Author: Guy Thomas

So what happens if a notice has been filed at the High Court giving warning of an Administration and that notice of intention to appoint is followed by a notice of appointment on Friday?

Administration of the Club

A fresh start, free of the unsecured creditors? Not quite. The Premier League still retain strong influence on the outcome. It’s well known by now that when the club goes into Administration then the Premier League will deduct at least nine points. What is less appreciated is how stance of the Premier League will effect how the Club will exit from Administration.

The football authorities place a strong emphasis on the treatment of unsecured creditors. The main weapon in their arsenal is the so called “golden share” i.e. the club’s membership of the league.

The League prefers a Company Voluntary Arrangement or CVA. This is a procedure which allows a company to put a proposal to its creditors for an agreement, under which the creditors agree to accept a certain reduced sum of money in settlement of the debts due to them. The procedure is flexible and the form reflects what is acceptable to the creditors. The proposed arrangement needs the approval of at least 75% in value of the creditors, whether or not they voted in favour of it. The Court has a limited role and the arrangement is managed by a licensed insolvency practitioner or Supervisor.

If the Club (in administration) wants to avoid further penalties from the League they will prefer to “exit” Administration via a CVA. This will give the power back to the unsecured creditors (like HMRC) as to whether they agree with the proposal. If the CVA proposal fails and the exit from Administration is carried out any other way (e.g. Leeds United /Luton Town FC) then further penalties of at least 20 points could be applied.  Clearly this will affect the value of the Club and influence the decisions of its future investors.

The CVA procedure was introduced by the Insolvency Act 1986 and was designed primarily as a mechanism for business rescue. The procedure is also often used instead of liquidation as a means of distributing funds on the conclusion of (and, occasionally, during) an administration.

Procedure for CVA

a. Proposal: A proposal can be made by Directors of the Club or its Administrator.

b. Nominee: Insolvency practitioner nominated under terms of proposal to supervise its implementation. Where the company is in administration, the Administrator may act as nominee.

c. Where nominee is not administrator they have to notify the court whether, in his opinion, a meeting of creditors should be held in order to consider the proposal. Where nominee is administrator the Nominee proceeds directly to convene creditors’ meeting.

d. Creditors’ meeting: Usually held within eight weeks of the notice of the proposal. The meeting may approve, modify or reject proposal and/or may choose another nominee. Requires a majority of 75 % in value of the creditors present and voting. The rights of secured or preferential creditors need to be taken into account too.

e. Supervisor: If the proposal is approved, the nominee becomes the supervisor and implements the arrangement in accordance with the terms of the proposal.

What about the hearing on Monday?

Liquidation still looms, appointment of an Administrator by a “qualifying charge holder” is the only way to avoid the hearing on Monday. Even if that appointment happens on Friday however, an Administration, started by the filing of a Form 2.6B at the High Court (Notice of appointment of an Administrator by a by a Qualifying Charge Holder) only suspends the winding up petition. It will still loom in the background if the administration doesn’t pan out as intended.

For more information on this story as it unfolds keep an eye on our blog.
Also, I would recommend reading ‘Portsmouth move closer to entering administration’ which was published on the BBC website and ‘Portsmouth administration may trigger 20-point deduction next season’ which appeared in the Guardian.