Crayola Going Bankrupt?
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The Forks Township crayon-maker says Toys R Us has failed to pay for at least $2.3 million of Crayola merchandise received in recent months after the chain filed for Chapter 11 bankruptcy protection in September.
Crayola is fighting in U.S. Bankruptcy Court to get that amount as Toys R Us liquidates the inventory in its 735 stores across the country. The process could cost toymakers millions, while Toys R Us uses the going-out-of-business proceeds to pay its secured lenders.
In court filings last week, Crayola objected to several Toys R Us motions and claimed the chain actually accelerated its orders from Crayola in early January and through February even as it became increasingly clear that the business would fail.
For example, according to a March 23 filing, Toys R Us ordered nearly $2 million of Crayola merchandise on or after Jan. 10, up from about $1.2 million of the product ordered during the same period a year earlier. The increase is even “more shocking,” Crayola said in the filing, considering Toys R Us in the fourth quarter of 2017 ordered about $700,000 less in Crayola products than it did in the fourth quarter of 2016.
According to the filing, statements made by Toys R Us in its wind-down motion reveal the company “was well aware that their U.S. operations were already teetering on the precipice of failure at the very same time that the debtors were accelerating their orders of merchandise from Crayola and others.”
In its filings, Crayola describes Toys R Us’s actions as “extraordinarily reckless” and “irresponsible and potentially illegal behavior.”
The wind-down motion in its current form — a hearing is slated for noon April 11 — would allow Toys R Us to use its going-out-of-business sales to pay the financiers of its bankruptcy loan. Meanwhile, the motion would place an “administrative stay” on vendors such as Crayola that would bar the enforcement of and collection of claims.
For example, according to a March 23 filing, Toys R Us ordered nearly $2 million of Crayola merchandise on or after Jan. 10, up from about $1.2 million of the product ordered during the same period a year earlier. The increase is even “more shocking,” Crayola said in the filing, considering Toys R Us in the fourth quarter of 2017 ordered about $700,000 less in Crayola products than it did in the fourth quarter of 2016.
According to the filing, statements made by Toys R Us in its wind-down motion reveal the company “was well aware that their U.S. operations were already teetering on the precipice of failure at the very same time that the debtors were accelerating their orders of merchandise from Crayola and others.”
In its filings, Crayola describes Toys R Us’s actions as “extraordinarily reckless” and “irresponsible and potentially illegal behavior.”
The wind-down motion in its current form — a hearing is slated for noon April 11 — would allow Toys R Us to use its going-out-of-business sales to pay the financiers of its bankruptcy loan. Meanwhile, the motion would place an “administrative stay” on vendors such as Crayola that would bar the enforcement of and collection of claims.
Asked for further comment, Crayola spokesman Eric Zebley said it is company policy not to comment on the Toys R Us bankruptcy proceeding. Toys R Us did not respond to a request seeking comment.
Ted Gavin, managing director and founding partner of corporate restructuring firm Gavin/Solmonese in Wilmington, Del., said Crayola creatively made its argument, which will set up an interesting fight in U.S. Bankruptcy Court. Several companies have joined Crayola’s objection, including Pokemon licensee and distributor TOMY International, vinyl figure and bobblehead producer Funko, and Tonka maker Funrise.
In a filing Tuesday, children’s apparel designer The William Carter Co. went even further, saying Toys R Us should not be able to use what amounts to “free inventory” to pay its secured lenders.
Essentially, what Crayola — among others — is attempting to do is interrupt the lender's lien and jump the pecking order to make sure its claim gets paid, said Gavin, also president-elect of the American Bankruptcy Institute. Otherwise, Crayola and other vendors could stand to lose money as Toys R Us sells its products to pay its lenders.
From Crayola’s point of view, Gavin said: “You can’t order our stuff and then use that to pay off your lender and not pay us.”
Crayola, a privately held company that is part of the Hallmark portfolio of businesses, has about 2,000 employees across the globe, including about 1,100 in the Lehigh Valley.
In Conclusion, Crayola WILL Be going bankrupt soon.
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