Customers holding $210 million in Borders gift cards are out of luck, a federal judge ruled on Wednesday (May 22). That means any Borders cards that weren't used up by the time the bankrupt bookstore chain closed its doors in 2011 are worthless, according to Reuters.
A bankruptcy judge made a similar ruling in August 2012, but lawyers for card holders appealed, arguing that the 642-store chain never made a legitimate effort to notify 17 million gift-card holders when it shut down. However, U.S. District Judge Andrew Carter said it would be unfair to other creditors to add card holders to the settlement plan, which he said would require "significant alteration" to a Chapter 11 plan that is substantially complete.
At this point, the Borders trustee has about $61 million left to distribute—less than a third of the amount outstanding on gift cards.
The ruling shooting down the gift-card holders' hopes was based on the fact that lawyers weren't timely enough and didn't notify enough creditors about the appeal. But there's also a question of whether any Borders gift-card customers actually hadn't been notified about the Borders bankruptcy.
Barnes & Noble (NYSE:BKS) spent about $14 million to buy Borders' intellectual property in September 2011, including the defunct chain's website and customer lists—and then sent a series of messages to more than 40 million Borders customers, offering the chance to opt out before the contact information was merged into the Barnes & Noble loyalty program. That means a substantial number of the 17 million gift-card holders may actually have been notified of Borders' demise anyway. (Barnes & Noble did not assume any responsibility for honoring Borders gift cards.)
The irony is that, unlike most creditors, gift-card holders had a chance to get every cent they were owed—but they had to get it before the stores closed. Once Borders was shut down, other creditors could still collect a portion of their receivables, but this time at least, customers got nothing.
- See this Reuters story