Britain's pension lifeboat is demanding Toys R Us makes a multi-million pound payment into its retirement scheme, a move that could scupper plans to restructure the UK firm and leave it in a perilous state.
The Pension Protection Fund (PPF) wants the toy giant to pay £9m into its pension, part-filling a £25m black hole. But this evening, sources close to Toys R Us told City A.M. the hands of its US parent were tied and there was no cash available to make such a payment.
While the pension scheme is not set to be jettisoned as part of the restructuring, the PPF is concerned about the current shortfall, particularly if Toys R Us were to fall into financial difficulties again in the future, Sky News first reported.
Toys R Us is trying is trying to win sufficient backing from creditors for a company voluntary arrangement (CVA) – a deal whereby creditors restructure their finances and the company rejigs its operations to become financially viable. The current proposal is to shut around 26 stores, renegotiate leases and cut 500 jobs. The deal requires the support of the PPF. If it falls through, Toys R Us may have no option to call in administrators, putting 2,700 UK jobs at risk.
The PPF is not strictly speaking a creditor at this present time but it has a vested interest in ensuring that if the company were to fail in the future, any deficit is as small as possible.
The demand for a cash top-up follows a detailed review of the scheme for the trustees by accountants PwC.
‘‘We continue to work closely with the trustees of the Toys R Us pension scheme and externally appointed advisors given the current CVA proposals," said PPF restructuring and insolvency director Malcolm Weir.
We have yet to decide how the creditor rights will be exercised in the CVA vote. We are seeking to fully understand the current position of the company, including its future potential, position of the US parent and the reported historical financial transactions. 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.
He continued: “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."