Toys R Us bankruptcy continues to unfold with severance package

Thousands of workers laid off when toy retailer Toys R Us filed for Chapter 11 bankruptcy might soon be receiving severance payments. The multimillion-dollar severance package, funded by two of the three equity firms that purchased the company in a 2005 leveraged buyout, could provide relief for workers struggling since the company closed all 850 stores back in June.

Details of the severance package have not yet been confirmed, but the Washington Post and Wall Street Journal have both reported that the fund, set aside by part-owners Bain Capital and Kohlberg Kravis Roberts, is worth an estimated $20 million. That is far less than the $75 million that workers were promised prior to the bankruptcy, but still enough to provide payments to thousands of lower-level employees.

The original severance package rewarded workers for their loyalty to the company. Before the bankruptcy was filed, the company had agreed to pay workers two weeks’ worth of severance for their first year of service and then an additional weeks’ worth for every two years after that. It’s unclear from the scant details available if that arrangement will be continued, or if this package will even be approved by the bankruptcy trustee as part of the overall proceeding.

We told you in an earlier post that the U.S. Bankruptcy Trustee handling the company’s Chapter 11 case was considering not approving the bankruptcy settlement because of a so-called “death trap” provision aimed at coercing creditors and vendors into signing away their rights. We will continue to keep you posted about the myriad developments happening in this high-profile bankruptcy case.