U.S. Trustee calls Toys ‘R’ Us Chapter 11 plan tactics ‘an ambush’

By Caroline Salls

Pittsburgh, Aug. 28 – The U.S. Trustee overseeing Toys “R” Us, Inc.’s bankruptcy case objected to the disclosure statement for the company’s proposed Chapter 11 plan, according to a filing with the U.S. Bankruptcy Court for the Eastern District of Virginia.

Acting Region Four U.S. trustee John P. Fitzgerald III said in his objection that “after almost a year of navigating through Chapter 11, the disclosure statement and underlying plan currently before the court reinforce what many long feared – administrative insolvency.”

Fitzgerald said administrative claimants stand to be the only creditors to be paid in full under Toys “R” Us’ proposed plan, and the debtors recently sought approval of a settlement “that shielded the lenders from future litigation and created a pot of money of approximately $180 million to be shared among the administrative claimants.”

The U.S. Trustee said the proposed settlement-based plan fails to pay priority claimants in full, meaning it does not meet the requirements for confirmation.

“In hope of getting the plan confirmed despite these significant infirmities, the debtors have manipulated the Bankruptcy Code requirements and sought the ‘consent’ of administrative claim holders to the proposed treatment, which offers them less than what they are entitled to under the code,” the objection said.

“This is an ambush.”

Toys ‘R’ Us is a Wayne, N.J., toy retailer. The company filed for bankruptcy on Sept. 19, 2017 under Chapter 11 case number 17-34665.

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