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While Toys “R” Us Canada eyes more store closures, it will be able to keep at bay the hundreds of companies it owes money to for a little longer.
Ontario Superior Court Judge Jane Dietrich said in a virtual court hearing Friday that she will soon approve an order extending the beleaguered company’s creditor protection until May.
Creditor protection temporarily shields an insolvent company from having to pay those it owes money to while it figures out its next steps.
When the company filed for 10 days of creditor protection at the start of the month, it said it owes at least $120 million to its vendors and “substantial” amounts to landlords.
Court documents show creditors include toy industry royalty like 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 many of Toys “R” Us Canada’s creditors sued the company over unpaid bills in the lead up to the retailer requesting creditor protection at the start of the month. Those claims have not been tested in court but Toys “R” Us Canada has said in filings that it is subject to litigation for breach of contract or breach of lease linked to stores it closed due to “operating challenges.”
The retailer has said inflation, rising labour costs, supply chain disruptions and a shift toward e-commerce were part of the reason it closed 53 stores in the past two years.
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Twenty-two stores remain, but Toys “R” Us Canada has warned it may shrink its footprint even further as prepares to eventually seek 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 on the chopping block but said they wanted to be able to give 12 weeks to landlords and close more sites, if lease negotiations failed.
Dietrich was concerned that issuing such approval would give the retailer permission to liquidate all 22 remaining stores but later appeared prepared to give Toys “R” Us Canada authorization shortly, if certain stipulations were added.
The key change requires Toys “R” Us Canada to get permission from Alvarez & Marsal — a court-appointed third-party guiding the company through creditor protection — to liquidate further stores.
In filings the retailer made ahead of the hearing, it revealed it wanted to shutter its location at Upper Canada Mall in Newmarket, Ont., by March 31 after it reached a lease termination agreement with the landlord.
It also wants to close another store at the Niagara Pen Centre in St. Catharines, Ont., and said affiliates of Toys “R” Us Canada owner Putman Investments were marketing for sale 11 of the 13 properties they lease to the retailer.
The documents also offered a window into the state of Toys “R” Us Canada’s workforce. They showed the company had about 562 employees — 452 at stores and 110 in its corporate division — when the company filed for creditor protection. Some 180 staff had been terminated over the last year but remained on salary continuance.
After initial creditor protection was received, Toys “R” Us Canada laid off another 52 employees, bringing its head count to about 510.
Putman Investments, an Ancaster, Ont.-based business which is also behind HMV, Sunrise Records, Ricki’s, Cleo and Northern Reflections, bought 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 it filed for creditor protection after the separately-run American arm of Toys “R” Us sought bankruptcy protection.
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