Thousands of jobs at Toys R Us have been saved after the ailing toy retailer agreed to pump more than £9m into its pension plan over the next two years in a last-minute deal with the state-backed pensions lifeboat.
The Pension Protection Fund joined landlords and other creditors in backing Toys R Us’s voluntary insolvency (CVA) plan, which involves the closure of at least 26 loss-making stores from next spring as well as reducing the size of others. Consultations with affected employees will commence in the new year.
About 98% of creditors are understood to have approved the deal, without which the company was likely to have fallen into administration.
While up to 800 people could still lose their job as a result of the restructure, more than 2,000 more will be saved as Toys R Us tries to turn its remaining UK business around.
Steve Knights, managing director of Toys R Us UK, said: “We are pleased to have secured the support of our creditors and will be working closely with them in the months ahead. 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 PPF said earlier this week that it would not back the restructure unless Toys R Us agreed to increase its support for its pension fund. Talks on a deal lasted until 1.30pm on Thursday, more than two hours after the creditors’ meeting to approve the restructure was intended to start.
The company agreed to pay £9.8m into its pension plan, composed of £3.8m in 2018, with a further £6m promised in 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 its US parent company for the new plan for the pension scheme. The pension fund trustees will have greater powers if any of those conditions are not met.
The compromise deal comes after the PPF initially demanded an up front payment of £9m in the coming months.
Malcolm Weir, its director of restructuring and insolvency, said: “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.”
Graham Barker, chair of the trustees, and Tom Lukic, director with Dalriada Trustees, who was 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.
“We will be writing to update all scheme members as soon as the result of the vote is known.”
Toys R Us suppliers attending the meeting on Thursday in central London told the Guardian there was relief that the deal had gone through.
Chris Robinson, managing director of Suki Gifts International, a soft toy supplier which is owed thousands of pounds by Toys R Us, said he was pleased the CVA had been approved and that it was “a common sense deal that was what everyone wanted”.
He added: “It’s the most sensible arrangement for staff and suppliers.”