Portsmouth FC heading for groundbreaking deal

The administration of stricken former Premiership football club Portsmouth
was once
just about making the best return for creditors. The next move, however, could
make it all about investigating what went wrong.

In a groundbreaking move, the club is this month expected to enter into a
Company Voluntary Arrangement with a secondary plan to place the club in
liquidation some nine months after the CVA has been approved by creditors.
Entering liquidation will then give liquidators the power to fully investigate
how the club found itself facing financial demise.

The process will involve moving key assets such as FA membership, players,
and image rights – essentially the “business of football” – to a new company
next year. CVA payments will be paid from the new company to the creditors of
the old business.

The old business would be placed in liquidation allowing a full investigation
by the liquidators in charge. It is understood the current admin­istrators are
likely to be confirmed as liquidators. Most clubs entering administration exit
through a CVA in which repayments are paid to creditors and the business
continues to function as normal.

Peter Kubik, one of the three UHY Hacker Young administrators at Portsmouth,
the proposed CVA/liquidation plan, expected to be published this week, had come
about because neither the administrators nor HMRC wanted to lose the ability to
pursue any party for “antecedent ­activities”.

They are also hopeful they can achieve a higher return for creditors through
what is already viewed by many in the profession as an “unprecedented”
insolvency structure.

Sources close to the event said the new CVA proposal came about after a
creditor meeting on 6 May at which plans for the future of the club were
presented by the adminstrators.

It is believed HMRC officials at the meeting were keen to approve a CVA on
condition the club could be investigated. Only liquidation would permit that.
HMRC currently owns about a quarter of Portsmouth debts, potentially giving it
significant influence over the administrators’ plans, which need the approval of
75% of the creditors by value.

Already, insolvency practitioners are discussing the upcoming deal. Colin
Gibson, partner at law firm Rickerbys, said liquidators investigating antecedent
activities would be looking for the undervaluing of assets and the use of
preference payments.

Effectively, this means any wrongful trading or fraud which took place at the
club prior to its administration.

“If something was sold for £50m but was actually worth £70m the liquidators
can pursue the director who arranged the sale for the other £20m,” he said. More
importantly the liquid­ators are likely to probe into “wrongful trading” or
whether managers knew the business was operating outside its means, yet allowed
the spending and trading to continue.

Gibson believes the hybrid CVA/liquidation plan is being used by the
administrators to “maximise return” to creditors and may herald the beginning of
a new way of treating ­football clubs that hit financial crisis.

Kubik said the plan, still to be approved by creditors, was an “unusual” move
but the future could see more football clubs exit a CVA in this fashion.

“This could be a blueprint for the future,” said Tim Carter, head of
insolvency at law firm Stevens & Bolton.

The interesting element of the case is the change in ­attitude from HMRC
which traditionally has not been in favour of CVAs, especially in football
clubs, because creditors, such as the players and other clubs, receive payment
in full ahead of the taxman, according to Carter.

“I guess HMRC is trying to get its pound of flesh from the directors,” he

Further reading:

administrator to go for CVA

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