The U.K.’s £30 billion ($40 billion) Pension Protection Fund will oppose restructuring plans for the insolvent U.K. arm of U.S. retailer Toys R Us that would affect members of the company’s defined benefit pension scheme.
On Tuesday, the PPF, which offers a financial lifeline to plan members when their employers go bust, confirmed plans to vote against the proposals. This follows work it has conducted with the Toys R Us pension trustees to assess whether restructuring proposals for the toy retailer are viable.
Malcolm Weir, director of restructuring and insolvency at the Pensions Protection Fund said the PPF has submitted its proxy vote on the proposed Toys R Us restructuring ahead of the deadline.
“We have indicated we intend to vote against the proposals,” he said in a statement. “We have spent significant time and effort, with the help of PwC, assessing the current and future financial position of the company to ensure the pension scheme would not be weakened, leading to an even bigger claim on the PPF and its levy payers further down the line.”
Insolvency practitioners are currently seeking to put the business into a Company Voluntary Arrangement, which gives troubled businesses a chance to pay creditors over a longer period of time or on renegotiated terms. For such an arrangement to succeed, it needs to be approved by creditors who hold at least 75 percent of the debt. Trustees of the U.K. pension scheme hold approximately 20 percent.
The proposals include closing some stores, using financing from specialist asset-based lenders, renegotiating rents with landlords, and selling “slow moving stock” through those stores earmarked for closure. Turnaround practitioners are urging the PPF to back the proposals, which they say will preserve jobs.
Tony Groom, chief executive of turnaround group K2 Partners, tells Institutional Investor he thinks the Pensions Protection Fund should consider “where they stand” in relation to job preservation.
“We are dealing with insolvency here,” he said. “The question, in my mind, is, are they going to look at this rational proposal, or are they going to say, ‘We are just going to reject this, out of hand, and teach everyone a lesson?’ The company is insolvent.”
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Groom said the PPF should be involved with companies experiencing financial difficulty at a much earlier stage. He suggested scrutinizing dividends being paid to shareholders in instances where a company has a substantial pension fund deficit.
“Those dividends should be reviewed by the PPF to make sure that shareholders don’t benefit at the expense of the PPF,” he said. “Should a company be declaring dividends if it is in arrears with its pension fund?”
On 9 December, the U.K.’s Daily Telegraph reported that Toys R Us more than tripled the pay package for one of its bosses, a year before the business entered bankruptcy. The report said lawmakers plan to question the company about the increase.