The British subsidiary of Reader's Digest Association Inc. has filed for administration, a form a bankruptcy protection, freeing the parent company to complete restructuring in the United States.
Following the decision by the board of the British unit, the Reader's Digest Association Inc. it "expects to emerge from Chapter 11 promptly."
The British subsidiary's filing follows a regulatory veto of its plan for funding a pension deficit, the company said Wednesday. Without approval for its plan to deal with the British pension issue, the company said the U.K. unit was unable to meet its debts and sustain its operations, the company said.
The Reader's Digest Association had hoped to emerge from Chapter 11 protection — under which a company in financial trouble is allowed to shed debts and restructure — by the end of the January.
Although RDA said the British pension issue was separate from its U.S. filing, it announced on Feb. 1 that it had elected to delay emerging from Chapter 11 to allow time for a resolution of the British issue.
"The liabilities in the U.K. pension fund pre-date RDA Inc.'s Chapter 11 restructuring by many years," said Evan Goetz, managing director of the communications company FD, speaking for the parent company.
"The U.K. business is not financially sustainable given its insurmountable pension liability."
The pension proposal had been accepted by the company, pension trustees and the U.K. Pension Protection Fund, but was rejected by the U.K. Pensions Regulator.
"The agreement, which contemplated a lump sum payment by parent company RDA plus an equity stake in RDA UK, was authorized by the U.S. bankruptcy judge overseeing RDA's U.S. Chapter 11 proceedings, and would have relieved RDA UK of significant financial obligations associated with its underfunded U.K. pension plan," the company said in a statement from its headquarters in Pleasantville, N.Y.
"Absent an agreement, RDA UK is financially unable to meet those obligations and sustain its operations."
The British pension issue does not affect any other part of the company, Reader's Digest said.
On Jan. 15, a judge in the U.S. Bankruptcy Court for the Southern District of New York approved the company's Chapter 11 plan, which cuts its debt load to $555 million from $2.2 billion. That agreement effectively transfers ownership of the company to holders of its senior secured debt, the company said.
Reader's Digest UK, which has been publishing in Britain since 1938, has 117 current employees; 1,600 past and present workers are covered by the pension fund.
Phillip Sykes, Jeremy Willmont and Bill Beach of the firm of Moore Stephens were appointed joint administrators.
"We are reviewing RDA (UK)'s financial position," the administrators said in a statement, adding that the company would continue operating in the meantime.
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