(August 9, 2012) – A Scottish Cashmere company has learned the hard way that unfunded liabilities are not just tomorrow’s problem.
Shares in Dawson International, a Scottish cashmere company, were suspended this week following a breakdown in talks between the company and the United Kingdom’s (UK) Pension Protection Fund (PPF) and Pension Regulator, according to the BBC.
Dawson was attempting to enter its £12.9 million-underfunded ($20.2 million) defined benefit pension scheme into the PPF, but could not reach an agreement over the terms of the transfer. The PPF would have assumed responsibility for the plan in exchange for a cash payment, loan note, and equity stake in the London Stock Exchange-traded company. However, according to a release from Dawson, “despite the company committing every available financial resource to maximizing the offer, providing terms that were significantly better than the insolvency value as determined by independent external experts, the PPF and Pension Regulator have deemed the proposal unacceptable.” Dawson objected to the actuarial formula used to calculate its liabilities, but to no avail.
The company’s Chairman David Bolton was less than impressed with the PPF’s negotiating process, and indicated Dawson may go into bankruptcy. “We believe that our proposal provided significantly better, guaranteed returns than insolvency and we are surprised by the PPF’s decision,” Bolton said in a statement. “In the event of administration, while we would expect that a new owner would be found quickly, there remains a real risk that a successful and profitable UK heritage business will suffer from a period of uncertainty. It should be a matter of wider concern that the UK pensions reporting and regulatory environment can produce such an evidently unsatisfactory outcome.”
The PPF covers the obligations of 444 individual schemes for 135,539 members, and holds £11.3 billion ($17.7 billion) in total assets.