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Bankrupt Toys R Us can pay executives millions of dollars in bonuses, judge rules

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A Toys R Us store is seen in Hayes, Britain, on Dec. 2. (Peter Nicholls/Reuters)

With the holiday shopping season approaching and bankruptcy proceedings underway in federal court, Toys R Us went to its creditors in November with an unorthodox request. To boost sales, the insolvent company asked: Let us pay out millions of dollars in bonuses to our top executives.

On Tuesday, a bankruptcy judge approved the request.

Under the plan, Toys R Us will pay 17 executives about $14 million in incentive bonuses, as long as the company hits its target of $550 million in earnings. It must hit a minimum of $484 million in adjusted earnings before any bonuses are awarded, as USA Today reported.

Attorneys for the company argued in court papers that the bonuses would help encourage executives to focus on driving up sales as the holidays approach.

“Timing, of course, is everything,” they wrote in a Nov. 14 filing. “Now more than ever the senior management team must be properly motivated and incentivized to handle the panoply of responsibilities attendant to their two full-time jobs of leading the Debtors through this restructuring and, at the same time, implementing a worldwide strategy to increase sales following a near shut-down of operations just eight short weeks ago. The task at hand cannot be underestimated.”

But Judy Robbins, a Justice Department lawyer representing the interests of creditors, contended that the bonuses were excessive, given the company’s financial situation.

“It defies logic and wisdom, not to mention the Bankruptcy Code, that a bankrupt company would now propose further multi-million dollar bonuses for the senior leadership of a company that began the year with employee layoffs and concludes it in the midst of the holiday season in bankruptcy,” she wrote.

“Apparently, this Christmas, Toys ‘R’ Us intends to deliver not only ‘children their biggest smiles of the year’ but the insiders, too,” her Nov. 28 objection read. She added later that some executives already receive other perks, including personal drivers and private planes.

In court, U.S. Bankruptcy Judge Keith Phillips noted that none of the company’s creditors or lenders had raised objections — a silence that he said he found “particularly striking,” according to USA Today.

“On the contrary, I see the committee and any creditors who have addressed this court are asking the court to approve this plan and I think that’s telling,” he said. He gave the bonus plan the green light after a five-hour hearing in Richmond.

The company’s attorney, Joshua Sussberg, assured the judge that the company is “laser-focused on the holidays,” according to Reuters. There is still time, he said, to spur shoppers to “buy as much as they can.”

Sussberg also argued that the financial goals are challenging. “These are not layups,” he said, according to USA Today. “These are half-court, backwards, with a blindfold.”

Toys R Us, headquartered in Wayne, N.J., has 1,600 stores globally and about 64,000 employees. It filed for Chapter 11 bankruptcy protection in September with plans to restructure $5 billion in long-term debt. It bought out one of its biggest competitors, FAO Schwarz, in 2006.

Sussberg said the retailer hopes to have a business plan ready by July, and aims to be out of bankruptcy by the 2018 holiday season.

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