Portsmouth CVA shakes up FC insolvency rules

Football insolvencies may never be the same again following proposals in the Portsmouth company voluntary arrangement (CVA), claim one of its administrators.

Clubs usually exit an administration via a CVA, which allows a company to continue to trade after it has agreed to repay some of its debt. However, in the recent Portsmouth proposal, which must be voted for by 75% or more of creditors to be approved, the club will enter a CVA for nine months and then enter liquidation.

In the liquidation the “business of football”, which includes the players and managers, will be transferred to a new company, which will continue to make the CVA payments to the old company, with Andrew Andronikou and Michael Keily of UHY Hacker Young named liquidators.

This model will allow the liquidators access to the books of the old company, which, under a CVA, they are unable to do – to search for antecedent transactions, essentially to check for evidence of fraud.

The new model is sending a message to directors and managers of clubs to “get your house in order”, according to Peter Kubik one of the Portsmouth administrators. “It’s a sign to the outside world that the football industry is under more scrutiny,” he added.

Although a CVA and liquidation is not unheard of in football –most recently it was used at Bournemouth FC – its implementation could mean a permanent change to the way football administrations for big clubs are handled in future, according to Kubik.

There “won’t be a straight forward CVA in football” going forward, he claimed, as HMRC and other creditors want to investigate why a club failed.

Portsmouth will pay back approximately £3m to unsecured creditors in the first year and an estimated £13.5m for the next four years and three months. This works out to around 20p in the pound over five years.

However, if the new club qualifies for the Premier League creditors could receive a further 5p in the pound. It’s no secret many clubs are racking up huge debts. Recently KPMG, the auditors of Liverpool, said there was a “material uncertainty which may cast significant doubt on the group’s and parent company’s ability to continue as a going concern” in its latest audit report.

To combat the spiraling costs of financial risks in football European governing body Uefa announced new financial fair play rules last week. Clubs wishing to take part in either the European Champions League, or the Europa League from 2012/2013 will have to prove they broke even each season if that are to compete; and club owners will see their investment capped at £38m each season.

Concurrently, the Premier League is expected to produce a spectrum of financial regulations. In future it hopes to: assess the club’s financial stability through monitoring of accounts; block a takeover if there are any concerns regarding funding; demand full details of loan agreements; and meet any potential new club owners to assess their suitability.

The Premier League is threatening to withhold payment of TV rights if it’s unhappy with the financial direction the club is taking. A decision on changes to football club finance regulation is expected at the Premier League AGM this month.

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