2/2/2010
By Sophie Baker
The Reader's Digest Association, Ltd., the UK arm of the Reader Digest Association (RDA), could fall into administration following a decision by the Pensions Regulator not to approve a clearance application by the group.
RDA filed voluntary pre-arranged petitions under Chapter 11 of the United State Bankruptcy Code in August 2009, which formed part of the company's restructuring plan. The filing applied only to the RDA's U.S. businesses, and operations in Canada, Latin America, Europe, Africa, Asia and Australia-New Zealand were not part of the filing.
The group had planned to emerge from Chapter 11 on 31 January 2010, but elected to temporarily delay this to address the UK arm's pension scheme, which carries around a £125million deficit.
A statement read: "The Reader's Digest Association, Ltd, the UK business, has a longstanding and significant unfunded liability within its UK pension scheme which has to be addressed as Reader's Digest Inc restructures the business. RDA Inc. had come to an agreement with the trustees of the UK pension scheme and the Pension Protection Fund (PPF) to resolve the continuing issue of the deficit."
The terms of agreement would see The Reader's Digest Association, Inc. inject an approximate payment of £10.9millionm, and transfer one third interest in the equity of RDA UK to the trustees; the scheme would then fall into the PPF's lifeboat.
However, on 28 January 2010, the Pensions Regulator "indicated that it was minded not to approve the company's clearance application", according to the statement, and The Reader's Digest Association, Inc., has filed a Motion in the US Court "in light of this unusual and unexpected development. The Motion states that, unless the pension deficit issue is resolved, the UK business will no longer be granted support, and therefore may need to file for administration.
The Pensions Regulator told Pensions Age: "We do not comment on individual cases.
"The Pensions Regulator has powers ('anti-avoidance powers') to ensure that companies meet obligations to pension schemes.
"We can provide 'clearance' - agree not to use our powers - where we are completely convinced that there is no better, alternative option for members and for the PPF.
"The Pensions Regulator continues to work very closely with the PPF, employers and trustees to both protect pension scheme members' benefits and to limit calls on PPF funding."
