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 

In the run up to today’s creditor’s meeting at Pompey’s Fratton Park, Guy Thomas has been commenting in www.sportingintelligence.com on the background to today’s meeting and the options available to the creditors of Portsmouth City Football Club (In Administration) when they vote. Click here to read more.

Author: Guy Thomas 

An interesting piece from Business Advisory and Insolvency specialists BDO that reminds directors of football clubs that as the fans enjoy the thrill of the competition in South Africa, it shouldn’t distract them from their own issues closer to home.

www.bdoadvisorybites.co.uk/index.php?id=298&uid=6270

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.

Author: Guy Thomas

The BBC and other media outlets have reported a dramatic increase of Pompey debt. Following a lengthy creditors meeting (5 hours!), Portsmouth’s Creditors yesterday approved (with some modifications) the Administrators resolutions.

Whilst it is good news that Portsmouth have been given the green light to go ahead with the preparation of a Creditors Voluntary Arrangement (CVA), it is important to remember that the club’s fate is still in the hands of its creditors. The trouble is that identifying who the influential creditors are and how much they are owed appears to have got dramatically harder over the course of the Administration.

Forgive me if I cough once or twice in this blog, there are several things that have still yet to come out in the wash so I will have to hold off until the currently cloudy waters clear up a bit.

What? Who? How much?
There really is too much for me to write about in one blog coming out of the creditors meeting; the dramatic increase in Her Majesty’s Revenue and Customs’ (HMRC) debt from £17 million to £35million (*acheem*; sorry there goes that cough), the last minute debt claim from the football league of £50 million (*ACHEEEM*), the apparent admission by the Administrator that they have received early “parachute payments” from the league (I wonder how the other struggling clubs will feel about that?), the apparent desire to seek a legal challenge to the “Football creditor rule”, the ongoing review of the Club’s pre appointment transactions, security documentation and land ownership (*acheem, acheem* & *acheem*), the vigorous discussion surrounding the appointment of the 5 (more or less) members of the creditors committee and of course, what high profile meeting would be complete without a verbal dust up between the various IP’s there to represent creditors and another bravura performance by Stephen Hunt (a well known antidote to all known Insolvency Practitioners and their creditors meetings). Instead I am forced to concentrate on one or two coughing points here; I hope to cover the rest in later blogs.

HMRC, the Administration and the Football authorities appear to have *accheem* come to an “understanding”. [That’s enough coughing. Ed].

At first glance, following the dramatic increase in the Clubs debt, the total debt now seems closer to c£190million! The final debt figure will no doubt become clearer once the current Administrator/future CVA nominee reviews creditors’ claims.

c.£190 million in creditor claims? That is a staggeringly huge figure for such a (forgive me) small company as Portsmouth City Football Club. I invite you to take a look at prior annual accounts and compare the turnover….

It appears that an HMRC driven compromise CVA will be shortly sent out to creditors for approval. If agreed then the CVA will be reviewed after c.6 months and at some point there will be a sale of the Club out of the CVA and into a new company  – hence the speculated involvement of the football authorities. The “shell” of the old company will then be placed into liquidation and a thorough investigation will follow. It looks like the former directors and stakeholders of the Club are set for an “interesting” 2011.

There’s enough here for a book!

Next Steps?
The original first resolution was as follows: “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.”  Even with the “voted” amendments it will be weeks before any CVA can be approved and even then a challenge from creditors or members can still come (within 28 days).

And another thing…

• Approval of the first resolution of yesterday’s meeting will have authorised the Administrator to spend time and money to prepare and send out a proposal even if it is subsequently defeated/not approved. The Administrator is effectively protected from any subsequent criticism of the cost of the proposal by this approval;
• Approval here gives momentum to the CVA and “moves the conversation” onto the terms of the CVA rather then whether there should be one.
• If one of the creditors did (for whatever reason) wish to challenge the voting at yesterday’s meeting, they would have to do so within 28 days or lose that right. This could prove tricky to anyone who doesn’t challenge this vote but wishes to go against the outcome of the next meeting.

Back to reality
The Insolvency Rules which govern CVA approval could still throw up a few interesting points, such as which of the creditors will have their votes effectively down graded because they are “connected” to the Club, but in simple terms, for the CVA to proceed and the club to pull itself out of administration, at least 75% of the creditors who vote at the next meeting, will have to vote in favour of the proposal.

Of course, creditors’ votes will be swayed by how much of their debts they will recover under the CVA. C.20p in the £ may not make them rush to agree but the alternatives are very poor. Also, if any of them are also fans they will be keen to help the club avoid any further points deduction at the start of next season, for failing to exit Administration using a CVA.

It will be interesting to compare how this Administration compares with Crystal Palace.

The Championship Club’s creditors meeting, asking for similar permission to yesterday’s meeting of Pompeys’ creditors is due on 17th May 2010. A copy of Crystal Palace’s creditors report is also available online although I suspect Palace fans have probably been too wrapped up in the warm afterglow of Survival Sunday to be concentrating on that before now.

At Palace, out of the media glare, the debts have not increased in the same way and there has been a noticeable difference to how that Club’s fortunes (and its Administration, led steadily by Brendan Guilfoyle) have been perceived by the creditors, fans and media.

Author: Guy Thomas

It’s been reported by the BBC that Portsmouth’s Administrators have sent out a summary of its financial position to its creditors.

The Administrators have set out a list of alternative proposals for the creditors to vote on (broadly to decide how the Administration should come to an end) and published the time and place of the creditors meeting at which the creditors will vote (11am, 6th May at Fratton Park).

The report highlights an eye watering debt of over £108million. This could in limited circumstances even rise to £119 million. That’s just under a third more then initially estimated. Unsurprisingly this has been widely reported (and condemned).

Although worthy of condemnation, such reports and the creditors who read them may not immediately see one of the possible knock on effects of the behemoth in front of them.

Andrew Andronikou, the club’s administrator, has reportedly sought to damped down any response by commenting “I do not believe that the figures will come as a surprise to anyone who has been interested in buying the club,”

Andronikou went on to say that “When they [a potential buyer] do due diligence it is there for them to see. So, for that reason, the figures are vastly different from what has been reported.”

It is true that these huge figures do help highlight one of the many questions arising out this Administration.

Just what were the Directors and owners playing at, running up such a gargantuan liability for the club?

When exactly did they “know” the club was bust? Or when should they have “known”.

When you compare staff costs to the gross income then it is more then a little baffling how the clubs directors could have continued on without having taken advice as to whether the club was trading whilst insolvent. Hopefully the nature and detail of that advice (if any was given) will become clear after any further investigations have taken place.

No doubt all will become clearer, either as a result of any investigations of the Administrators (or as a result of BiS investigation into the directors. BiS is the latest funky, yet pointless name change for the old DTI or Department of Trade and Industry.

It is sad to see that, given the announced timetable it looks unlikely that the FA will approve Portsmouth’s delayed application for a Uefa licence in time for Pompey to take up their Europa League place.

One strong indication from the accounts, that Pompey were punching above their weight, is set out in the sections concerning the costs of player transfers / loans and the costs charged for lending money to the club.

Ignoring the millions that appear to have already been paid out to them before the Administration, over 15 football agents, including Pini Zahavi (the Tel Aviv based “transfer svengali”), are owed over £9 million.  A further £38.2m is due to three previous owners in the form of loans and over £4 million to trade creditors.

Balram Chainrai, the present owner, is owed £14 million, he claims his loan is secured on Fratton Park but this security has previously been queried by some creditors.

Andronikou has said “We now have a business plan in place that is a projected target over the next three to five years to pay back the creditors,”….”The creditors will get a percentage of their debts back over a number of years, rather than all in one go.”

At the proposed creditors meeting on May 6, a number of different proposals will be voted upon. In particular the offer of a creditors’ voluntary arrangement [CVA], which is essential if the club is to exit administration, will be decided upon. It may be that this vote needs to be approved before the FA will allow the Club to be listed as one of the clubs requiring a Uefa Licence.

Nothing has been set in stone but it is anticipated the dividend to be offered to creditors at the meeting (if they accept) will be in the region of 25-30 pence in the pound.

There is no official word yet as to how HMRC intend to vote but it has previously been well reported that they usually oppose football CVA’s (as a reflection of their dislike of the special status “football creditors” hold in the Administrations of football clubs).

In light of the above, it will be a happy co-incidence (for any supporters of a CVA proposal) if one by-product of the recently increased debt total (from prior reports of c. £60million) to the current c£109 level is that any opposition from HMRC will not be enough (on their own) to defeat the CVA proposal.

Without a successful vote by 75% of the unsecured creditors the CVA will fail and the club will likely be docked further points in the Championships next season.

Happy voting!

Author: Guy Thomas

In a dramatic turn of events, HM Revenue and Customs (HMRC) have announced that they will not use the next listed hearing to pursue its challenge to the appointment of Administrators by Pointpin Limited, the British Virgin Island based company which is controlled by Mr. Chainrai.

Although the hearing, scheduled to be heard at the Royal Courts of Justice in London on Monday 15th March 2010, will still go ahead; the anticipated tussle will not be as spectacular as many had awaited.

It has been further reported that “Despite HMRC continuing to have a number of remaining questions and concerns around the relationships of various parties, and a lack of detail of financial affairs, HMRC has now advised the Administrators that we will no longer challenge the validity of the Administrator’s appointment.”

“This comes in light of the additional material now provided following the judge’s directions of 2 March 2010.”

Portsmouth and its’ Administrators should not feel completely reassured by the further reporting that HMRC are “still not happy” but “do not see any benefit in continuing an expensive, long-running, legal protest against the club”. 

What now?

In no particular order, some of the things that are still to come in this administration include:

1. HMRC will keep a close eye on events; they can do this through a creditors committee (which is meant to oversee the actions and fees of the Administrator).

2. Unsecured creditors (like HMRC) put in their proof of debt to the Administrator setting out what they are owed [most creditors do this without taking legal advice].

3. Statutory Investigations will be carried out by the Administrator into the conduct of the club, its directors and any who acted as if they were directors. The Administrator submits a “D” report to the Secretary of State for BIS.

4. The directors finalise their statement of affairs and a report goes out to creditors on the events that led to formal insolvency. This may include their view of when the club became insolvent. This is usually followed by a meeting of the creditors to vote on the housekeeping issues for the Administration.

5. The League will decide on the first part of the likely point’s deductions. Part “two” will depend on the outcome of any proposal to exit the Administration. The exit the League usually expects is a Creditors Voluntary Arrangement.

6. The Administrator will continue to look for savings in costs. Players are unlikely to be made redundant. The Professional Footballers’ Association has strong influence in this area. However that doesn’t exclude the likelihood that loan agreements will be cancelled to save the salary costs. It’s been reported Pompey having six temporary signings on their books.

7. The Administrator looks to realize assets for creditors and or raise finance to allow continuing trading. It has been reported that Mr Chainrai will provide the funding and the Administrator is looking for bids.

Anyone got a spare £15 million?

Author: Guy Thomas

Until the Court orders otherwise, Andrew Andronikou, of insolvency firm UHY Hacker Young remains as an Administrator of Portsmouth City Football Club. The paperwork appointing him was filed at the High Court on Friday, 26th February.

Incidentally the appointment names three administrators. Mr Andronikou is the “lead” administrator as far as the media is concerned, but he has no special status above the other two in statutory terms - their responsibilities, powers and duties are the same.

It has been well reported that HMRC are seeking to challenge that administration appointment. The first hearing was on 2 March 2010 and you may have been unlucky enough to catch my comments on Sky Sports News before the hearing. The application to challenge the Administration has been adjourned, until the week beginning 15th March and I will be writing more about that closer to the time.

Whichever insolvency mechanism the Court decides upon (i.e. Administration or Liquidation), you may be wondering what will happen next for the former directors of the club (or anyone who may have acted as if they were a director). Is Administration the complete end of the directors’ involvement with the club? Maybe not.

It seems likely that under Mr Andronikou, some of the former directors will continue in place (hopefully to help establish and maintain the clubs value as well as assist the Administrator’s work). However that assistance will not protect them from any statutory investigation by the Administrator concerning their conduct before the Administration took place.

Insolvency Practitioner & Accountant Nick O’Reilly of Vantis, who recently examined the club’s books, said Pompey accounts were “completely dysfunctional” and its business methods had gone “against all good governance”. 

Ouch!

“I came away not knowing who controlled what,” O’Reilly told BBC Sport.

The problem for the directors of the club and any company which enters Administration is this; when the company’s financial position was deteriorating there was a “tipping point” when the interests of shareholders become secondary to the interests of creditors. I don’t know when that point was or if there was in fact any wrongdoing by the directors of Portsmouth FC. The Judge in the (now suspended) winding up proceedings indicated in February, that this “tipping point” may have passed some time before the club entered Administration.

After Portsmouth entered Administration then one of the roles of the Administrator put in charge of that process is to review the actions of directors in the period leading up to the Administration.

If the Court subsequently orders the liquidation of the club then a liquidator will have to carry out the same investigation and report to the Secretary of State. (more…)