Author: Guy Thomas

Southend United Football Club, Sheffield Wednesday Football Club , and Cardiff City Football Club Limited. All three clubs are in the Royal Courts of Justice today facing hearings to decide whether they should be wound up.

Its been well reported that payments for historic debt have already been made with Her Majesty’s Revenue & Customs (HMRC) to avoid any immediate doom.

However, just because they lost the last two rounds with Pompey, HMRC are not going anywhere.

In fact the defeats, especially whilst the issue of the Football Creditors Rule remains undecided, will have likely increased the desire of HMRC to hammer down on recalcitrant Clubs who are late with their tax. Further, a winding up petition puts HMRC in the right position to set up and agree payments for future tax liability.

Barring a late intervention by other creditors, such as “Charterhouse Commercial Finance Plc” against Southend, It looks like these three clubs “deals” with HMRC will help them avoid disaster today.

But they (and other Clubs) had better keep up the payments on the agreed terms, or else HMRC will be back to Court for more attempts at winding them up.

The golden rule with all debt repayments, football clubs and ordinary companies alike is to keep the creditors informed. Above all, no surprises. Having said that, I can’t see HMRC being too sympathetic to any Clubs that need to change payment terms later in the season, can you?

Author: Guy Thomas

And on the Third Day the Word came down… Not Guilty!*

After yesterday (the second day of the hearing) in which the HMRC finished off putting their case to Mr Justice Mann, Pompey’s lawyer, Richard Sheldon QC, took about three hours to explain the club’s position and plead for the Clubs survival (amazingly) it worked.

The Judge gave his executive summary this afternoon and, as reported by Portsmouth News and others, HMRC have decided not to Appeal. No doubt the judge will publish his fulsome and no doubt carefully worded explanation, very soon.

The judge’s decision was hoped for by many and expected by only a few.

Mr Sheldon had told the judge yesterday the club would receive a total of £48m over the next four seasons. The judge said that with £22.5m owed to football creditors this would leave £25.5m.

HMRC position was that they were determined to get the best deal for the taxpayer. High stakes poker, winner takes all, with a dealer called Mr Justice Mann.

This appeared to be largely technical case focused on case law, the interesting Football and Tax aspects were merely the setting, but in the end though the Judge seems to have taken the view that the alternative was too poor an outcome for all concerned (including the HMRC).

Yesterday, Pompey’s lawyer painted a Doomsday scenario for the judge if he failed to back the club in his verdict, stating that if the Revenue won the club it would prevent Mr Chainrai becoming the new owner and ‘in all likelihood [the Club] would go into liquidation’.

There is so much at stake for the HMRC that an appeal seemed inevitable (and I still would have rated their chances). You’ll notice who I missed off from that …the fans, they’ll not want to appeal this.

Where were Andronikou and Lampitt for the result?

Were they too embarrassed to show their face to the media and fans whose attention they had previously courted? No, that’s unfair.

They were more likely already preparing the Club’s Appeal had they lost.

Well that’s that, except for the lawyer’s fees of course. £230,000?

You’ll have heard the expression: “Play Up Pompey”, well now it’s “Pay Up, Pay Up Taxman”.

*Well not exactly, not guilty but you get the gist.

Author: Guy Thomas

The hearing of Her Majesty’s Revenue & Customs’ (HMRC) appeal against the approval of Portsmouth’s Company Voluntary Agreement (CVA) kicked off this morning in Court 52 of the Royal Courts of Justice in front of Mr Justice Mann.

Portsmouth Today reported on the day’s proceedings by Twitter and with on line reports. BBC’s Dan Roan also attended and blogged before the hearing.

For all of you that can’t wait for the more considered analysis, the first days highlights are as follows:

The hearing started briefly but was immediately adjourned so the judge, Mr Justice Mann, to read extra papers submitted by HMRC.

Having read the additional evidence, the Judge began proceedings by listening to the submissions of Gregory Mitchell QC (for HMRC). Mr Mitchell said the taxpayer was always the victim when a football club went into administration. ‘It’s always the Treasury which loses out when a football club becomes insolvent. 

Mr Mitchell QC went on to say that HMRC had worked out Pompey owed them over £30m. ‘This assessment goes back some way - to the tax year of 2006/07 - and has been a very complex investigation. ‘PAYE should have been paid and has not been paid. He went on to describe the arrangements as. ‘a sham. It was a way in which the club could pay the money into a tax haven.’

Mr Mitchell went on to criticise another ’sham’ he alleged Pompey used to avoid paying tax.

This concerned money paid into players’ employment benefit trusts in what he described as ‘tax havens’.  He said: ‘The Revenue says these are disguised payments of salaries on which PAYE should have been paid.’

The arguments then went on to “whether HMRC might have suffered prejudicial treatment by Pompey” and, “whether that prejudicial treatment was unfair”.

Mr Justice Mann also queried exactly which grounds the Revenue has brought the case against the club and the differences between the rules of association for the premier league and football league (and what happens when a club goes bust in either league) and finally what happened when Wimbledon FC went bust.

There will be more tomorrow and the judgement will be handed down on Thursday.

As he went in to Court this morning Pompey’s chief executive David Lampitt was reported to be  “nervous” about these proceedings….It’s too early to tell but that sounds about right!

Author: Guy Thomas

It has been reported by the Telegraph that Deloitte’s c.£100,000 review of cricket finances is nearly ready to be handed up to the England and Wales Cricket Board. The report “Building a Stronger Future for the Domestic Game” is a review of the finances of county cricket’s leading clubs and is reported to reveal the dangerous state of the game’s economy.

One of the quotes lifted from the review by the Telegraph includes this harsh warning: “Without corrective action there is a looming risk of CAVs [Category A Venues] facing financial difficulties and maybe even insolvency.”

Interestingly, the review appears to highlight “an over-reliance on broadcast money” and the “pitfalls of the competitive bid process” for hosting major competitions.

Sound familiar?  Earlier this year we saw a (then) Premiership Club, Portsmouth come very close to Liquidation and oblivion, many others clubs have been taken to the precipice, and Pompey’s Administrators have a show down with HMRC listed for 3/4th August in the High Court.

This threat to cricket raises more questions then answers about the comparison of the finances of Football and Cricket:

Could the cricketing counties be facing the same issues and imminent threats of insolvency that some football clubs are currently facing?

Could it be that the tide of money, which previously flowed into the both football and cricket is now ebbing away, leaving comparable headaches for (football) Clubs and (cricket) Counties?

Well the reality is  probably no, not yet. Sorry but for one thing cricketing counties pay out a fraction of their wage bill for football Clubs.  Nevertheless, whatever detail contained in this review, it is clear that the drop off in income caused by the recession will continue to throw up potentially fatal problems for both Clubs and Counties. Those that don’t review and adjust now will face dramatic problems in the near future and “maybe even insolvency”.  Anyone for Tennis? Ah….maybe not.

Author: Guy Thomas 

Everyone knows that Julius Caesar “came a cropper” on the “Ides of March” (15th March).

Well, supporters of Pompey’s CVA may yet come to dread the week containing the Ides of July (15th July 2010). Predictions and augers can (as Caesar found out) be tricky, with that in mind, Thursday, 15th July looks likely to be last day when Her Majesty’s Revenue & Customs (HMRC) can issue a challenge against Portsmouth City Football Club’s Company Voluntary Arrangement (CVA).

Following the last meeting of Pompey’s creditors on 17th June 2010, there was a lot of positive publicity for the Joint Administrators of Portsmouth City Football Club.  The Chairman of that meeting (at which the CVA was approved) was Mr Andrew Andronikou (one of the joint Administrators of Pompey).

HMRC challenge?

If HMRC do decide to “have a go” then they are likely to chuck the kitchen sink at it in the hope that one of the other issues raised might be sufficient to force a reconsideration of the CVA approval. Likely grounds for the application include:

1. The reduction of HMRC’s “creditors” vote from £37,768,387.13 to £23,895,044.67? i.e. taking away their ability to veto the CVA.

2. The inclusion of the “Football Creditors” in the vote of “unsecured creditors” when they should have been treated as “secured borrowers”? 

3. The inclusion of supposedly secured creditors like Portpin (Mr. Chanirai) and Ocadia (Mr Gaydamak) in the vote of “unsecured creditors”.

If these or any challenges like them succeed then a 75% majority cannot be achieved. No 75%, no CVA. No CVA? Well let’s just say the Championship will be a harsher place with a further point deduction for Pompey.

Et tu Pompey?

To read the full article, click here.

Author: Guy Thomas

A businesses relationship with its lender will always go through changes, particularly when the environment in which the business operates changes. Whilst we may wish it otherwise when borrowing, most lenders are very conservative organisations. As such they are more likely than not to react in specific and predictable ways to different stimuli.

Put another way, whilst it pays to try and understand how your businesses lender operates, some things are always going to get a reaction and that reaction may be harsher then you anticipated or planned for.

One such example is when businesses spring “surprises” on their lender.

One almost universally accepted way to “fall out” with a lender is to surprise them with a major event without given them forewarning or without seeking their comments/approval.

A bank recently stepped in before the owners of a company could sell their business (a wholesale bakery business) after they found out the shareholders of the company had tried to buy the company themselves for a significantly reduced price.

The Sunfresh Baker which produces over 40million muffins for supermarkets and small shops each year, is a family owned business. It’s  Directors Mark and Stephen Taylor, who are also brothers, tried to buy their £9m turnover bakery for a mere £50,000 after struggling to pay creditors. However the abortive sale was halted when Israeli-based Bank Leumi discovered the chain of events and urgently placed the company into administration appointing an Administrator of their choice.

It is believed that the directors, had not informed the bank’s UK asset finance arm about the transaction in advance, despite the bank owning a floating charge over the bakery’s assets.  In a bid to safeguard the position of creditors, Leumi appointed MCR as administrators. Following a second valuation by MCR on an “in-situ basis,” the Taylor’s were asked to pay another £70,000 for the business. The Taylors eventually bought the company for £120,000.  According to MCR documents, the brothers paid £35,000 as initial consideration and are due to pay monthly instalments of £5,000 until October to make up the full amount.

A total of 167 creditors were owed £3.4m but it is not clear how much each will receive. Leumi, owed £1m for invoice finance, is expected to get its money when debts are collected. However Barclays, which extended £132,000 overdraft facilities; is less certain to see a return.

A full report of the administration and conduct of directors is expected to be submitted to the Insolvency Service within six months.

Prior to the insolvency the company last filed accounts for the year to the end of October 2008. These showed a pre-tax loss of £365,337 and it had net liabilities of more than £200,000. According to draft accounts, it made a profit of £1.1m on sales of £9.4m in the year to October 1, 2009.

The sale of the business has saved 140 jobs at the company, which will now trade as Taylors the Bakers.

Helpful hints for company directors and owners facing insolvency:

1. Consult an insolvency specialist. Insolvency is a complex area with many pratfalls for the unwary. Taking advice at an early stage can help avoid the easy mistakes and help you plan the way ahead for yourself and the business
2. Keep your creditors informed. If you don’t keep them informed then they will assume the worst and act accordingly, wouldn’t you?
3. Review the circumstances regularly. Looking at it once and assessing the situation is not enough; having taken advice, mark out a plan, review the plan and ensure roles and responsibilities have been clearly set out within the management and encourage open discussion about how it is being implemented
4. Keep a record for yourself. Sadly, although we hope for the best you must plan for the worst. Things can and do go wrong. If they do and your decisions are reviewed it will often be done several months hence and with hindsight. Keep a written record of your key decisions and the evidence you had to hand when they were made. Do not assume that record will be available to you in several months time
5. Try to treat creditors equally. A common difficulty for directors in these circumstances is the pressure to treat some creditors better than others.  Although the pressures to do so will be great, you must always take advice before agreeing to this. It is a very common criticism for directors of insolvent companies and can even lead to personal liability
6. No surprises…. As above, banks really, really hate surprises an act accordingly when they find out.

Author: Guy Thomas

The BBC has recently reported the latest twist in the Pompey’s tale.

The surprise proposal from Griffins comes just a few days before the next creditors meeting of Portsmouth City FC creditors at Fratton Park, called for 17th June 2010, which will consider and vote on the original CVA proposal.

This has provoked an interesting exchange between the respective firms. No doubt this will be further played out in the media in the run up to what promises to be a feisty meeting.

Also, in no particular order; HMRC rejected the original CVA proposal then UHY Hacker Young came out with the Administrators response to Griffins. In response to that (as well as other commentary), Griffins have come out with a follow up statement.

A scan of the media coverage and Pompey related forums has also been quite revealing.

Many seem unaware that Pompey’s creditors can propose a modification to the original CVA proposal; it’s a right that isn’t just restricted to Insolvency Practitioners who are acting on behalf of other creditors. Once again this illustrates the power to determine the outcome of the Administration of Pompey lies not with the insolvency practitioners but the creditors who are entitled to vote at the CVA meeting.

There are a few other points about the above exchange as well as the Forum posts that I would like to draw out:

Few seem to understand that Griffins are acting on behalf of some of Pompey’s creditors, and even fewer still wonder which creditors Griffins act for. 

Griffins put forward three modifications, the focus on the former owners/directors potential personal liability has not done justice to their sensible analysis concerning  the other options for cash flow and income which could increase the proposed dividend (even without any withdrawal of creditors claims) from 20/25p to 65p in the £.

A significant increase that seems to have been largely passed by.

It seems that with the Griffins approach, it is not necessary that the players are sold for £30m. If they were given away creditors would still get at least 37p in the £.  There is also another 8p on top of the club stays in the championship or gets promoted back to the premier league.

Griffins have specifically denied that they want any role as Administrator or CVA supervisor for Pompey – given their track record as investigative liquidators (often acting for HMRC) it’s surprising that this denial appears to extend to the role of “old” Pompey’s liquidator if the CVA and subsequent transfer of the clubs “football share” to a “new” Pompey goes ahead- I would have thought that role would have fitted them like a glove. Perhaps they are making sure that the modifications are the focus of all the attention rather than a competition for fees.

The Griffins proposal is clearly designed to put pressure on the CVA nominee and the original CVA’s informal “backers” to “up the ante” and agree to more of a dividend for unsecured creditors.

Until the creditors vote at the meeting on the 17th, none of the options for the dividend (20p or 25p or 65p or even 99p) are set in stone. As always it’s the creditors’ choice.

The more they squeeze out for creditors the less of any future earnings/cash-flow will be available for the “new” club. That’s a tricky balance and one that Griffins and UHY Hacker Young disagree on.

It will be interesting to see if future coverage identifies that balancing act as being between the creditors needs and “their club” (as fans, etc) having less cash for players, facilities etc next season, or more realistically in my view, whether they see the balance as being between the unsecured creditors and the future owner of the “new” club, who will have less short to medium term “value” in the company that he is buying out of the CVA - if the Griffins analysis is accepted.

UHY Hacker Young have hinted that the level of unsecured creditors will fall but have not set out by how much this will be.  This could further increase the return to the remaining creditors and might be a major factor in any modifications.

There is more to be written on this (hopefully) before the creditors meeting; not least of which will be the issue of any potential personal liability of the former directors /owners of the club and whether they might effectively assert a right of “set off” against the club if any claim were made against them. This complex area is difficult to describe with “broad brushes” but case law indicates that a person who is liable to an insolvent company (known as a “contributory”) cannot “set –off” money owed by the company to him.

Hopefully, the argument between Griffins and UYH Hacker Young will benefit and not baffle the creditors at the forthcoming meeting and their declaration of “non” interest in an appointment will help clarify Griffins role.

More hopefully still, yet another modification will be forthcoming….I wonder if another creditor has another proposal lined up to follow on from Griffins? Say 45-50p in the £…..

Now that would make for a very interesting creditors meeting on the 17th.

Author: Guy Thomas 

The BBC reports that the CVA proposal is very nearly with us. The meeting at Fratton Park on 6th May, three weeks back, must seem a long time ago for the creditors of Portsmouth City FC. 

Those that were there will no doubt remember the first of the Joint Administrators’ proposals “to achieve the purpose of the Administration” that they voted on. This stated: (1): Proposals to creditors for a CVA will be sent to all creditors within five business days of the acceptance of the Administrators’ proposals. Accordingly a further meeting of creditors to consider these proposals will be convened between 14 days and 28 days of the creditors receiving the CVA proposals.

Informal indications since then have been that the expected proposals were imminent. This ‘nearly there’ has now stretched out for what seems a very long time. The Insolvency Rules that govern the Administration state that the Administrator should send out minutes of a meeting “as soon a reasonably practicable”.

In case anyone is wondering how this process can be done, they would do worse then to take a look at this website set up by Brendan Guilfoyle, one of the Joint Administrators of Crystal Palace. Funnily enough that club’s meeting of creditors took place in May too. Theirs was on the 17th, yet they still manage to put up minutes of the meeting and the follow up letter to creditors.

A check of Companies House (earlier today, 27th May 2010) shows that Pompey’s Administrators found time to file the right form confirming the creditors’ committee, but oddly the minutes of what happened at the meeting don’t yet appear on the register, nor do the creditors seem to have received them.

Why would the Administrators fail to file the minutes of the meeting and why has it taken so long to send out the proposals? It seems likely that the Administrators have been using the time to seek the major creditors’ agreement prior to “committing” to a “CVA proposal”; on the other hand it could be that the points raised at the May 6th meeting gave the Administrators pause for thought. We won’t know more until the proposal is sent out and the creditors are allowed to have their next meeting. That next meeting looks set to be held sometime on June 18th. Interestingly, this is the day after the fixture list is due to be published.

Unexplained delays like this only seek to fray the nerves of creditors and fans alike and won’t make the job of the Administrators any easier at the subsequent creditors’ meeting.
Even if Portsmouth emerged from administration their fans could still face some turbulent times over the next five years. At the creditors meeting on 6 May it emerged that HMRC would prefer that any CVA the creditors approve should last just six months, during which the CVA supervisors would seek to “sell” the club to a new company. That would enable Pompey to be run under new ownership, while the ‘old club’s’ conduct in the run-up to administration would be investigated by a liquidator.
As things stand, without new funding or a different approach, the alternative will be a long drawn-out process lasting up to five years. The creditors of Pompey might also want to look at Swindon’s experience in a similar process, there a similar CVA lasted five years but came close to failing when the club struggled to meet a final year ‘balloon’ payment.

A lot can change in the run up to or even at the creditors meeting depending on the preferences of the creditors. This story still has a few more twists in it before Portsmouth and those connected to it can emerge out of the shadow of the clubs insolvency.