Chapter 7 - Solutions for a Financial Crisis » Chapter 7 Bankruptcy

Reader’s Digest is ready to turn the page on their bankruptcy filing, but the popular magazine will have to wait while they deal with new issues.

The magazine was about to emerge from Chapter 11 bankruptcy last month but recent developments with their British subsidiary, Reader’s Digest Association LDT, forced them to pull back the reins.

According to the Wall Street Journal, Reader’s Digest initially filed a prepackaged plan in the New York Bankruptcy Court last August. Their plan was approved on January 15th and they hoped emerge January 31st.

Under their initial plan, Reader’s Digest would reduce its debt by 75 percent, cutting the $2.2 million in debt down to $555 million. The company was also allowed to pick out a bankruptcy emergence date.

But retirees from the company opposed their reorganization plan. They claimed the plan discriminated against and, as unsecured creditors, they wouldn’t recover enough money for their pension plans.

The company did admit that there were different recovery amounts for different unsecured creditors. They said that the majority of the retirees would remain unaffected by the bankruptcy plan.

Reader’s Digest said they have more than 800 vendors they need to continue paying for the company to emerge successful from the chapter bankruptcy.

But the issue occurred with their British subsidiary which was required to fulfill $7.4 million in pension payments to the company’s retirees.

Due to lack of funds and a large deficit they were unable to put any money back into the pension funds.

To avoid liquidation the subsidiary offered to make a onetime payment of $17.6 million to satisfy pension obligations.

They also agreed to issue a buy back option for 33 percent of the British companies’ equity. But Britain’s Pension Regulator denied the pension fund agreement plan. This brought Reader’s Digest plan for a quick emergence from bankruptcy to a halt.

Now the board of directors has to compose a new plan which may or may not include liquidation of the subsidiary’s assets.

A Reuter’s article reported that the British subsidiary was the only reason that the company did not emerge from bankruptcy on the 31st. The company said that no other departments had issues with their pension plan agreements.

Once the British Pension Regulator approves the new company’s pension plan, then they can moved forward and emerge from chapter bankruptcy.

Reader’s Digest said in a statement that “RDA has elected to temporarily delay it emergence from Chapter 11 to address an issue involving the pension program. RDA expects to emerge within the next few weeks.”