Questions have also now emerged over the write off of £585m of loans.
The board of Toys R Us’s UK subsidiary is expected to announce that it is proposing to launch a process called a company voluntary arrangement (CVA). A CVA is a mechanism enabling companies to organise their funding and operations while enjoying protection from their creditors.
The move, which will require the approval of a 75% majority of the company’s creditors, would leave roughly 25 of the company’s 105 British shops facing closure, according to insiders. However, the affected Toys R Us shops are expected to remain trading throughout the Christmas period and well into the new year.
Toys R Us employs roughly 3200 people in the UK, so a decision to close a quarter of its stores would affect at least several hundred jobs. It is thought that larger out-of-town stores would be disproportionately affected by the closure plan, owing to their weak performance.
Sources said that Alvarez & Marsal, a specialist adviser on corporate insolvencies, would handle the CVA proposal.
It was unclear whether Toys R Us landlords and other creditors would be prepared to back the proposal, further details of which should become clear this week.
On Friday evening, a Toys R Us spokesperson took to Twitter amid increasing awareness of the news, stating: “We don’t comment on rumours or market speculation. Our stores in the UK are open as normal, and our focus in the coming weeks is very much on the busy Christmas period. We continue to provide our customers with a great level of service and the wide range of children’s products.”
Recently announced research has shown that Toys R Us could have saved £17m in business rates if the government hadn’t delayed its revaluation of rates. According to analysis by Colliers International, the embattled toy retailer could have saved millions if the government had revaluated business rates in 2015, rather than two years later.
Questions have also now emerged over why the UK offshoot of Toys R Us wrote off £585m of loans to a related company based in the British Virgin Islands. Accounts filed at Companies House for Toys R Us (UK) Ltd, a holding company, reveal that it waived £584.5m of loans to TRU (BVI) Finance 11 Ltd, a company in the British Virgin Islands. The holding company plunged to a £673.3m loss in the year to 28th January. The UK trading company turned over £418.3m but made a loss of £506,000.
In the accounts, Toys R Us said it waived the loan to TRU (BVI) Finance 11 Ltd “as part of a group reorganisation”.