Rosalind Connor, Partner at Arc Pensions Law, looks at the issues here from a pensions perspective and what’s next for Toys R Us and similar chains.

Toys R Us has finally fallen into administration after trudging on gamely over the last few months. The collapse has been a long time coming; it only just survived Christmas when the Pension Protection Fund (PPF) voted in favour of a Company Voluntary Agreement (CVA).

The CVA itself will have focused a good deal of commercial attention on the pension scheme. As soon as a CVA proposal is put to creditors, the PPF steps into the shoes of the pension scheme trustees and becomes the creditor. Whilst there have been suggestions in the press that in the similar decline of Carillion, directors did not focus on the pension schemes and the company’s liabilities to them, in the case of Toys R Us suddenly the PPF had significant voting power, which may well have made them a significant force in the company in recent months.

The retail industry is not a level playing field. Younger companies can be fleet of foot to react to threats as they are not weighed down by onerous defined benefit schemes, whilst stalwarts of the high street with schemes built up when they were in their heydays often struggle to respond to the shifting demands of consumers.

But an administration (and sometimes even a CVA) can release a company from its liability to a scheme and initiates a refocus on the part of the directors, generally offering a better chance of survival. The quintessential example is Kodak, which continues trading to this day after jettisoning much of its pension liabilities and restructuring as a technology business.

It won’t be all fun and games as Toys R Us works its way through administration, but it will be intriguing, not least for other struggling chains with pension deficits, to see whether, without its pension scheme, there is a possibility for the beleaguered business to continue.

This article was published in Acquisition Daily