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Toys R Us creditors' lawsuit proceeds

Richard Collings
Jun 29, 2022
A storefront with the store name Toys R Us spelled out in giant letters in different colors above the entrance.
Photo: Tim Boyle/Getty Images

U.S. bankruptcy judge Keith Phillips gave a lawsuit brought by Toys R Us creditors against the company's former executives tied to the toy retailer's 2017 bankruptcy the green light to go to trial.

Why it matters: Not only was Toys R Us one of the largest retail bankruptcies of all time, it was also the largest administrative insolvency, according to a court document filed in January.

  • Administrative insolvency means advisory fees and money owed for goods and services that must be paid for under a Chapter 11 reorganization couldn't all be covered, and it forced a liquidation.

Driving the news: It's a pivotal moment for a case that's been in the works since early 2020.

Yes, but: Not all of the lawsuit was allowed to proceed.

  • While the claims of vendors and those concerning advisory fees (among others) will be heard, the judge waived allegations that the executives' decision to take on more debt to fund the bankruptcy (debtor-in-possession or DIP financing) was negligent.

Details: In December, the defendants asked the court for summary judgment on claims made against it pertaining to its fiduciary duty on the DIP financing, on pre-petition retention payments and advisory fees, as well as on the claims of individual creditors and vendors.

Context: As Axios wrote in 2018, there is plenty of blame to go around, for the storied toy retailer's demise.

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