Toys R Us faces bankruptcy, putting 3,200 jobs at risk

Toys R Us is expected to tumble into administration next week after last ditch talks to find a buyer faltered.

The move will put 3,200 jobs at risk and follows the recent decision by its bankrupt American parent to try to sell the loss-making UK business as well its other European stores.

Members of the Toys R Us management team met with officials from the Pension Protection Fund (PPF) on Friday to notify them of the development. The troubled retailer had been trying to drum up a buyer before the end of the month when several payments, including a £15m VAT bill, fall due.

The company is expected to appoint restructuring firm Moorfields on Tuesday unless a white knight rescue bid emerges over the weekend. Moorfields has been put on standby to handle the process, according to Sky News which first reported the development.

In September Toys R Us’s American parent filed for bankruptcy protection in the US and Canada after running up $5bn (£3.7bn) of debts and struggling to compete online. It is trying to restructure its finances and is closing hundreds of US stores.

The UK chain has been struggling for the same reasons as its parent, with shoppers shunning the large out-of-town sheds synonymous with the Toys R Us brand in favour of buying online or from supermarkets. The retailer’s most recent accounts showed an operating loss of £500,000 on sales of £418m.

In December the UK chain won a stay of execution after landlords took back the keys to 26 of its 104 shops and accepted less rent for those that stayed open. But the turnaround plan was torn up after poor trading continued into the new year.

Administration would be bad news for the 600 members of the retailer’s pension scheme. The fund has a deficit of about £30m based on an assessment by the PPF, the state-backed pensions lifeboat, but as much as £93m on the basis of a buyout by an insurer. If the retailer goes bust the pension fund would be an unsecured creditor alongside its landlords and HMRC and therefore at the end of the queue to collect money owed.