February 10th marks one week short of the one year anniversary
since the appointment of Trevor Birch, Bryan Jackson and Ian Gould of
accountancy firm PKF (UK) LLP as administrators of Portsmouth Football Club (2010)
Ltd. Commenting on the case at the time of appointment Trevor Birch said “Our aim is to achieve an outcome
that helps ensure the club’s long term survival, preferably by finding a suitable
buyer.” Whilst that may have been their outlining aim going into the process as
an administrator appointed by the High Court, first and foremost their duty is
to provide the best deal possible for the creditors of the business. The fact
that the business also happens to be a football club with a loyal support of
tens of thousands of fans is sadly irrelevant in the eyes of the law. A
football club is a business just like any other and has a duty to make sure it
pays its creditors on time.
Birch et al set about that process by attempting to enter into a Company
Voluntary Arrangement (CVA). For a CVA to be passed it must be approved by
creditors who are owed at least 75% of the debt. Without the 75% vote the
company faces voluntary liquidation. It is these creditors that the process of
the CVA is built around; the possible continuation of the business only exists
if it can be proven that by doing so it will provide them with a better
financial return on monies owed to them.
What is an
unsecured creditor?
Contact Law
defines them as such;
An unsecured creditor is a
creditor who does not have security for their loan to a company. On liquidation
of a company, the liquidator must follow a statutory order of payment when
distributing the assets of the company. This statutory order of payment means
that lenders with security for their loan, in the form of fixed or floating
charges, and preferential creditors, will all get paid before unsecured
creditors. While preferential creditors are a type of unsecured creditor,
preferential creditors are paid before other unsecured creditors. On
liquidation, a creditor solicitor can help with claiming money owed to an
unsecured creditor and can also advise a company as to whom their unsecured
creditors are.
It is unusual in a compulsory or
Creditors' Voluntary Liquidation for unsecured creditors to be paid in full.
Usually they will be paid a proportion of the money owed to them, for example,
80p for every £1 owed. As a result of their position in the statutory order of
payment, an unsecured creditor will often lose money on their original
investment. If you are an unsecured creditor who has not received payment in
accordance with the terms of your loan, an insolvency expert can assist with
applying for liquidation of a company. It is worth noting that the person
applying for the liquidation of a company receives no benefit for doing so and
will receive payment in accordance with the statutory order of payment.
On
February 7th the Football League announced that a bid to buy the
ailing football club by football financier Keith Harris had been rejected and
that the Football League would not accept any new bids. Furthermore they made
announcement that "In the
event the PST bid does not succeed and Portsmouth do not exit administration
before the end of the current playing season, the club will lose its membership
of the Football League."
Portsmouth's administrator Trevor Birch said: "We note the Football
League board's statement and will consider its implications."
What exactly are those implications and
what are the possible ramifications for the football club?
It might sound to obvious a point to state but if the football
club loses its membership from the Football League then liquidation is
the most likely outcome. Whilst the news of the Football Leagues decision was warmly greeted by the Portsmouth Supporters Trust
who had previously been named as preferential bidders by the administrators, it’s
worth considering why despite this fact, that PKF had approached the Football League
with the offer made by Keith Harris in the first place last week. The answer
lies in the deal being offered to the creditors which as I’ve already mentioned above
is the primary concern of the administrator; to ensure that they are given the
best possible financial resolve on monies outstanding to them. The deal offered
by the Supporters Trust is said to be 2p in the £1 whilst the Harris offer was
3p in the £1. Whilst on paper a penny might not seem that much difference, when
taken in the context of the total debt outstanding by the business it equates
into a figure of hundreds of thousands of pounds extra that has been offered to
be paid to these unsecured creditors. By law it didn’t matter that the
administrator had already agreed to treat the Supporters Trust as preferred
bidders, its obligation is still for them to obtain the best deal possible for creditors despite any agreements they might have already entered into with other parties such as the Supporters Trust.
In January PKF were granted an extension by the High Court until August
in which to attempt to allow the company to remain trading and exit
administration via the use of a CVA. Having been charged by law, by the
High Court upon entering administration to represent the needs of the creditors
the implications for the administrator are quite considerable given the
statement made by the Football League and the factor that the Harris bid has offered
better terms for the creditors. PKF cannot simply shrug their shoulders and
ignore the job with which they’ve been charged by law to do.
It
should come as no surprise that the creditors haven’t taken to the news as well
as the Supporters Trust have following on from the Football Leagues decision. It’s
also important to point out at this juncture part of the definition of an
unsecured creditor as given above, namely; this statutory order of payment means that lenders with security for
their loan, in the form of fixed or floating charges, and preferential
creditors, will all get paid before unsecured creditors. One of the issues
brought up at the High Court recently was the floating charge held by previous
owners Portpin Ltd who had been attempting to take over the club in a rival bid
to the Supporters Trust.
The failure of the Football
League to consider the deal offered by Keith Harris carries with it a very real
threat of the club going into liquidation and shouldn’t be seen as a smooth
transition towards new club ownership by The Supporters Trust and being able to
exit administration. This isn’t simply the case of keeping a football club from
going out of business; this is a requirement of law for the administrators PKF to
provide the creditors with the best deal possible on the money that they are
owed. The Football Leagues belief that a new bid wouldn’t be able to be
completed by the deadline provided by them doesn’t stop the decision from being
challenged and there’s good cause to believe that will happen in the very near
future.
Information
has been passed on detailing the creditors concerns over the Football Leagues
apparent stance to only consider the Portsmouth Supporters Trust bid and not
the Keith Harris bid. These concerns are repeated in full here in good faith for the benefit
of all the clubs fans in an attempt to show that the club remains in a very
real threat of being liquidated. It should not be seen as an attack on the
Supporters Trust who have worked tirelessly in an attempt to allow the club to
remain trading and be able to exit administration via a CVA. It is also not a
propaganda tool passed on by Portpin Ltd who I hasten to add I have never had
any contact with. It is replicated as stated for the benefit of all the clubs
fans in an attempt to highlight the possible danger that the club could be
liquidated come the end of the season.
"We are
very concerned about this latest development which appears to fly in the face
of the football leagues' own insolvency policy. The decision appears to have
been based upon a lack of information regarding the readiness to complete of
the Keith Harris bid, the legal uncertainty regarding the legal case (which the
PST bid is conditional upon) but hopefully not just a weariness with the
Portsmouth case as the creditors and the fans deserve more than that.
Keith
Harris' bid has been the subject of full due diligence which has been carried
out over the last few months. They have fully satisfied the administrators
regarding proof of funds. They have agreed all documentation for the
purchase from the administrators and all paperwork with the PFA. The only bit
required to complete is the Football League consent. It is our
understanding that the Harris bid could be completed within a matter of seven
to ten days.
Perhaps
more importantly, this new bid has the support of all members of the creditors
committee including the PFA and HMRC. This is because the bid is not
conditional upon a very flimsy court case that is highly unlikely to succeed
and impossible to complete in time to obtain FL approval. This is because the
Court case contains major issues of public policy which will clearly involve
appeals to the highest level. It is this very court case that was forced
into an adjournment literally on the court steps in December after the company
seeking to acquire Fratton Park pulled out at the last minute on its commitment
to fund the purchase. The PST bid has not evidenced to the satisfaction
of the creditors how this would be funded. It is this funding uncertainty
of the PST bid that is the main reason for the multiple adjournments of the
court case.
As
creditors, we have been told that the individual high-net worth backers of the
PST bid had agreed to fund the legal costs of the court case itself as well as
cover the operating losses incurred by the club during the court process.
This is a material worry for creditors to the club. If the PST bid
is already struggling to raise sufficient capital for the purchase and now must
fund what is expected be a lengthy and costly court battle, there are serious
concerns on the depth and commitment of financial reserves those backers.
It is important to note that the 14th February court date is
only a scheduling hearing. In all likelihood, the court will not hear the case
for before mid-March. Further, one must consider the potential of appeal
on any outcome. This would only serve to further deplete the financial
resources if both the club and the PST bid.
As
presented and approved by the creditors, the Keith Harris bid could provide up
to a million pounds return to creditors and fully comply with the CVA. The PST
bid cannot comply with the CVA and will produce a much lower return to
creditors because under the PST bid the majority of the money will go to
Portpin.
We
have been informed that the PST stormed out of a meeting with PKF when they
were told that PKF and the creditors were to accept the Keith Harris bid.
The press reports from Keith Harris make it clear that he also wants to
offer ownership in some format to the fans. The PST ownership structure
provides for 90 per cent of shares to be held by 5 or 6 individuals and the
rest by the fans. It is these fans that should be voicing their concerns over
the real intentions of the 5 or 6 individuals who seem to be happy with the FL
statement of "PST or bust". A true fan would want the club saved
by proper owners as Keith Harris clearly is.
If
the FL fail to change their mind and the club is liquidated, everyone -
including creditors, fans, staff, and players - lose out. We understand
that certain creditors may be considering legal action against the FL
