Mastermind Toys stopped accepting gift cards on Dec. 24 — when most cards were still wrapped

Riverview father Rudy Walters is speaking out after Mastermind Toys stopped accepting gift cards effective Christmas Day — with signs posted on their storefronts only days before.

Walters said the move raises questions about the value of gift cards and about consumer protection when a company such as Mastermind heads toward bankruptcy.

"I would just like to see some more legal protection for consumers to make sure that hard earned money that's spent on gift cards can be used at any time that company is still in existence," Walters said.

The move is a part of the retailer's recent filing for creditor protection amid increasing competition, COVID-19-related disruptions and a decrease in customer spending. The decision to not honor gift cards is, according to the notices on the stores, "pursuant to the CCAA court process."

Rudy Walters says he would like to see more protections for consumers with gift cards. (Rudy Walters/Facebook)

"The first thing that came to mind is the cost of living right now is so high. Families are struggling and to get somebody a $25 or $50 gift card and then find out that it's no longer that high, that has to absolutely sting," he said.

According to CCAA court proceding documents, the company currently has "approximately $5.6 million in outstanding gift card liabilities."

Walters said the timing is also poor. 

"Especially to have that deadline be Dec. 24, knowing how many families would be only opening up gift cards on the 25th," Walters said.

"How many of these gift cards would possibly still be in transit with Canada Post or another carrier?"

Mastermind Toys filed for creditor protection amid increasing competition, COVID-19 related disruptions and a decrease in customer spending. They reached a deal to sell the bulk of the business to Unity Acquisitions shortly after. (Roger Cosman/CBC News)

Fredericton lawyer Romain Viel, who works in commercial litigation, said the decision to invalidate gift cards is recommended by insolvency professionals and approved by courts to provide businesses a chance to organize their financial affairs.

"Generally, if you're in insolvency proceedings it's because the money going out is more significant than the money coming in," Viel said.

"So by freezing gift card liabilities, it gives the business an opportunity to reorganize itself financially, pay off key creditors, so that, for example, the bank doesn't come in and foreclose on its properties or take over leases," he said.

The intended result is creditors getting paid as much as they possibly can with gift card holders falling in second place. This leaves consumers with gift cards hanging in the lurch.

Few protections for gift card holders

Earlier in the month, the retailer reached a deal to sell the bulk of its business to Unity Acquisitions, a company run by Joe Mimran, Frank Rocchetti and David Lui.

While the deal is expected to close in January, in previous statements to CBC News, company spokesperson David Ryan said he could not confirm if gift cards would be accepted again once that happens.

Viel said there is nothing that says gift cards have to be respected once the deal is closed.

Romain Viel says there's nothing that says gift cards have to be respected once the deal is closed other than the potential of a further court order. (Nipun Tiwari / CBC News)

"The way it stands now is that without a further court order, the gift cards do not have to be respected," he said.

"So when the sales process is finally approved, there may be another court order" to deal specifically with gift cards.

In New Brunswick, expiration dates on gift cards are prohibited by the province's Financial and Consumer Services Commissions' Gift Card Act. There are some exceptions, such as gift cards for a specific good or service — like a gift card for a manicure, for example — promotional gift cards or cards offered for charitable services.

Are gift cards worth the risk?

Much like Walters, who himself tries to stay away from gift cards, Viel said gift cards are a risk as there is always a chance that a company could face financial challenges, especially with inflationary pressures and economic effects of COVID-19.

"It's a risk to buy gift cards," said Viel.

"There's always going to be that [chance] who you're dealing with may or may not be around in a year or two," he said.

While he thinks there is strong consumer protection in the province, Viel said without more targeted gift card legislation in bankruptcy circumstances, "gift card holders are kind of stuck."

"Obviously, if I were to find a Sears gift card in my dresser right now, I'd know that would have absolutely no value," said Walters.

But with a Mastermind gift card,"if I'm able to go there and spend my money, I should be able to go there and spend a gift card as well," he said. 

Mastermind is currently slated to close 18 of its 66 stores — nine in Ontario, four in Alberta, and one each in B.C., Nova Scotia and Manitoba. 

In New Brunswick, the stores in Fredericton and Saint John will close on Jan. 7 and Jan. 10 respectively.

Mastermind Toys, which has been operating since 1983, did not respond to requests for comment or interview.