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.

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Portsmouth FC: After the Administration… a Corporate Voluntary Arrangement?

Author: Guy Thomas There were six winding up petitions for football clubs in the High Court today. Two of them relate to Portsmouth! Hinckley United Football Club      Brighton Football Club Portsmouth City Football Club       Portsmouth City Football Club  (again!)     Southend United Football Club      Cardiff City Football Club       Cardiff & Southend have won a temporary reprise but Portsmouth’s problems have if anything intensified. Click here to view the article that appeared on the BBC website. I understand that Portsmouth have been asked to provide a ‘statement of affairs’ within the next week. Such a statement is drawn up by a specialist insolvency practitioner and will be very difficult to produce in such a short space of time, if that is the case the club looks set for administration. Given the minimum 10 point penalty that the Premier League may impose, it is highly likely that the club will , in the future, be preparing its finances on the basis it will be in the Championship next season. The statement of affairs will likely be made on the basis that Portsmouth is shortly going to be a Championship rather than Premier League club. Leeds, of all clubs, is actually a positive example for Portsmouth as they have managed to reduce long term overheads, such as player wages, and operate well as League One rather than Premier League club. Things may get worse before they get better, but the silver lining is that Portsmouth, like Leeds, has a large fan-base which virtually guarantees revenue over the next few years, and should enable them to bounce back. Depending on how things play out in the next couple of weeks in the Courts, next season looks likely to see a resurgent Leeds and a under pressure Portsmouth as competitors in the Championship seeking a return to top flight football. If HMRC is to maintain its new hard-line approach Portsmouth will not be the last Premiership club visiting the High Court in 2010. For too long, top flight clubs and their owners have been able to palm off their smaller and unsecured creditors but it looks like that is changing. The problem for clubs is that as soon as one creditor starts insolvency proceedings, as HMRC is, all the others, for example other clubs owed transfer fees, will follow suit. Many recent football insolvency (and near misses) in the lower leagues have been prompted by this change in stance by HMRC.

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Six of the Best

Author: Guy Thomas Earlier today, The Times Online reported on the Vantis Group’s interim results. Particular emphasis has been placed on the impact of the firm’s involvement in the Liquidation of Stamford International Bank Limited. Insolvency Practitioners (and their lawyers) face a difficult assessment when approaching a new appointment. Contrary to the widely held assumptions of many media and professional commentators; the acceptance of an appointment by an insolvency practitioner carries significant responsibility and potentially huge liability. As well as personal liability for many of their actions, the insolvency practitioner must also assess the cost /benefit of funding future litigation. As indicated in the above article, one of these factors is (when faced with significant opposition from a competing stakeholder with very deep pockets) how long will it be before there is likely to be sufficient realisation for the creditors and the insolvency estate. In this case, the ongoing tussle between the US Court appointed Receiver and Antiguan Court appointed Liquidators has spawned multiple and complex litigation across the globe. It should go with out saying that such complex international litigation can be costly. In this case, it appears the US Court appointed receiver has rigorously sought to oppose the Antiguan appointed liquidators attempts to realise assets at almost every turn. In addition to the obvious point concerning the management of cash flow inherent in any business, this also serves to illustrate a useful lesson for creditors and stakeholders in any formal insolvency process. Contrary to popular belief, all formal insolvency processes are subject to potential review by the Courts, stakeholders and creditors. Expert advice should always be sought, particularly where significant amounts are involved and again, as with any other business, litigation is often the backdrop to ongoing negotiation between the parties.

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The challenge of insolvency: Vantis and Stamford International Bank