House of Fraser’s rescue restructuring faces a significant hurdle after it emerged that the department store chain may have to fund a multimillion-pound injection into its pension scheme.
The ailing retailer could be required to set aside a significant sum in order to secure the support of the pension protection fund (PPF), an industry-backed body that bails out troubled schemes.
The department store has approached the PPF as it plans to close stores and cut rents via a company voluntary arrangement process, a form of insolvency that must be approved by creditors. Without the support of the PPF the CVA may fail.
Industry experts suggested House of Fraser will have to consider closing at least 20 sites under the CVA to ensure a viable future.
C.banner, the Chinese firm that bought a 51% stake in House of Fraser’s parent company this week, has pledged to buy further shares for nearly £70m, some of which will help support a turnaround plan. It is thought the PPF may ask that some of these new funds are diverted to the pension scheme.
The department store runs two defined benefit schemes that together are in a surplus by just under £100m on an accounting basis in the latest calculation in March this year.
However, the insolvency process automatically triggers the involvement of the PPF. It will be counted as a creditor in the CVA process, partly because House of Fraser’s pension schemes are understood to be tens of millions of pounds in deficit on a buyout basis, a more stringent analysis that considers the cost of passing on the liabilities to an insurance firm.
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