Although Toys “R” Us Canada is eyeing more store closures, it will be able to hold onto the hundreds of companies it owes money for much longer.
Ontario Superior Court Justice Jane Dietrich said in a virtual court hearing on Friday that she would soon approve an order extending the beleaguered company’s creditor protections until May.
Creditor protection temporarily protects a bankrupt company from having to pay its debts while it considers its next steps.
When the company filed for 10 days of creditor protection at the start of the month, it said it owed at least $120 million to its vendors and large amounts to landlords.
Court documents show creditors include toy industry royalty such as Lego, Hasbro, Mattel, Spin Master Corp. and Squishmallows maker Jazwares, as well as prominent landlords Cadillac Fairview, Oxford Properties, Ivanhoé Cambridge and RioCan Holdings.
The Canadian Press previously reported that many of Toys “R” Us Canada’s creditors were suing the company over unpaid bills ahead of the retailer seeking creditor protection earlier in the month. The claims have not been tested in court but Toys “R” Us Canada has said in filings that it is subject to litigation due to breach of contract or breach of lease related to stores being closed due to “operational challenges.”
The retailer said inflation, rising labor costs, supply chain disruptions and a shift to e-commerce are some of the reasons it closed 53 stores in the past two years.
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Twenty-two stores remain, but Toys “R” Us Canada has warned that it may shrink its footprint even further as it prepares to finally find a buyer for the business.
Lawyers for the company asked Judge Dietrich to authorize the retailer to conduct more liquidation sales at some stores it may later decide to close.
The lawyers did not provide a list of locations that would be cut but said they wanted to give landlords 12 weeks and close more locations, if lease negotiations fail.
Dietrich was concerned that issuing the agreement would give the retailer permission to liquidate the remaining 22 stores but then appeared ready to immediately grant authorization to Toys “R” Us Canada, if certain conditions were added.
This key change requires Toys “R” Us Canada to obtain permission from Alvarez & Marsal – a court-appointed third party to guide the company through creditor protection – to liquidate stores going forward.
In a filing the retailer made before the hearing, it was revealed that it wants to close its location at Upper Canada Mall in Newmarket, Ont., by March 31 after reaching a lease termination agreement with its landlord.
They also want to close another store at the Niagara Pen Center in St. Louis. Catharines, Ontario, and said an affiliate of Toys “R” Us Canada owner Putman Investments is marketing for sale 11 of the 13 properties it leases to the retailer.
The document also provides insight into the state of Toys “R” Us Canada’s workforce. They show that the company had about 562 employees – 452 in stores and 110 in the corporate division – when it filed for creditor protection. About 180 staff have been laid off over the past year but continue to receive salaries.
After initial creditor protection was received, Toys “R” Us Canada laid off another 52 employees, bringing its headcount to approximately 510.
Putman Investments, an Ancaster, Ontario-based business that is also behind HMV, Sunrise Records, Ricki’s, Cleo and Northern Reflections, purchased Toys “R” Us Canada in 2021 from Fairfax Financial Holdings Ltd.
Fairfax paid $300 million to rescue the company and Babies “R” Us Canada in 2018, when Fairfax filed for creditor protection after the separately managed American branch of Toys “R” Us sought bankruptcy protection.
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