Before 2017, Toys 'R' Us was one of the largest toy retailers in the world, if not the largest, but in September 2017, the company filed for bankruptcy after suffering from low sales and a large amount of debt. It took some steps before and after bankruptcy, which will be discussed in this paper.
Before bankruptcy:
At first, the company tried to expand, open new stores, and increase production lines, but with the lack of sales, this expansion led to an increase in debt and operating expenses. The company also tried to be present on the Internet, but timidly and at a slow pace, as during its history, it relied on its own sales outlets. Still, in the end, the competition favored Amazon, Wal-Mart, and Target, who took advantage of the Internet boom better and faster (Bhattarai, 2017).
After bankruptcy:
After filing for bankruptcy, the company closed underperforming outlets with lower sales, restructured its debt, invested in technology, and improved its online presence. In 2017 the company partnered with Amazon, but in 2018, it was terminated for lack of benefits (He, Reimers & Shiller, 2022). The company also made several attempts to change the course of business. Still, these attempts failed, eventually liquidating its remaining stores in mid-2018. 2019 the company emerged from bankruptcy with a new brand name, "Tru Kids." In 2020, 2021, and 2022, the company partnered with Target and Macy's, and the company still needs to return to the market again.
Alternative strategies
According to Zuck (2014), the paper presented four alternatives for companies that are heading to seek bankruptcy protection, and they are:
1. Out-of-court workouts: This strategy involves negotiating with creditors outside the courts to restructure debts and financial obligations. The main objective is to reach a settlement and an agreement to avoid bankruptcy procedures, such as reducing the amount owed, reducing the interest rate on debt, or extending the repayment period (Zuck, 2014).
2. Composition of Creditors: This strategy is done through the court and is close to the previous strategy. Still, immediate payment of a certain percentage of the amount owed to creditors is required to waive the remaining balance. The agreement is binding on all creditors by court order, even if some do not agree (Zuck, 2014).
3. Assignments for the Benefit of Creditors (ABC): It is when a company that has declared bankruptcy transfers all its assets to an independent third party. This party liquidates the assets and distributes the proceeds to the creditors, determining the priority of creditors' claims, debt distribution ratios, and interest rates (Zuck, 2014).
4. Receiverships: It is a legal process in which the company appoints a judicial receiver to control its assets, sell them, and pay creditors. This process takes longer inside the courts due to the many procedures and definitions of the powers and duties of the judicial guard (Zuck, 2014).
In the case of Toys 'R' Us:
In the case of Toys 'R' Us, the company followed the first approach, which was negotiating with creditors. Still, this matter failed, so it did not follow other strategies, liquidated in the United States, and sold its branches outside the United States to foreign companies (Morgan & Nasir, 2021).
A deep analysis and experience of the company's financial circumstances are required to choose the appropriate strategy for Toys' R' Us. However, with a quick look, I see that the third strategy, Assignments for the Benefit of Creditors (ABC), is faster and less expensive than the official bankruptcy procedures because the creditors recover their debts better, and the company is better positioned.
Conclusion
The strategies available after declaring bankruptcy are long and somewhat complicated. Many companies in such a situation are making large-scale changes in their management to deal carefully with this stage. Management of the post-bankruptcy phase may cost the bankrupt company much more than it has to pay if the appropriate strategy is followed.
References
Bhattarai, A. (2017). "Toys 'R' Us files for bankruptcy amid struggle to pay down billions in debt". The Washington Post. Retrieved September 19, 2017.
He, L., Reimers, I., & Shiller, B. (2022). Does Amazon Exercise Its Market Power? Evidence from Toys "R" Us. The Journal of Law and Economics, 65(4), 665-685.
Morgan, J., & Nasir, M. A. (2021). Financialised private equity finance and the debt gamble: The case of Toys R Us. New political economy, 26(3), 455-471.
Zuck, S. B. (2014). Alternatives to franchisee bankruptcy: Workouts, compositions of creditors, assignments for the benefit of creditors, and receiverships. Franchise Law Journal, 33(3), 359-375. (Dated but relevant). Retrieved from ProQuest Central