Toys ‘R’ Us Inc, the toy store giant with branches across the US, Canada, UK and Japan has filed for bankruptcy.
In a so-called Chapter 11 filing, the 60-year-old retailer asked for bankruptcy protection late Monday, with analysts citing the rise of online shopping and declining high streets being partly to blame. Toys ‘R’ Us is also said to be saddled with debt following its acquisition in 2005.
According to Reuters, the Chapter 11 filing, made in the US Bankruptcy Court for the Eastern District of Virginia in Richmond is “among the largest ever by a specialty retailer” and is a worry for the company’s 1,600 stores and 64,000 employees. The Canadian arm of Toys ‘R’ Us now plans to seek similar protection under the Companies’ Creditors Arrangement Act (CCAA) in the Ontario Superior Court of Justice.
“While today’s decision does not necessarily mean it is game over for Toys ‘R’ Us, it brings to a close a turbulent chapter in the iconic company’s history,” said Neil Saunders, managing director of GlobalData Retail.
To ensure suppliers still receive orders for the holiday season, JP Morgan and other banks and lenders have agreed $3 billion “debtor-in-possession financing” to help Toys ‘R’ Us restructure over the coming months. This financing will now need to be approved by the court.
Also known as a DIP, a debtor-in-possession is an individual or company that has filed for bankruptcy protection but keeps control of the business. Under the DIP order, Toys ‘R’ Us would continue to run the business and would “have the powers and obligation of a trustee to operate in the best interest of any creditors”. This means Toys ‘R’ Us will continue to trade for the time being and has a duty to inform the court if anything changes.
In the US, a Chapter 11 is a form of bankruptcy in which a company will reorganize its debts and assets. Its named after the US bankruptcy code 11. Due to the fact it lets companies reorganize their finances, it’s also referred to as giving the firm a “fresh start” as long as they adhere to the conditions of the bankruptcy order. A Chapter 11 is meant to be seen as a last resort, after other measures have been taken to reduce the debt and pay creditors.
Notably, filing a Chapter 11 doesn’t mean the company is closing. It’s designed to help keep the company afloat and other firms, including General Motors and United Airlines, are among the US firms that have previously filed for bankruptcy protection and are still in business. Even Apple was close to bankruptcy once.
“We expect the financial constraints that have held us back will be addressed in a lasting and effective way,” Toys ‘R’ Us CEO Dave Brandon said. “Together with our investors, our objective is to work with our debtholders and other creditors to restructure the $5 billion of long-term debt on our balance sheet.”