Toys R Us future in UK plunged into doubt over pension scheme
(35 minutes later)
Toys R Us is facing an uncertain future in the UK after it was told to put £9m into its struggling pension fund by the Pension Protection Fund (PPF).
Toys R Us's future in the UK has been plunged into doubt after the Pension Protection Fund (PPF) said it would vote against the company's rescue plan.
It has to come up with the money by Thursday in order for the PPF to agree to the retailer's restructuring plan.
The retailer was told to put £9m into its struggling pension fund by the PPF in order for it to support the toy retailer's restructuring plan.
Earlier this month, Toys R Us said it would close at least 26 UK stores, leading to the loss of up to 800 jobs, as part of the plan.
Failure to agree a deal could put all its 3,200 staff at risk of redundancy.
Failure to agree a deal could put all its 3,200 staff at risk of redundancy.
That plan is part of a proposed company voluntary agreement (CVA), which allows the firm to restructure its finances.
The PPF's Malcolm Weir said it believed it was "reasonable" to seek guarantees on the pension scheme's future.
"Since the company lodged the CVA [company voluntary agreement] 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," said Mr Weir.
"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."
Mr Weir did give Toys R Us a glimmer of hope, adding: "We remain in dialogue with the company and their advisers and we are able to amend our vote if suitable assurances are provided."
Before the PPF announcement, Toys R Us reassured shoppers seeking last-minute presents by saying: "There will be no disruption for customers shopping through the Christmas and New Year period."
The deadline for the vote on the CVA, which allows the firm to restructure its finances, is on Thursday
If the CVA does not go through, the company could fall into administration.
If the CVA does not go through, the company could fall into administration.
Retail consultant Richard Hyman told the Today programme: "This is a real Catch 22 situation." The situation could leave Toys R Us having to choose between the futures of its past or present employees.
Retail consultant Richard Hyman told the Today programme it was a "real Catch 22 situation", as it left Toys R Us having to choose between the futures of its past or present employees.
The company has reassured shoppers seeking last-minute presents by saying: "There will be no disruption for customers shopping through the Christmas and New Year period."
Toys R Us factfile
Malcolm Weir, director of restructuring and insolvency at the PPF, said: "We continue to work closely with the trustees of the Toys R Us pension scheme and externally appointed advisors given the current CVA proposals.
"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."
Toy's R Us's parent company in the US is in formal bankruptcy protection proceedings.
Recent reports suggest it is considering closing between 100 and 200 stores in America.
Analysis: Rob Young, business presenter and reporter
It's workers versus pensioners; a choice between the present and the future.
The Pensions Protection Fund has become one of Toys R Us's biggest creditors as it takes over the voting rights of pension trustees in restructuring situations.
If the PPF backs the rescue without further financial assurances for the pension fund, pensioners could be affected in future, and its warnings would be seen as meaningless.
In many cases, it's a false choice; current employees are paying into the pension fund which they one day hope to live off. The PPF is said to be aware of its responsibility in this case, but its role is to protect members of the pension scheme and the other funds.
A "no" vote doesn't mean administration is certain for Toys R Us; it could propose a new restructuring plan, one the PPF can back. Talks are taking place so a solution can be found. The PPF is clearly trying to say that companies can't treat pension funds as an inconvenient afterthought.
'Rude health'
Toy industry expert Peter Jenkinson did offer some hope to the company, if it can resolve its current difficulties.
"The toy industry was in rude health in the UK last year," he told BBC 5 live Breakfast.
"Toys R Us does suffer because it has some very big stores in prime locations and the rent has gone up.
"Its in-store activity has been found wanting a little bit compared with other toy retailers and it has fallen behind.
"However, if the restructuring goes through then some of its stores could thrive. There are stores I've been into over the last month that have really started to up their game.
"The UK toy industry is behind them and wants to see them survive in some format.
"Buying toys is as much as of an experience as playing with them and taking a trip out to the toy shop is starting to come back into fashion."
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