A federal bankruptcy judge has ruled that a lawsuit against former Toys 'R' Us executives and directors, including partners of private equity firms Bain Capital, KKR, and Vornado Realty Trust can proceed.  The ruling last week in bankruptcy court in Virginia allows the case to proceed on two claims: that the company spent $600 million buying product and services after filing for bankruptcy without disclosing that a shutdown was likely; and that advisory fees and management bonuses paid to private equity firms between 2014 and 2017 should not have been paid because the company was already insolvent.

The creditor lawsuit also alleges that bonuses paid to Toys 'R' Us executives just prior to the 2017 bankruptcy filing were a violation of the executives’ fiduciary duty.

The Toys 'R' Us was exceptionally messy, and closed the chain's 800 U.S. stores with little warning (see "Toys ‘R’ Us closing All Stores").  The shutdown was primarily due to debt laid on the company by its private equity owners, which led to insolvency despite operating profits.  After a Chapter 11 filing (see "Toys ‘R’ Us Files Chapter 11"), creditors decided they could make more money by forcing a liquidation than through a restructuring that would keep the company alive.