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. As things stand, the Administrator will consider three stages: when the club became insolvent; when a club entered into Administration formally; and the period between those stages. The courts have long been able to impose orders disqualifying company directors. In 1986 the Company Directors Disqualification Act (CDDA) was brought in to deal with (amongst other things) “ Unfit conduct” by directors in insolvent companies. One of the definitions of an “insolvent company” is one that enters administration at a time when its liabilities exceed its assets. Whether or not there has been any “unfit conduct”, then the Administrator or Official Receiver has a duty to send the Secretary of State for Business Innovation and Skills (BIS) a report on the conduct of all directors who were in office in the last 3 years of the company’s trading. This is known as the “D” report. The most common examples of the type of conduct reported to the Secretary of State are; allowing the company to continue to trade when it was unable to pay its debts, failure to keep proper accounting records, failure to prepare and file accounts or make returns to Companies House and failure to submit returns or pay the Crown any tax due. The Administrators report is strictly confidential and no matter how much work the current directors carry out or assist the Clubs Administrator, it remains a highly confidential report which cannot be dis-closed to them. It is solely for use by the Secretary of State for BIS. The Secretary of State will then weigh the evidence; possibly carry out their own further investigation (depending on the report). If there is substantial evidence of unfit conduct they then have to decide whether it is in the public interest to prosecute the director or directors concerned. Any proceedings are brought by the Secretary of State for BIS through the Official Receiver.  The matter is heard, and decided by the Court, unless the Secretary of State accepts a disqualification undertaking from a director. The minimum period of disqualification is 2 years and the maximum 15 years.  If disqualified, unless he or she has court permission, the person is disqualified for the period stated in the order (or undertaking) from (amongst other things) being a director of a company, or directly or indirectly being concerned or taking part in the promotion, formation or management of a company. A wide definition to cover a lot of different kinds of work for a company. If someone breaches the order or undertaking then disqualified person and any person who assists them will be committing a criminal offence and is liable to be prosecuted. If such a prosecution takes place they may also be held personally liable for all the debts of the company concerned that were incurred after they were involved in any role from which the person was disqualified. Let’s be clear, we don’t yet know what really took place at Fratton Park in the months leading up to Administration and I don’t envy Mr Andronikou’s job in investigating the affairs of the club or explaining the basis of his appointment to the Court. I don’t know if there has been any breach of duties by the directors of the club. However, I do know this; Portsmouth’s journey through formal insolvency still has a long way to go and it certainly won’t be dull.

Original post:
They Think it’s All Over…What Next for the Directors of Portsmouth FC?

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