Reader’s Digest UK has filed for administration after it failed to secure backing from the UK pensions regulator to support an agreement to fund its long-standing pension deficit.
The move comes six months after its US parent company, Reader’s Digest Association, announced plans for voluntary bankruptcy as it became the latest victim of the advertising recession and struggled with interest payments on its $2.2bn debt pile.
The UK subsidiary struck an agreement with trustees of its pension plan and the Pension Protection Fund, the insurance scheme that ensures insolvent employers can meet pension promises, to fund its $200m (£125m) pension deficit earlier this year.
As part of the planned financial restructuring, the parent company had agreed to make a payment of £10.9m and transfer a one-third interest in the equity of the UK business to the UK pension scheme trustees.
The scheme would then have transferred to the Pension Protection Fund. However, the UK Pension Regulator did not approve the company’s application.
“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 under-funded UK pension scheme,” the company said in a statement.
“In the absence of an agreement, RDA UK is unable to meet those obligations financially and therefore unable sustain its operations”.
The UK pension fund has 1,600 members and could look to be rescued by the PPF, which was set by the government in 2005 to compensate employees whose defined benefit pension schemes are wound up without sufficient funds to pay their pensions.
The PPF guarantees that members already drawing pensions from failed schemes get fully paid. Those who have not yet retired have their payments capped at 90 per cent.
Readers Digest UK, which has offices in Swindon and Canary Wharf, employs 135 people. The administrators are now looking for a buyer.
Reader’s Digest US was to have emerged from Chapter 11 last month after a financial restructuring, but this was delayed on account of the UK subsidiary’s pension deficit issues.
Reader’s Digest Association, which has offices in 44 countries and publishes 92 magazines, said the UK insolvency would not have a material impact on its other global operations.
Reader’s Digest, launched by a husband and wife in a back room in New York in 1921, began as a mail-order collection of condensed articles from other magazines and evolved into a direct-mail pioneer and one of the world’s largest publishers.
Nine of its 94 magazines have a circulation of more than 1m in the US alone, and its titles claim a combined global readership of 130m in 78 countries.