FIFE manufacturing firm Havelock Europa is to offload its crippling final salary pension scheme to the Pension Protection Fund (PPF) as part of a rescue deal from private equity turnaround business Rcapital.
The firm, which has faced increasing financial difficulties since losing a major client in 2015, was bought out of pre-packaged administration by Rcapital yesterday, with its assets passing to a newly established firm called Havelock International while its liabilities are being wound down by administrators at PwC.
The pension scheme, which had a deficit of £11.8m at the end of 2017, has not come across to the new business.
Havelock Europa chief executive Shaun Ormrod, who will remain in that role at Havelock International, confirmed that the business had been in discussions with the PPF regarding a transfer of the scheme.
“Unfortunately, in the circumstances we are in, the pension is now being administered through the administrators and will end up in the PPF,” he said.
The PPF, which was established in 2005, is known as a lifeboat fund because it takes over the management of pension schemes whose sponsoring employers have gone bust to ensure that members continue to receive a pension.
Entry to the PPF is not automatic, with schemes having to go through a period of assessment first.
A PPF spokesperson said: "We’ve been informed of the insolvency of Havelock Europa and are engaging with the administrator about the pension scheme.
"Members can be assured that the PPF is there to protect them."
If the Havelock Europa scheme does ultimately end up in the PPF, members who are already drawing their pensions will see no difference to the amount of cash they are entitled to.
Those who are yet to retire will see their entitlement reduced by 10 per cent, with the starting sum currently capped at just over £39,000 a year for someone retiring at 65.
The scheme, which has been closed to further accruals since 2010, has around 320 members, 60 of whom have not yet retired.
The pension scheme has proved an increasing worry for Havelock Europa in recent years, with its deficit now more than three times larger than the £3.8m recorded in 2009.
- READ MORE: Havelock Europa suspends shares
Had the business not gone into administration it would have had to make a £500,000 deficit reduction payment to the scheme in the current financial year, with the figure rising to £1.5m a year by 2020. The firm was also due to repay the £400,000 PPF levy for 2017 that the scheme had paid on its behalf.
These sums would have proved difficult for the firm, which made a pre-tax loss of £5.3m in the year to December 2017, to meet, especially as it announced last week that it had “substantially utilised” £8m of funding it secured in February.
Of the £8m, £5m came from an extension of the firm’s facilities with Bank of Scotland and the remainder from Scottish Government development agency Scottish Enterprise following an intervention from Keith Brown, the cabinet secretary for the economy, jobs and fair work.
As these were secured debts the bank and the government will take precedence over other creditors as part of the administration process.
Mr Ormrod said that Havelock International will be speaking to Havelock Europa’s suppliers - who he said had been “incredibly supportive” – on an individual basis regarding debts owed to them.
He added that Havelock International will now “work to the original plan that was agreed with the previous company”.
“My job is to make sure that the business is right sized and fit for purpose, which means a business with turnover of between £50m and £55m,” he said.
“Historically, one of the key problems this business has had is that it has set some very high sales targets.
“It’s missed those targets but has had a cost base that was designed for those targets.”
The firm has appointed George McAdam, formerly customer service director at Falkirk bus manufacturing business Alexander Dennis, to work alongside Mr Ormrod as chief operating officer.
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