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: 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 .

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Pompey: Beware the Ides of July!

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   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

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Enjoy the Game…

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: 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.

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Pompey creditors left in the slow lane whilst Crystal Palace gets closer to a CVA

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.

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Tah Daah! A Last Minute HMRC Amendment Means Pompey’s Creditors Approve The Preparation Of A CVA Proposal Whilst The Creditors Claims Increase…

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.

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

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 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