Toys R Us's future in the UK has been plunged into doubt after the Pension Protection Fund (PPF) said it would vote against the company's rescue plan.
The retailer was told to put £9m into its struggling pension fund by the PPF in order for it to support the toy retailer's restructuring plan.
Failure to agree a deal could put all its 3,200 staff at risk of redundancy.
The PPF's Malcolm Weir said it believed it was "reasonable" to seek guarantees on the pension scheme's future.
"Since the company lodged the CVA [company voluntary agreement] proposals we have spent significant time and effort, with the help of PwC, assessing the current and future financial position of the company to ensure the pension scheme would not be weakened by the CVA, leading to an even bigger claim on the PPF and its levy payers further down the line," said Mr Weir.
"Given the position of the company, we strongly believe seeking assurances for the pension scheme is reasonable given the deficit in the scheme and questions about the overall position of the company."
Mr Weir did give Toys R Us a glimmer of hope, adding: "We remain in dialogue with the company and their advisers and we are able to amend our vote if suitable assurances are provided."
Before the PPF announcement, Toys R Us reassured shoppers seeking last-minute presents by saying: "There will be no disruption for customers shopping through the Christmas and New Year period."
The deadline for the vote on the CVA, which allows the firm to restructure its finances, is on Thursday.
If the CVA does not go through, the company could fall into administration.
Retail consultant Richard Hyman told the Today programme it was a "real Catch 22 situation", as it left Toys R Us having to choose between the futures of its past or present employees.
Meanwhile, Frank Field, chairman of the Work and Pensions select committee, has written to Toys R Us managing director Stephen Knights, querying two consecutive years of big rises in executive pay.
Mr Field asked how the pay increase was "justified at a time of operating losses" and how the board decided to distribute resources between executive pay and employees' pension benefits.
Toys R Us factfile
- The toy retailer started in the US in the 1950s
- It reached the UK in 1985, as a subsidiary of the US chain, when it opened five stores
- It launched its UK website in 1996
- The retailer now has 105 stores around the UK
- Its flagship stores are at London's Brent Cross shopping centre and in Bristol
Analysis: Rob Young, business presenter and reporter
It's workers versus pensioners; a choice between the present and the future.
The Pensions Protection Fund has become one of Toys R Us's biggest creditors as it takes over the voting rights of pension trustees in restructuring situations.
If the PPF backs the rescue without further financial assurances for the pension fund, pensioners could be affected in future, and its warnings would be seen as meaningless.
In many cases, it's a false choice; current employees are paying into the pension fund which they one day hope to live off. The PPF is said to be aware of its responsibility in this case, but its role is to protect members of the pension scheme and the other funds.
A "no" vote doesn't mean administration is certain for Toys R Us; it could propose a new restructuring plan, one the PPF can back. Talks are taking place so a solution can be found. The PPF is clearly trying to say that companies can't treat pension funds as an inconvenient afterthought.
Toy industry expert Peter Jenkinson did offer some hope to the company, if it can resolve its current difficulties.
"The toy industry was in rude health in the UK last year," he told BBC 5 live Breakfast.
"Toys R Us does suffer because it has some very big stores in prime locations and the rent has gone up.
"Its in-store activity has been found wanting a little bit compared with other toy retailers and it has fallen behind.
"However, if the restructuring goes through then some of its stores could thrive. There are stores I've been into over the last month that have really started to up their game.
"The UK toy industry is behind them and wants to see them survive in some format.
"Buying toys is as much as of an experience as playing with them and taking a trip out to the toy shop is starting to come back into fashion."
Toy's R Us's parent company in the US is in formal bankruptcy protection proceedings. Recent reports suggest it is considering closing between 100 and 200 stores in America.