Second Meeting of Creditors

Transcription

1 DRAFT Toys R Us (Australia) Pty Ltd ( TRU ) Babies R Us (Australia) Pty Ltd ( BRU ) (Both Administrators Appointed) (collectively Toys "R" Us Australia ) Second Meeting of Creditors 26 September 2018

2 Agenda Meeting formalities Purpose of meeting Administrators report to creditors Business and structure of Toys R Us Australia Events leading to the administration Financial position Conduct of administration Investigations Reasons for failure Estimated return to creditors Available courses of action Recommendation Liquidation work to be undertaken Questions Resolutions 2

3 Resolution meetings to be held concurrently TRU: That the meetings of creditors of each of the Toys "R" Us Australia companies, being: Toys R Us (Australia) Pty Ltd Babies R Us (Australia) Pty Ltd (Both Administrators Appointed) be held concurrently. BRU: That the meetings of creditors of each of the Toys "R" Us Australia companies, being: Toys R Us (Australia) Pty Ltd Babies R Us (Australia) Pty Ltd (Both Administrators Appointed) be held concurrently. 3

4 Meeting formalities Open meeting Administrator Chairperson: Insolvency Practice Rules (Corporations) Introductions Jason Preston (Administrator) Jason Ireland (McGrathNicol Partner) Peter Bowden (Gilbert + Tobin) Quorum: Insolvency Practice Rules (Corporations) for TRU Quorum: Insolvency Practice Rules (Corporations) for BRU Attendance register Voting Time and place convenient: Insolvency Practice Rules (Corporations) Proofs of debt and proxies received Declaration of independence, relevant relationships and indemnities 4

5 Purpose of meeting Convened under Section 439A of the Corporations Act to: consider the Administrators Report to creditors about Toys R Us Australia s business, property, affairs and financial circumstances resolve that (for each company): the administration should end; or the company be wound up; or the company enter a Deed of Company Arrangement; or the meetings be adjourned. consider and, if thought fit, approve the Administrators remuneration if creditors resolve that either company be wound up: consider and, if thought fit, approve the future remuneration of the liquidators; consider the appointment of a Committee of Inspection; consider authorising the liquidators to compromise debts of the companies; and consider authorising the liquidators to enter into agreements that may take longer than three months to complete. 5

6 Business and structure of Toys R Us Australia 44 stores + head office and distribution centre + E-commerce Refer report section 4.2 and appendix I 6

7 Business and structure of Toys R Us Australia Toys R Us Inc (US registered parent) International operations (multiple entities) North American operations (multiple entities) Global support service operations (multiple entities) OBLIGOR GROUP TO SECURED PARTIES TRU Australia Holdings, LLC (US registered entity) Toys R Us (Australia) Pty Ltd Geoffrey LLC (US owner of trademarks) Licence agreement for use of trademarks Babies R Us (Australia) Pty Ltd Subject to appointment of Voluntary Administrators Refer report section 4.3 7

8 Events leading to the administration 2005 Private equity buy out of global business September 2017 Chapter 11 in the United States December 2017 UK Company Voluntary Arrangement February 2018 UK administration Attempts to formulate restructure of United States business and global operations March 2018 United States closing all stores April 2018 Canadian business sold April 2018 German, Austrian, Swiss business sold Refer report section 4.4 Early 2018 Sales process 21 May 2018 Final bidder withdrew from sales process and Administrators appointed on same day 8

9 Financial position snapshot Statement of financial performance A$'m FY14 FY15 FY16 FY17 Sales Cost of goods sold (160.3) (167.5) (170.3) (181.4) Gross profit Gross margin % 38% 37% 38% 38% Other income Expenses (113.9) (108.2) (115.5) (131.0) Operating profit/(loss) (5.8) (9.0) (7.7) (17.0) Source: Audited financial statements FY14, FY15 and FY16 and draft financial statements FY17 Sales increased by 12% from FY14 to FY17 Gross margin remained stable over the same period (approximately 38%) Operating losses over the four year period driven by an increase in store overheads and financing costs Refer report section 6.1 9

10 Financial position snapshot Statement of financial position A$'m FY14 FY15 FY16 FY17 31-Jan Jan Jan Feb-18 Cash and cash equivalents Inventories Other assets Total assets Trade and other payables (31.3) (33.9) (36.7) (29.2) Borrowings (related parties) (10.8) (21.1) (29.5) (79.3) Other liabilities (23.1) (21.7) (19.2) (18.7) Total liabilities (65.2) (76.7) (85.4) (127.2) Net assets (6.1) (23.0) Shareholders' equity (6.0) (23.0) Source: Audited financial statements FY14, FY15 and FY16 and draft financial statements FY17 Refer report section 6.3 Cash increased by $14.2m in FY17 as related party loans were not called Trade creditors declined in FY17 due to the Chapter 11 filings and the associated contraction in supplier credit terms Borrowings increased by 169% during FY17 as a result of the increased related party borrowings and suspension of repayment requirements Net asset deficiency in FY16 and FY17 including related party borrowings 10

11 Conduct of administration Appointment Moratorium period Outcome of VA 21 May VAs appointed 31 May First meeting of creditors 12 June First meeting of COI 14 June Convening period extended 29 June Second meeting of the COI 14 August Third meeting of the COI 18 September Report to creditors issued 26 September Second meeting of creditors Post-appt Business continued to trade May Sale of business process commenced June - August Stock liquidation process undertaken August Operations discontinued August - September Sale of e- commerce business commenced Refer report section 5 11

12 Conduct of administration Statutory obligations/ investigations Statutory obligations /investigati ons Trade-on management Sale of business process Trade-on management Cessation of operations Employees Sale of business Creditors process Cessation of operations Employees Creditors 12

13 Investigations Avenue of investigation Outcome Voidable transactions Outcome Directors and officers duties and responsibilities Books and records Directors met responsibilities Complied with requirements of Corporations Act Unfair preference payments Uncommercial transactions Requirement for insolvency at time of transaction no potentially voidable transactions identified Insolvent trading Refer report section 8 and 11 Did not trade while insolvent point of insolvency was appointment of Administrators Unfair loans Unreasonable directorrelated transactions Creation of circulating security interests No potential voidable transactions were identified Refer report section 11 Transactions for the purpose of defeating creditors 13

14 Reasons for failure 1 Bankruptcy of Toys R Us in the United States 2 Tightening of working capital (credit) terms 3 Ongoing funding from related parties subject to outcome of sales process 4 Final bidder withdrawal of interest in the Australian business Refer report section 10 14

15 Estimated return to creditors Liquidation Employees All amounts due have been paid in full Secured creditors Between $29.4m (low case scenario) and $31.8m (high case scenario) available for distribution resulting in likely shortfall Unsecured creditors Dependent on secured creditor being repaid in full from realisation of assets globally Refer report section 12 15

16 Available courses of action Administration ends Not recommended as entities insolvent Deed of Company Arrangement No proposal received Liquidation Administrators recommendation Refer report section 13 16

17 Recommendation The Administrators recommend creditors resolve that both Toys R Us (Australia) Pty Ltd and Babies R Us (Australia) Pty Ltd be placed into liquidation Refer report section

18 Liquidation work to be undertaken Statutory obligations/ investigations Statutory obligations /investigati ons Trade-on management Residual trade on matters Sale of business process Cessation of operations Sale of e-commerce Creditors business Employees Employees Creditors 18

19 Q & A

20 Resolution: Winding up - TRU Resolution 1: Winding up That Toys R Us (Australia) Pty Ltd (Administrators Appointed) be wound up and Jason Preston, Keith Crawford and Barry Kogan be appointed joint and several liquidators. Refer report section

21 Resolution: Winding up - BRU Resolution 2: Winding up That Babies R Us (Australia) Pty Ltd (Administrators Appointed) be wound up and Jason Preston, Keith Crawford and Barry Kogan be appointed joint and several liquidators. Refer report section

22 Resolution: Administrators remuneration - TRU Resolution 3 Additional retrospective remuneration incurred for the period 23 June 2018 to 3 August 2018 That the remuneration of the Voluntary Administrators of Toys R Us (Australia) Pty Ltd (Administrators Appointed) for the period 23 June 2018 to 3 August 2018, calculated at hourly rates as detailed in the Initial Remuneration Notice dated 24 May 2018, is approved for payment in the sum of $35, plus GST and disbursements, and the Voluntary Administrators may pay the remuneration immediately or as otherwise determined by the Voluntary Administrators. Refer report appendix D, section

23 Resolution: Administrators remuneration - TRU (cont.) Resolution 4 - Retrospective remuneration incurred from 4 August 2018 to 7 September 2018 That the remuneration of the Voluntary Administrators of Toys R Us (Australia) Pty Ltd (Administrators Appointed) for the period 4 August 2018 to 7 September 2018, calculated at hourly rates as detailed in the Initial Remuneration Notice dated 24 May 2018, is approved for payment in the sum of $1,022, plus GST and disbursements, and the Voluntary Administrators may pay the remuneration immediately or as otherwise determined by the Voluntary Administrators. Refer report appendix D, section

24 Resolution: Administrators remuneration - TRU (cont.) Resolution 5 - Prospective remuneration incurred from 8 September 2018 to 26 September 2018 That the prospective remuneration of the Voluntary Administrators of Toys R Us (Australia) Pty Ltd (Administrators Appointed), for the period 8 September 2018 to 26 September 2018, calculated at hourly rates as detailed in the Initial Remuneration Notice dated 24 May 2018, is approved to a capped amount of $500, plus GST and disbursements, and the Voluntary Administrators may pay the remuneration as incurred on a monthly basis or as otherwise determined by the Administrators. Refer report appendix D, section

25 Resolution: Liquidators remuneration - TRU Resolution 6 Liquidators future remuneration That the prospective remuneration of the Liquidators of Toys R Us (Australia) Pty Ltd (Administrators Appointed), to a maximum amount of $500, plus GST, calculated at hourly rates as detailed in the Initial Remuneration Notice dated 24 May 2018, for the period from 27 September 2018 until the work undertaken in the estimation of remuneration is complete, or the time charges for work undertaken exceeds the capped fee amount (whichever occurs first), is hereby approved for payment, from funds on hand or as and when they come to hand. Refer report appendix D, section

26 Resolutions: Committee of Inspection TRU and BRU Resolution 7 Committee of Inspection That a committee of inspection be formed, with the following to be members: representing representing representing representing representing Refer report section 16 26

27 Resolution: Liquidators powers TRU and BRU Resolution 8 Liquidators authorised to compromise debts That the Liquidators are authorised to compromise debts of the Company greater than $100,000 under Section 477(2A) of the Act. Refer report appendix A 27

28 Resolution: Liquidators powers TRU and BRU Resolution 9 Liquidators authorised to enter into agreements greater than 3 months That the Liquidators are authorised to enter agreements that may take longer than three months to complete under Section 477(2B) of the Act. Refer report appendix A 28

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