Toys “R” Us - Case Update

Toys R Us has officially delisted from the ASX, successfully exiting administration as a private company after all shares in the company, in addition to options, warrants and other convertible instruments, were transferred to an entity related to Directed Electronics Australia.

Previously listed under the ticker ASX: TOY, Toys 'R' Us ANZ Limited, as well as various related entities which together operated as the Australian arm of international children’s retailer Toys ‘R' Us, entered voluntary administration on 4 June of this year after sustained trading losses and a failure to secure further funding from their senior secured lender. This was the second insolvency for the company, which originally collapsed in 2018, resulting in the closure of 44 stores and 700 job losses. The brand was then acquired by Hobby Warehouse and relisted on the ASX after Hobby Warehouse was taken over by Funtastic.

In this current administration, Luke Andrews and Duncan Clubb of BDO quickly launched a sale process, receiving 25 expressions of interest and two offers for the whole business. The administrators ultimately accepted a DOCA proposal from a special purpose acquisition vehicle related to Directed Electronics Australia.

The proposal involved the transfer of all shares and options in the company to the acquirer, the establishment of a creditors’ trust funded with a $2 million contribution, continued employment for 16 of 17 staff, and a debt-for-equity swap with the senior secured lender owed approximately $14.4 million. Creditors were advised that in a liquidation they would recover nothing, but under the DOCA they could expect between 1 and 6.5 cents in the dollar, while shareholders would receive nothing in either scenario.

The administrators sought leave under s 444GA of the Corporations Act to transfer all issued shares in the company to the acquirer, and also orders under s 447A to modify the operation of s 444GA so that it applied not only to shares but also to share options, warrants, and other convertible instruments, which was necessary to give full effect to the DOCA.

The Federal Court granted the orders sought, relying on the administrators’ conclusions that liquidation would yield no return to unsecured creditors or shareholders, whereas the DOCA would provide between 1 and 6.5 cents in the dollar to creditors and preserve jobs. An independent expert opined that the shares had no residual value in a liquidation scenario, and that the options were likewise “out of the money.” The Court was satisfied that shareholders and option holders were not unfairly prejudiced, as they stood to receive nothing in a winding up.

The Court also considered whether s 447A could be used to extend the operation of s 444GA to options and other instruments. The Court concluded that this was permissible, consistent with the objectives of Part 5.3A, and justified given that the options had no value and their transfer was necessary to effectuate the DOCA.

The decision can be found HERE.

Professionals involved: Damien McAloon of the Victoria Bar (instructed by K&L Gates) for Luke Andrews and Duncan Clubb of BDO, the deed administrators of Toys 'R' Us ANZ Limited