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.

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Pompey in the Dock: Pompey Win! And No Appeal

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!

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Pompey in the Dock – Day 1 : ‘This appeal is not about precise figures, it’s about principle”

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.

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Howzat? Will Cricket face the same financial problems that now confront Football?

Author: Jacqueline Button Public sector employees worried about their pay and pensions aren’t the only ones affected by the new government’s clamp down on spending. Property Week reported last month (4/6/10) that on 24 May Whitehall’s Efficiency and Reform Group announced a halt to lease extensions in the current financial year that do not have Treasury approval. The government is also planning to exercise break options which it has this year, including at Eland House, Victoria Street SW1, the 24,200 sq ft headquarters of the Communities and Local Government Department. A client of ours has had a similar experience – a government department tenant, initially keen to renew their lease have backed out of negotiations and will be relocating to cheaper premises. (Spare a thought for the staff – no pay rise, no pension and forced to work in the back of beyond). So landlords of public sector bodies must beware – your once star tenants are fading. Check break dates and expiry dates. If any are coming up soon, you may find yourself looking for a new tenant.

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Public Sector Lease Freeze

Author: Julie Gingell Could you dedicate just one office tea break to fundraising for a great charity? As close friends of the Willow Foundation , SA Law is helping to promote their latest national fundraising initiative. And the concept couldn’t be easier! Simply schedule an office tea break to raise money. Staff could be asked to make a small donation to attend; cakes and biscuits could be sold; or you could simply hold a raffle. You could even charge a fee for each tea   bag - the more exotic the tea bag the higher the donation!

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Turn Tea Bags into Tenners!

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.

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Portsmouth: Why Thursday’s creditors meeting means so much to so many (not least the helpless fans)

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.

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Creditors’ Rights versus Fans’ Dreams… Or is it?

Author: Nathanael Young News that the Sugababes’ founder member Mutya Buena has applied for a trademark in the word ‘Sugababes’ has already provoked considerable discussion. When their last original member left in 2009, the Sugababes reopened discussion of a paradox as old as philosophy: whether something could survive the replacement of all its component parts.  But whatever the importance of the Sugababes’ band, it is now the Sugababes’ brand - the cornerstone of a multi-million pound business - that is at stake. The legal position between the parties remains to be seen; Buena clearly considers herself entitled to the mark as a founder member, but the suggestion from the current trio seems to be that Island Records have the rights in the name, although they have no trademark. This is not the first time different band members have struggled for control of a brand. In 2003 a case involving the heavy metal group Saxon went to the Court of Appeal, where it was held that, in the absence of a partnership agreement specifying otherwise, members of a band were members of a partnership at will, which was dissolved when they split up. The name and the goodwill built up under it belonged to the partnership jointly, and not to any one individual or individuals, whether or not they claimed to be surviving members. In that case the trademark application was refused, but it was one of the original members that objected to it. The legal issues in this case remain to be seen, but the practical issues are familiar to all intellectual property lawyers. Names - whether names of companies, names of bands or names of products -  can become commercially important overnight. It is crucial that the ownership and registration of the intellectual property rights in names is given thought at the earliest possible stage. Otherwise issues can arise, often years after the name first comes to prominence. It is unlikely that we have seen the last of the Sugababes trademark application, and still more unlikely we have seen the last case of this type.

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Bands’ Brands - Music and the Law

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?

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Portsmouth FC continued: HMRC thow in the towel…but “still not happy”

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