Edinburgh Woollen Mill enters administration with £17.5m pension deficit

The Edinburgh Woollen Mill entered administration owing over £51m to unsecured creditors, including a £17.5m defined benefit (DB) pension scheme deficit, according to an administrator's proposal.

The proposal emphasised that the retail sector as a whole had struggled due to Covid-19 restrictions, stating that the group has seen its performance suffer "greatly" as a 'non-essential' retailor, despite non-payment of rent and government initiatives, such as the furlough scheme.

In particular, it identified HMRC, trade creditors, landlords and the DB pension scheme as unsecured creditors during the administration process.

The DB pension scheme represented the largest portion of this debt at £17.5m, whilst HMRC was owed around £10.5m and debts to trade creditors were around £11.4m.

The proposal has forecast that, subject to costs, a dividend will be available to unsecured creditors in due course from funds available under the prescribed part, a carve out of funds available to the holder of a floating charge which was set aside for unsecured creditors, which is expected to be the maximum amount of £600,000.

The RPS - Pension Scheme was identified as a preferential creditor, with around £51,459.39 in unpaid pension contributions owed to the scheme in accordance with legislation, which is expected to be paid in full.

The parent company, the Edinburgh Woollen Mill Group, was also listed as a secured creditor, and is owed around £140m by the chain, which is cross guaranteed by various companies within the group.

Despite this, the proposal stated that, based on the funds likely to be available from the company only, the secured creditor will suffer a shortfall.

Commenting on the proposal, a spokesperson for the Pension Protection Fund (PPF) stated: “Insolvency events are a concerning time for employees and pension scheme members.

"We want to reassure members of The Edinburgh Woollen Mill Ltd Retirement Benefits Scheme that they are protected by us.”

Industry experts have previously raised concerns over the prioritisation of pension scheme interests in the case of insolvency, with the government recently amending the Corporate Insolvency and Governance Bill to address these concerns and ensure the PPF and The Pensions Regulator take a "key role" following an insolvency.

The news also follows warnings that a "perfect storm" could be awaiting DB pension schemes when temporary protections from corporate insolvencies were lifting at the end of the year, with the PPF warning that multiple large insolvencies could "wipe out" its reserves.

The proposal for The Edinburgh Woollen Mill Limited was filed by FRP Advisory on 29 December 2020 under the Companies House filing for Duvetco, which operates as The Edinburgh Woollen Mill’s brand, Ponden Home.

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