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Pension deficit pushes Dawson International to brink of administration
Pension Protection Fund refuses to take on cashmere maker’s underfunded pension scheme as group faces insolvency.
Scottish cashmere company Dawson International (DWSN.L) is teetering on the brink of insolvency following the collapse of negotiations with the Pension Protection Fund (PPF) to plug its growing pension deficit.
The 130-year old business, which reported a pension deficit of £50 million last year, will now enter talks with trustees and regulators, and faces administration unless an agreement on the deficit is reached.
Its workforce shrunk dramatically from 12,000 to 200 following a series of job cuts in the 1998 and 2007 as sales fell, leaving it with reduced cashflows and a large pension burden. The pension scheme now has less than 60 active members, with 3,500 deferred members.
Dave Cooper, chairman of Dawson International, said on Friday: ‘We’ve been negotiating to find a solution for the pension issue that we’ve had for a number of years. The deficit has been spiralling and we’ve been trying to find some protection due to the size of the deficit relative to the group as it stands today.’
Dawson sold its home furnishings unit for £6.5 million last year and its yarn spinning firm, Todd & Duncan, to a Chinese rival in 2009 in a bid to streamline the business. However it reported pre-tax losses of £3.5 million in the 15 months to last April.
Estimates of the group’s pension liabilities have risen and fallen dramatically since 2006, when the cost was set at £19 million, due to how the liabilities are calculated. Financial and legal fees have also added a £1.4 million burden on the company, in addition to a £600,000 levy imposed by the PPF.
The PPF refused the deal on the grounds that it expects to receive better returns if the group enters into insolvency in the normal way.
Richard Williams, head of corporate affairs at PPF, said: ‘If a company were to go bust we would make a recovery through the insolvency process. But in order for us to do a deal has to clearly give us a bigger return than we would get if it went into insolvency in the normal way.
‘In their statement their chairman says “we believe that our proposal provided significantly better, guaranteed returns than insolvency”, I would characterise this as a matter of opinion.’
However Cooper, chairman of Dawson International, added: ‘This has come as a shock to us, not because we were certain it would be accepted but because we thought we had achieved the criteria necessary to deliver an acceptable proposal.’
Shares in Dawson International slumped by as much as 50% in Friday trade on the announcement. The biggest shareholder in the company is textiles maker Leeds Group (LDSG.L) with a 28.7% holding in the company.
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