Rising fears for Toys R Us amid £9m pension demand stand-off

The UK’s Pension Protection Fund (PPF) is demanding that the company makes the payment to secure three years’ worth of funding upfront for its defined salary staff pension scheme, which has a shortfall of between £25-£30m.

It is understood the PPF will not back the retailer’s planned restructuring unless Toys R Us agrees to pay up the £9m within two months, with a midday deadline looming large for proxy votes to be lodged ahead of Thursday’s creditors meeting.

But the firm is not thought to have enough cash to meet the PPF demands.

The PPF’s vote will determine whether the rescue plans go ahead and there are concerns that if the company voluntary agreement (CVA) fails, the business could collapse into administration, putting 3,200 at risk. It needs the backing of 75% of creditors, including landlords, for the CVA to go through.

Under the plans, it is proposing to close at least 26 loss-making UK stores, putting up to 800 jobs at risk, while landlords will also take significant rent cuts.

It trades from 84 stores in the UK and has 21 concessions.

“We continue to work closely with the trustees of the Toys R Us pension scheme and externally appointed advisers given the current CVA proposals,” said Malcolm Weir, director of restructuring and insolvency at the PPF.

“We have yet to decide how the creditor rights will be exercised in the CVA vote. 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 also assured that members of the pension scheme remain protected “whatever the outcome of the CVA”.

It is understood that talks can continue between the PPF and Toys R Us after the midday proxy vote deadline up until Thursday’s CVA decision.

The PPF’s tough stance comes after the Pensions Regulator faced heavy criticism for failing to act to better protect pensioners during the failure of BHS.

Toys R Us said on announcing its CVA plans that trading has suffered as its warehouse-style stores opened in the 1980s and 1990s have proved “too big and expensive to run”, while it is also struggled to keep up with online competitors.

The announcement comes just months after the US-based retailer filed for bankruptcy protection in the US and Canada as it battled mammoth debts and increasing competition online.