The Reader's Digest Association Limited (RDA UK), the UK subsidiary of the Reader's Digest Association Inc (RDA), is to file for administration following the rejection of a clearance application by the Pensions Regulator (TPR).

The UK company will be placed into an orderly insolvency process, a decision made by the board of RDA UK after TPR decided not to support an agreement between RDA UK, the trustees of its pension scheme, and the Pension Protection Fund (PPF) to settle its £125 million pension scheme liability.

As reported on Pensions Age online in early February, the proposal would have involved a lump sum payment of £10.9 million into the pension fund by RDA, as well as an equity stake in RDA UK. This was authorised by the US Bankruptcy Judge who oversaw RDA's Chapter 11 proceedings in the US (of the United States Bankruptcy Code), which would have relieved RDA of significant financial obligations related to the underfunded UK pension scheme. TPR's ruling has deemed RDA unable to meet those obligations financially, and therefore is unable to sustain its operations in the UK.

The administrators and RDA UK are working with RDA to ensure an orderly process and to maximise creditor returns.

Peter Murphy at specialist pensions law firm, Sackers & Partners LLP, commented: "Having not approved the 'bird in the hand' that was offered to the pension scheme, one would assume the Pensions Regulator believes there is at least 'two in the bush'.

"One can only think that TPR considers that the pension scheme is likely to be paid more than what has been offered, either by the trustees proving for a section 75 debt in the UK insolvency of Reader's Digest Association Limited or through the use of its own anti-avoidance powers against related entities."

Murphy added that this makes it clear that TPR has "a mind of its own and will not simply act as a rubber stamp following agreements in principle made by either pension scheme trustees or the Pension Protection Fund."

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