Neil DennisThe fate of 3,200 Toys R Us jobs is hanging in the balance ahead of a crunch vote on the firm’s future, with the retailer facing collapse unless a rescue deal is agreed.
Creditors to the beleaguered retailer will on Thursday vote on the firm’s proposal for a company voluntary arrangement (CVA), a scheme that will allow it to jettison under-performing stores but keep the company afloat.
However, if it is rejected, then it is understood Toys R Us could collapse into administration on Friday, just days before Christmas.
Pension fund
Complicating matters is the Pension Protection Fund (PPF), which is also a creditor and has so far refused to back the retailer’s rescue plans unless Toys R Us agrees to pay £9m up front into its pension fund.
The PPF is demanding that Toys R Us makes the payment to secure three years’ worth of funding up front for its defined salary staff pension scheme, which has a shortfall of between £25m and £30m.
But it is believed Toys R Us does not have enough cash to meet the PPF demands.
The PPF’s voting intention means the CVA may not go ahead, as Toys R Us needs the backing of 75% of creditors.
The PPF’s proportion of the creditor vote accounts for 31%, effectively giving it the power to veto any deal.
Toys R Us UK has made last-minute concessions over its pension deficit in an attempt to push through a deal, offering to reduce its deficit recovery plan to 10 years from 15 years and offer a larger payment than the £1.6m planned for its pension scheme in January and March.
Talks are still ongoing.
Rent cuts proposed
Other creditors include the firm’s landlords, who will be asked to stomach rent cuts as part of the restructuring proposal.
Even if the CVA is voted through, at least 26 loss-making UK stores will shut, putting up to 800 jobs at risk.
The retailer, which is owned by US-based Toys R Us Inc, trades from 84 stores in the UK and has 21 concessions.
Toys R Us said on announcing its CVA plans that trading has suffered as its warehouse-style stores opened in the 1980s and 1990s have proved “too big and expensive to run”, while it is also understood to have struggled to keep up with online competitors.
The announcement comes just months after the US-based retailer filed for bankruptcy protection in the US and Canada as it battled mammoth debts and increasing competition online.