Toys R Us UK restructure could be blocked by Pension Protection Fund

According to Sky News, the pensions lifeboat and the scheme’s trustees want the sum – equivalent to four years of employers’ contributions, along with related levy payments – to be agreed within the next 24 hours.

The demand could determine the future of Toys R Us in the UK, with the deadline for a vote on a company voluntary arrangement (CVA) looming.

As previously reported, the PPF was considering whether or not to oppose Toys R Us’ plans to restructure its UK business, including the closure of 26 of its 100 shops. 

Without the PPF’s support, the CVA is less likely to be passed at a meeting of creditors on Thursday. 

Sources close to the retailer said that, if the CVA does not go ahead, the business is likely to collapse into administration, putting 3,200 jobs at risk. 

The pension trustees of Toys R Us are understood to have appointed PwC to advise on the retailer’s plans, which would culminate in making around 500 members of staff redundant.

Sources told Sky News that PwC’s appointment was made with “the explicit encouragement” of the PPF.

Although neither the trustees nor the PPF have decided to definitely oppose the proposal, insiders said there were concerns that the CVA may be “simply kicking the can down the road”.

The UK pension scheme is understood to hold roughly 20% of the creditors’ votes eligible to be cast in the CVA, giving it a potentially decisive say.

The restructuring, being handled by Alvarez & Marsal, will require the approval of a 75% majority.

Shrinking store space

Commenting on the CVA proposal unveiled earlier this month, Toys R Us UK managing director Steve Knights said: “Our newer, smaller, more interactive stores are in the right shopping locations and are trading well, while our new website has generated significant growth in online and click-and-collect sales.

“But the warehouse-style stores we opened in the 1980s and 1990s, while successful in the early days, are too big and expensive to run in the current retail environment.

“The business has been loss-making in recent years and so we need to take strong and decisive action to accelerate the transformation.”

In the year to January 2017, Toys R Us generated sales of £418m on an operating loss of £0.5m.

The effort to overhaul its UK estate follows the filing by Toys R Us’ American parent for Chapter 11 bankruptcy protection in September.

According to The Sunday Telegraph, Toys R Us trebled the pay package of its former UK managing director Roger Mclaughlan from £356,000 in 2014 to £1m in 2015. It was increased again to £1.3m for the year ending 30 January 2016.

Mclaughlan now runs Terra Firma-owned Wyevale Garden Centres.