Toys R Us UK and Maplin enter into administration after failing to secure buyers

Toys R Us UK and Maplin enter into administration after failing to secure buyers

Maplin has appointed PwC partners as joint administrators while Toys R Us has selected Moorfields

Toys R Us UK and Maplin enter into administration after failing to secure buyers

In a major blow to the retail industry, Toys R Us UK and Maplin have fallen into administration, collectively putting 5,500 jobs at risk.

The companies fell victim to changing consumer behaviour, which saw them favouring online marketplaces over the high street, and were forced into administration after failing to secure buyers.

Toys R Us enters insolvency after a difficult year

The embattled toy chain risked collapse in the UK in December 2017 but agreed to a company voluntary arrangement (CVA) which saw it restructuring its operations and planning to close at least 26 stores. The rescue plan involved the Pension Protection Fund (PPF) agreeing to inject £9.8m into its pension scheme between 2019-2020.

However, continued poor sales coupled with a looming VAT bill of £15m saw it seeking a buyer, and inability to secure one forced the company to turn to administration.

Moorfields has been appointed as administrator, and partner Simon Thomas said the firm would be “conducting an orderly wind-down of the store portfolio over the coming weeks.”

However, he confirmed that attempts to find a buyer were ongoing: “We will make every effort to secure a buyer for all or part of the business.”

The toy chain has 3,000 staff across 105 stores. Thomas said all stores will remain open until further notice.

The UK branch’s collapse comes after its US parent company filed for bankruptcy last year.

Philip Marshall QC at Serle Court said it is surprising that Toys R Us didn’t go into insolvency sooner, considering the fate of its US parent company and increasing competition with online marketplaces.

He said: “One question that may need proper investigation is whether the board acted properly in deferring administration in the face of market pressures (and ongoing losses) in the hope of securing a sale.”

“Given that there is apparently a deficit to both the Revenue and Pension Protection Fund the outcome for trade creditors cannot be good and they may wish a proper investigation to be  undertaken by the administrators to determine whether there is culpability here”.

Maplin points to Brexit and changing consumer behaviour

Meanwhile, electronics company Maplin fell into administration after talks with potential buyers fell through.

CEO Graham Harris said the company struggled with “sterling devaluation post-Brexit, a weak consumer environment and the withdrawal of credit insurance”, factors which made raising capital “impossible”.

Insurers cut credit cover last year because of Maplin’s falling profits.

Zelf Hussain, Toby Underwood and Ian Green of PwC have been appointed joint administrators, in order “to achieve the best possible outcome for all of our colleagues and stakeholders”, according to Harris.

Hussain commented: “Our initial focus as administrators will be to engage with parties who may be interested in acquiring all or part of the company. We will continue to trade the business as normal whilst a buyer is sought.”

The electronics chain has 2,500 UK staff across 200 stores, which will remain open for the time being. Hussain said: “Staff have been paid their February wages and will continue to be paid for future work while the company is in administration.”

Creditor claims and tax liabilities

Adam Deacock, a Barrister at Radcliffe Chambers commented that finding a buyer willing to absorb the companies’ debts and liabilities will be tough, and as a result “the administrators’ concern is simply to produce the best result for creditors” by getting as much as possible for the assets.

He added: “As taxpayers we should all be concerned as the immediate cause of Toys R Us’ administration appears to be its unpaid VAT bill of £15m and other unpaid tax debts can be expected.”

“The fact that this administration follows so soon after Toys R Us’ CVA this Christmas shows that pressure is coming from all directions.”

“The administrators will not have long to secure a result, as cash to fund continuing trading will no doubt be very tight and the chances are that if there was an obvious deal to make, someone would have done it already. In theory this should all be the subject of a creditors’ meeting but in practice the administrators may have to move before one can be convened.”

Blick Rothenberg encouraged creditors to make a claim to the liquidators as an unsecured creditor.

The firm explained that there is “an order of priority regarding who ranks above who when a company goes into liquidation”, and “trade creditors would be below secured creditors such as banks and the company’s employees.”

Commenting on what shareholders can do, Helena Kanczula, corporate tax director at Blick Rothenberg said: “For shareholders in companies that have been liquidated, this is treated as a disposal event and shareholders should be aware that a capital loss may therefore crystallise. This can be claimed up to four years after the end of the tax year and offset against other gains in excess of the annual exempt amount.”

Blick Rothenberg added that for VAT bad debt relief, the amount will have had to gone unpaid for six months from the date when the invoice was due, and so may take some time to come to fruition.

Furthermore, the firm advises that any potential bad debts from customers in financial difficulty should be provided against and corporation tax/income tax relief can be claimed on the deduction, thus reducing the tax liability.

The firm added that HMRC may agree to instalment arrangements if the businesses are not able to pay tax on time, pointing to the folding of Carillion, when HMRC offered to provide practical advice and guidance to affected businesses.

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