Trustees of toy retailer Toys R Us defined benefit (DB) pension scheme weren’t informed about an intergroup loan write-off of hundreds of millions of pounds which could have a substantial impact on members' retirements, said chairman of the Work and Pensions select committee Frank Field.
The loan write off is for £584.5m, which Mr Field said as with the blackhole in the British Homes Stores pension scheme which led to its collapse, BHS, the trustees and The Pensions Regulator "were kept entirely in the dark" about the scale of the problem.
“The pension scheme is, at best, an inconvenient afterthought to self-interested corporate restructure. The puny regulatory system only kicks in once the damage is done,” Mr Field said in a statement.
Toys R Us filed for bankruptcy protection in the US in September and announced earlier this month that it will be instigating a company voluntary arrangement (CVA), through which it will seek creditor approval to reposition its real estate portfolio.
This plan will entail closing at least 26 of its 100 British shops.
In letters sent to the scheme trustees and to The Pensions Regulator (TPR), Mr Field accused the firm of waiving a sum of £584.5m in loans owed to it by a firm in the British Virgin Islands in the year ending January 2017, when it made a pre-tax loss of £673.3m.
The firm had stated in its accounts this was part of a "group reorganisation".
At the same time the retailer’s pension scheme deficit amounted to £18.4m, up from the £10.3m loss posted in the previous year, Mr Field wrote.
In its response to the letter, Graham Barker, chair of the scheme trustee board, revealed that they “were not formally notified of the transaction by the company and on becoming aware of it have taken steps to assess any impact on the scheme”.
According to Mr Barker, the retailer said that the write-off of the loan had no impact on the direct covenant of the pension fund, “as it occurred in a different part of the group’s corporate structure which sits a number of layers above the employer responsible for the DB scheme, Toys R Us Limited”.
He said: “We have asked our advisers to review the intergroup loan position and how it may impact on the scheme as part of our assessment of the CVA proposal.”
For the CVA to be implemented, it is necessary that 75 per cent of creditors voting must vote in favour of the agreement, along with shareholders representing 50.01 per cent of the votes cast at the general meeting to approve the CVA.
The pension scheme is one of these creditors, and the Pension Protection Fund (PPF) will be voting on the scheme’s behalf on the CVA vote on Thursday (21 December), Mr Field said.
The pensions lifeboat has been “working closely” with the scheme trustees on this process.
maria.espadinha@ft.com
