The directors of Toys R Us's British chain are preparing to appoint administrators early next week in a move that will threaten more than 3,000 jobs on an already-troubled high street.
Sky News has learnt that bosses from the ailing chain met officials from the Pension Protection Fund (PPF) on Friday to notify them of the impending move amid fading hopes of a rescue deal.
Toys R Us UK has been engaged in a frantic search for a buyer for the last month following weak Christmas trading which has left it with little hope of paying a £15m VAT bill due on Tuesday.
Sources said that the directors of the UK's biggest toy retailer were likely to appoint administrators on Tuesday morning barring the emergence of a last-minute financial package to keep it afloat.
One insider said that such a prospect was "very, very remote" on Friday evening.
Moorfields, a corporate recovery specialist which worked on the administration of the DVD rental chain Blockbuster five years ago, is said to have been put on standby to oversee Toys R Us's potential insolvency.
With only three days before the VAT bill is understood to be payable, hopes of finding a rescue backer for the chain, which trades from more than 100 stores, have dwindled.
Alteri Investors, an acquirer of distressed retailers, and Hilco Capital, which salvaged the music chain HMV in 2013, have both held talks with Toys R Us UK in the last fortnight but have baulked at the complexity of a deal.
The prospect of Toys R Us collapsing comes almost exactly two months after the chain appeared to have salvaged its future by winning support from creditors – including the PPF – for a deal to slash its rent bill and close dozens of loss-making stores.
That Company Voluntary Arrangement (CVA) plan was overseen by advisors at Alvarez & Marsal, prompting the PPF to demand that an independent firm be appointed to handle Toys R Us UK's administration.
Toys R Us UK only survived the Christmas period after the PPF agreed at the eleventh hour to vote in favour of the CVA, which had been due to trigger the closure of a quarter of its 105 shops.
The CVA was expected to involve the injection of £9.8m into the retailer's pension scheme, while shortening its deficit recovery period to 10 years.
If it fails to avoid administration, the scheme will be taken on by the PPF, with any such move certain to attract scrutiny from Frank Field, the Labour chairman of the Commons Work and Pensions Select Committee.
The entire European operations of Toys R Us are also on the market, encompassing 236 stores outside the UK in 10 countries including Austria, France, Germany and Spain.
In the US, where Toys R Us filed for bankruptcy protection last year, plans emerged this week for the closure of a further 200 of its stores, according to the Wall Street Journal.
Toys R Us UK is far from the only British retailer experiencing an existential crisis.
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Maplin, the electricals chain, is racing to find a buyer and avoid administration, while New Look and House of Fraser are among the retailers seeking financial support from landlords and other creditors.
Toys R Us UK and the PPF declined to comment on Friday.
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