards is happening in Danville, California. A restaurant, Patrick David's, is choosing not to accept gift cards. While this might seem outrageous, it's a perfectly legal albeit a questionable decision.
We've Seen It Before: Bankruptcy And Worthless Gift Cards
The original owners of Patrick David's filed for bankruptcy protection which required them to liquidate all assets of the company in order to pay its creditors. During the bankruptcy proceedings another entity, Pavlova Passion Inc., purchased the operating rights to the business. In other words, they purchased the ability to keep running the business with the same name, logo, website and location.
Unfortunately, gift card holders are considered unsecured creditors and as a result, they stand towards the back of a long line of people looking for money. Naturally, there is never enough money to pay everyone; otherwise, the company would have no need for bankruptcy protection.
One can envision a food line with too many people and not enough food. Gift card holders are among the last to be served and ultimately they're turned away when the food is gone.
Choosing Not To Accept Gift Cards
The new company is not required to purchase other assets (namely debt) and therefore not legally required to redeem gift cards (a form of debt). While the new owner of a previously bankrupt brand may find it worthwhile to honor gift cards and keep the existing customer base happy, it's a business decision which can go either way.
According the to article, Patrick David's new owners have decided not to accept gift cards because "the previous owner, chef Patrick Schoolcraft and his wife, Laura, would give the gift cards to other business owners in exchange for services such as getting their car washed or their hair cut." Furthermore, it's unclear as to how many and which gift cards were bartered vs purchased. An accountant for Pavlova Passion Inc. believes it could be as much as $250,000.
Playing Both Sides
Purchasing the brand name, location and keeping the staff of a business is sure to lead to customer confusion. Given the circumstances, I can sympathize with the decision to no longer accept gift cards. However, there is one fact which is sure to irk consumers: Chef Patrick Schoolcraft is still employed by the business. Yes, the same person who according to the new operators has made it unfeasible to redeem gift cards is still drawing a paycheck.
The new operators of Patrick David's are practicing some poor judgement: They've decided to keep virtually everything the previous business did intact, only burn gift card holders while continuing to pay the person they claim is responsible for their inability to accept gift cards. We've just added the Patrick David's Gift Card to the Gift Card Graveyard.