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

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

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

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