Toys R Us could close before Christmas because of pensions crisis

The UK arm of the toy giant needs the agreement of its creditors to go ahead with a financial deal called a CVA, or company voluntary arrangement, that would see it shut 26 branches next year, axing 800 of its workers.

Toys R Us announced its restructuring plans earlier this month, proposing the closure of stores in Shrewsbury and at St Andrews in Birmingham, but retaining its shops at Merry Hill, Stafford and Oldbury. It would also cut rents at its other stores.

That deal would preserve the rest of the company, say bosses. Toys R Us is due for a crunch meeting with its creditors this week and needs the backing of 75 per cent of them.

But the UK’s pensions lifeboat – the Pension Protection Fund – is demanding a £9 million payment to bolster the Toys R Us pension fund, which is already underfunded by up to £25m or £30m.

The lifeboat is the organisation set up to rescue pension funds if firms go bust or can’t fund them anymore.

Toys R Us is understood to have told the PPF it doesn’t have the £9m available. It’s parent company in the US is currently going through bankrupcy protection and restructuring and is not in a position to bail out its UK arm.

But the PPF says it plans to vote against the CVA, prompting fears it could plunge the company, with 3,200 workers and 105 stores nationwide, into administration tomorrow.

In a statement, Malcolm Weir, director of restructuring and insolvency at the PPF, said: "Since the company lodged the CVA proposals we have spent significant time and effort, with the help of PwC, assessing the current and future financial position of the company to ensure the pension scheme would not be weakened by the CVA, leading to an even bigger claim on the PPF and its levy payers further down the line.

“Given the position of the company, we strongly believe seeking assurances for the pension scheme is reasonable given the deficit in the scheme and questions about the overall position of the company."

“We remain in dialogue with the company and their advisors and we are able to amend our vote if suitable assurances provided.”

Mr Weir had said earlier: “The pension scheme is already underfunded and, if we were to vote in favour of the CVA, we would need actions taken that ensure the position of the pension scheme was not going to further weaken.

“The filing of CVA proposals means that an assessment period is automatically triggered for a pension scheme.

“Whatever the outcome of the CVA the pension scheme members can be reassured that they remain protected.”

The toys and games chain has been under growing pressure from the internet in recent years, with millions of parents buying big-name brands online through Amazon and supermarkets.

Although the UK arm of the company reduced its losses to around £500,000 in 2016, it has made a loss in seven out of the last eight years.

Toys R Us trades from big warehouse-like out-of-town stores, around 40,000 sq ft in size, but is increasingly shifting to smaller outlets, about half the size, with more play areas to make shopping more enjoyable for families.

Announcing the restructuring plan earlier this month, Steve Knights, managing director of Toys R Us UK, said: “All of our stores across the UK remain open for business as normal through Christmas and well into the new year. Customers can also continue to shop online and there will be no changes to our returns policies or gift cards across this period.

“Like many UK retailers in today’s market environment, we need to transform our business so that we have a platform that can better meet customers’ evolving needs. The decision to propose this CVA was a difficult one, but we determined it is the best path forward to make essential changes to the business.”

“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 1980’s and 1990’s, while successful in the early days, are too big and expensive to run in the current retail environment.”

Mr Knights added: “We recognise this process will affect many of our team members and their families, so we are committed to keeping all of our staff informed throughout this process. Our teams will continue to play a key role in turning our business around.”

Toys R Us has said it will make no comment on the situation until after Thursday’s meeting.