MEMBER ALERT: Toys“R”Us Settlement Agreement and More
August 23, 2018 | The purpose of this Member Alert is to inform Toy Association members of additional details about the Toys"R"Us (TRU) bankruptcy case and settlement agreement. The Toy Association will continue to monitor developments in this matter and will share relevant news with members as quickly as possible. NOTE: members may access key Toys"R"Us bankruptcy documents on Prime Clerk's website.
- IMPORTANT DEADLINE: Bankruptcy Court Approved TRU Settlement Agreement [Docket #4083]
On August 7, the bankruptcy court approved the settlement agreement negotiated between Toys"R"Us, the Official Unsecured Creditors' Committee, the Ad Hoc Creditors group, and various secured lenders. Details of the settlement agreement were presented in a July 31 call hosted by The Toy Association. Members can access a recording of the call on the Association's website. Unsecured creditors with administrative claims (503b9 and post-petition claims) must decide by August 24 if they would like to opt out of the settlement agreement. Specific action must be taken to opt out of the agreement. No action is needed to participate in the settlement agreement.
Key considerations in deciding whether or not to opt out of the settlement may be unique to each creditor's circumstances. Consideration should be given to the following:
- The settlement agreement provides that the debtor will not pursue preference claims as allowed under the bankruptcy provisions against creditors who participate in the agreement. Preference claims refer to monies paid to creditors within 90 days prior to the bankruptcy filing. Under bankruptcy law, the debtor has the right to recover those payments from creditors. Opting out of the settlement agreement exposes a creditor to these preference claims.
- The settlement agreement includes funds set aside to pay administrative claims. The estimated recovery of those claims is approximately 21 percent. There is potential for that amount to increase depending on recoveries from the sale of other business operations and debtor assets. Certain secured lenders have agreed to share some proceeds with administrative claim holders, but you must participate in the settlement agreement to benefit from this arrangement.
- If a creditor opts out of the settlement agreement, it is unclear what, if any, assets will be available to pay those creditors.
- Participants to the settlement agreement retain the ability to pursue claims against former Toys"R"Us officers and directors through recovery from directors' and officers' insurance policies. Creditors who opt out of the settlement agreement may also be able to submit claims against directors and officers.
- Some Unsecured Creditors' Claims Reassigned
Some unsecured creditors with administrative claims may have received an omnibus motion (a total of 14 such motions have been issued) which allows claims that were made against the wrong legal entity to be reassigned to the correct entity. If you received such a notice, you should make sure that your claim amount is accurate and has been reassigned to the appropriate legal entity under the bankruptcy. These notices are not an attempt to eliminate the claims. These omnibus motions have various deadlines, beginning August 31, if a creditor wishes to object to the reassignment. If the reassignment is correct, then no action needs to be taken. The Toy Association recommends you consult with your legal and financial advisors.
- Former Toys"R"Us Employees Plan to File Class Action Severance Claim [Docket #4168]
On August 15, the bankruptcy court extended a deadline to August 28 for former employees of Toys"R"Us to file a class action claim for severance for all non-insider employees terminated after the bankruptcy filing date of September 18, 2017.
Questions on this topic may be directed to Paul Vitale, The Toy Association's executive vice president of finance & operations. Additional details about the bankruptcy case can be found on The Toy Association's Toys"R"Us Bankruptcy Information resource page.