Arcadia has received applications challenging two of its seven company voluntary arrangements, raising questions over the future of its pension schemes.
The retailer’s seven CVAs were approved by the required majority of the company’s creditors in June. Arcadia needed at least 75 per cent of its creditors to back the proposals.
However, Arcadia recently revealed that it has received applications from 480-486 Broadway LLC and TMO 1 LLC – both legal entities of US property group Vornado – to challenge the Arcadia Group and Topshop Topman CVAs.
Ian Grabiner, CEO of Arcadia Group, said: “These challenges are entirely without merit and we will vigorously defend them.”
The PPF and members of the Arcadia scheme now have a vested interest in seeing the CVAs succeed, as it will result in better security for the scheme and cash contributions into it. As a result, the trustees, PPF and members are likely to have serious concerns about the Vornado challenges
Gabrielle Holgate, Stevens & Bolton
He noted that the CVAs are a vital part of the retailer’s restructuring, “putting the business on a firm financial footing and enabling significant investment as part of our growth plans, which will ultimately benefit all our stakeholders”.
“Our group continues to trade as normal and we remain focused on delivering our turnaround plans,” Mr Grabiner added.
PPF assessment continues
Until the CVA challenge issue is resolved, the schemes will remain in PPF assessment.
A PPF spokesperson said: “We are aware of the challenge to the Arcadia Group CVA and want to reassure scheme members of our ongoing protection.”
A successful challenge could potentially derail the retailer’s restructuring plans, and this raises questions over what happens to its defined benefit schemes.
Dan Mindel, managing director at covenant specialist Lincoln Pensions, said that “as Topshop Topman is one of the key trading companies of the group and Arcadia Group itself administers the two principal UK DB schemes, any successful challenge to the CVA would be highly disruptive to the proposed overall restructuring of the group”.
He added the group itself has announced that a failure by the creditors to approve the CVAs would result in administration.
“In that scenario, the agreement under the terms of the CVAs to provide the DB schemes with a £310m package (made up of cash and security) would likely fall away and the outcome for the scheme members would be materially impacted by the insolvency of the group,” Mr Mindel said.
An unwelcome turn for trustees
Last month, Arcadia reached an agreement with the trustees of its DB pension schemes, the Pension Protection Fund and The Pensions Regulator.
Gabrielle Holgate, partner at Stevens & Bolton, said: “The PPF and members of the Arcadia scheme now have a vested interest in seeing the CVAs succeed, as it will result in better security for the scheme and cash contributions into it. As a result, the trustees, PPF and members are likely to have serious concerns about the Vornado challenges."
Ms Holgate noted that the pensions lifeboat and the trustees will probably be talking to their advisers to understand whether the challenges, if they are successful, could impact the CVAs they agreed to.
“It remains unclear whether the PPF got a vote on all seven of the CVAs, or just one, or a portion of them. If it only voted on a portion, did that portion include the CVAs that are now being challenged by Vornado?
“A secondary concern will be whether a successful challenge against two of the seven CVAs could destabilise Arcadia to such an extent that insolvency ensues in any event, and therefore results in the pension scheme potentially falling into the PPF, despite all efforts to avoid that by entering into the CVA in the first place,” she added.
