The unusual manoeuvre pits the workforce against more senior creditors.
As reported by Bloomberg, former Toys R Us workers will be asking a judge to award them severance and grant them the same priority for getting paid as the lawyers, financial advisers and suppliers who were considered vital to winding down the retailer’s US stores.
Toys R Us agreed to give the workers until 23rd July to file the request, according to a 16th July court document. The concession leaves open the possibility that a severance agreement could be reached, although the company said it still reserves the right to fight the demand from its former staffers.
By submitting an administrative claim in the Toys R Us bankruptcy liquidation, the 33,000 workers would be setting up a confrontation with other creditors who customarily are given high priority under the US bankruptcy code because their services are considered crucial. Any severance deal that taps the shrinking pool of cash left at Toys R Us would need court approval, and would likely be opposed by other creditors since they’d be less likely to get full payment on their claims.
Toys R Us put two limits on any severance claim. One restricts participation to workers on the job after 16th February, when company directors cancelled a benefits programme. The other says Toys R Us must be able to show the court that it had been paying out “proper compensation” under its old severance plan.
Even if those two hurdles are cleared, any payment to workers may still be subject to challenge by other creditors and may be reduced based on how much money is left over after secured lenders – the ones with top claims on collateral and assets – are paid off.