Thousands of Toys R Us jobs have been saved after the UK pension lifeboat agreed to back a business reorganisation that will keep the retailer from complete failure.
Talks between Toys R Us and the Pension Protection Fund (PPF) went to the wire as an improved offer was hammered out during a deadline day meeting.
On Tuesday the PPF said it would vote against the restructuring unless a £25m pension shortfall was narrowed by the company pouring in millions of pounds.
"We can confirm that an agreement has now been reached and we will now be voting in favour of the proposals at the [company voluntary arrangement] CVA meeting today," said PPF director of restructuring and insolvency Malcolm Weir.
While the CVA restructuring will see around 500 jobs lost with 26 stores shutting, a failure to reach an agreement could have led to the US-owned firm falling into administration and putting more than 3,000 UK jobs at risk.
The company has agreed to pay £9.8m into the pension plan, composed of £3.8m in 2018, with a further £6m promised over 2019 and 2020. The deal also sees the pension deficit recovery plan shortened to ten years, while the company has undertaken to seek additional support from the US parent company for the new plan for the pension scheme. Furthermore, the trustees will have greater powers if any of the above conditions are not met.
Toys R Us UK managing director Steve Knights said he was "pleased" to have secured the support of the PPF and other parties representing 98 per cent of creditors.
He said: "The vote in favour of the CVA represents strong support for our Business Plan and provides us with the platform we need to transform our business so that we can better serve our customers today and long into the future.
“All of our stores across the UK will remain open for business as normal until spring 2018. Customers can continue to shop online and there will be no changes to our returns policies or gift cards across this period.”
The decision for Toys R Us to cave into some of the PPF's demands was not expected by some experts.
“This is a surprising outcome," said Gabrielle Holgate a partner at law firm Stevens & Bolton.
"Earlier this week it looked very much like the PPF, standing in the shoes of the Toys R Us pension scheme’s trustee, would vote against the restructuring plans. No agreement had been reached on the £9m cash injection requested.
“The PPF was put in a difficult position. If it refused to agree to the restructuring it would likely take on the pension scheme in the very near future, assuming a £30m cost for doing so, but if it agreed without obtaining any concessions, the same outcome could be reached, only delayed. This would only increase the cost to the PPF of taking on the scheme at a later date.”
Weir added: "This offer goes a long way to addressing the PPF’s concerns and in de-risking the pension scheme, offering greater protection for the current and retired members in the pension scheme.
“The PPF will always seek assurances on behalf of the pension schemes and pension scheme members it protects, as well as consider the interests of other UK companies that pay the Pension Protection Fund levy.”
Meanwhile, chair of trustees Graham Barker and Tom Lukic, a director with Dalriada Trustees Limited appointed as professional trustee to the scheme, said:“Whilst the Trustee board very much appreciate the impact of the CVA on a number of employees and stores, we are pleased that agreement has been reached for the PPF to vote for the CVA."