Toys 'R' Us creditor sues former owners, ex-CEO
A bankruptcy trust for creditors who lost money in the Toys “R” Us Inc. bankruptcy sued former Chief Executive David Brandon and several directors tied to owners Bain Capital LP, KKR & Co. and Vornado Realty Trust, alleging they siphoned money out of the company before it went under.
The lawsuit also accused Mr. Brandon and other Toys “R” Us executives and board members of conspiring to keep the company’s suppliers in the dark about its dire financial straits in the months before it collapsed. As a result, suppliers and other creditors lost $800 million, according to the complaint.
Toys “R” Us filed for bankruptcy in September 2017 and liquidated in March 2018, leaving behind a pile of unpaid bills, mostly to vendors.
Bob Bodian, an attorney who represents the Toys “R” Us executives and directors, said they “acted in the best interest of the company and its stakeholders.”
The lawsuit is a “misguided effort to pressure insurance carriers to pay meritless claims,” he said.
When Toys “R” Us filed for bankruptcy in 2017, the company touted its access to $3.1 billion in bankruptcy loans but quickly defaulted on the loan, leaving many suppliers and other creditors with $800 million in unpaid bills, the largest amount ever in a chapter 11 case, according to the lawsuit.
The complaint said the company continued to buy goods from vendors on credit even once it became clear to Mr. Brandon and other Toys “R” Us directors that access to financing would dry up because of a disastrous holiday selling season. Between December 2017 and March 14, 2018, Toys “R” Us placed $600 million of orders on credit, at the instruction of the company’s board, while telling suppliers that the company would emerge from bankruptcy, according to the complaint.
The lawsuit also focused on nearly $18 million in fees allegedly paid to the company’s owners between 2014 and 2017. Mr. Brandon had a cozy relationship with Bain Capital, including the ability to invest in Bain’s funds without paying the standard fees, according to emails cited in the complaint.
Mr. Brandon allegedly did business favors for Bain unrelated to his role at Toys “R” Us, such as helping to set up a meeting with the founder of the Jimmy John’s sandwich chain, the complaint said. It argued these ties should have disqualified Mr. Brandon from approving the payment of advisory fees to Bain.
The lawsuit said Mr. Brandon paid a nearly $2.8 million bonus to himself a few days before Toys “R” Us filed for chapter 11, fearing a bankruptcy court wouldn’t approve such a bonus.
Bain Co-Chairman Joshua Bekenstein and KKR executive Paul Raether also are among executives and directors named as defendants.
A group of hedge-fund managers, including Solus Alternative Asset Management LP, that took control of the remnants of Toys “R” Us through the bankruptcy has since revived the business, running stores with the Toys “R” Us branding.
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