UK - The UK arm of the Readers Digest Association (RDA UK) has filed for insolvency after a pension deal agreed by the company, the trustees and the PPF to address a £125m (€144m) deficit failed to meet the approval of the Pensions Regulator (TPR).

The US parent company RDA Inc voluntarily entered Chapter 11 insolvency proceedings in August 2009 as part of an agreed restructuring plan to reduce its debt and strengthen its financial position.

Despite approval of its plan by the US courts, however, the firm announced earlier this month that it was delaying its emergence from the process because of “an issue involving the pension program of RDA Ltd, the company’s UK entity”.  (See earlier IPE article: Pension deficit could force closure of Reader’s Digest UK)

RDA had agreed a deal with the trustees of the scheme and the UK Pension Protection Fund (PPF) that comprised a £10.9m contribution into the pension fund towards its £125m deficit, and the transfer of a one-third stake of the UK entity to trustees before the scheme transferred to the PPF.

The proposal was contingent on approval from the TPR. However, this was denied by the regulator in January, leaving the UK arm to review its options for finding a solution.

In a statement today, RDA confirmed the UK arm had now filed for administration.

It stated: “The decision by the board of RDA UK to place the UK company into an orderly insolvency process follows the recent decision by the UK Pensions Regulator that it would not support an agreement between RDA UK, the trustees of its pension scheme and the UK PPF to settle a longstanding pension scheme liability.”

The US firm claimed the agreement, which was authorised by the US Bankruptcy Judge overseeing RDA’s US Chapter 11 proceedings, “would have relieved RDA UK of significant financial obligations associated with its underfunded UK pension scheme.”

It continued: “In the absence of an agreement, RDA UK is unable to meet those obligations financially and therefore unable sustain its operations. RDA is working with RDA UK and the administrators to help ensure an orderly process and maximise creditor returns,” it added.

A spokeswoman for TPR said: “The Pensions Regulator was sorry to learn that the directors of Readers Digest Limited have sought the appointment of administrators. The pension fund will now enter an assessment period where eligibility for compensation under the PPF will be assessed. We had hoped that an alternative solution could be found for the pension fund but this was not possible. The regulator is now considering its next steps, including use of its powers.”

Peter Murphy, from pensions law firm Sacker & Partners LLP, said: “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 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.

“Whatever the case, it is now clear, if it was ever in doubt, 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 PPF.”

The RDA UK defined benefit pension scheme closed to new members in 2002 and to future accrual in 2009, and has around 1600 members, of which almost 950 are deferred, while the company itself only employs around 135 people.

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com

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