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Readers Digest UK could be cut adrift by parent

02.02.10 | Victoria Gallagher

Readers Digest UK could go into administration unless its pension deficit problem is resolved, its parent company has confirmed.

The UK company has become embroiled in the Chapter 11 bankruptcy of its parent company after a deal to rescue the US entity was frowned on by the UK Pensions Regulator. Reader's Digest UK has previously said it was unaffected by its parent's problems and had "ample liquidity" and a "very healthy" balance sheet.

A statement released by Readers Digest Association (RDA) said it had, "elected to delay temporarily its emergence from Chapter 11 [bankruptcy proceedings] to address an issue involving the pension scheme".

The UK business has a "longstanding and significant" unfunded liability with its pension scheme. RDA had previously come to an agreement with the trustees of the pension scheme and the Pension Protection Fund to resolve the deficit issue. This agreement was part of the process by which RDA was expected to emerge from Chapter 11 bankruptcy proceedings in the US. It was also dependent on approval from the Pensions Regulator.

However, on 28th January, the Pensions Regulator indicated that it, "was minded not to" approve the company's clearance application.

The company has now filed a Motion in the US Court which notes that unless this issue is resolved, "it will no longer be able to support the UK business indefinitely and therefore, the UK business may need to file for administration."

The lastest accounts for the company were made up to 30th June 2007, which stated that the company had made a profit before tax of almost £6.8 million, down by more than £1.7m.

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