Chester City – The Tax Man Bites Back
Upon first sight, it may seem surprising that a victory for the tax man should be greeted with the faintly audible sound of cheering in the distance but such was the mess that is Chester City Football Club that it feels increasingly as if their demise is the only way that the game will rid itself of their owner, Stephen Vaughan. The question of which Stephen Vaughan we are talking about is, of course, a moot point since his son took a directorship at the club earlier this year in place of his father. What has become increasingly apparent over the last few weeks is that the authorities have become increasingly impatient with the goings-on at The Deva Stadium, and the situation took a turn for the worse for the club’s supporters earlier this week.
Since the club put itself into administration earlier this summer, there had been a hint that all was not what it might be at Chester City Football Club. This was most starkly exposed by the Football Association’s refusal to grant the club a licence to play, even in pre-season friendlies. The club thought that it had agreed an escape route to its insolvency with a CVA, but this was challenged by Her Majesty’s Revenues and Customs at court this week and, in a move that seems to demonstrates just how far down the line Chester are at the moment, HMRC won their case with an objection against the CVA at court on Wednesday. The club is now back in administration, without a licence to play from the Football Association and with just weeks to go before the start of the new season.
What, then, were HMRC objecting to? Insolvency laws relating to Company Voluntary Arrangements are pretty specific, and HMRC lost their legal status as a preferred creditor several years ago. The amount believed to be owed by Chester City to HMRC was in the region of £1m. It’s a sizeable amount of money, and under normal circumstances it might have given HMRC a blocking vote against any proposed CVA (any creditor owed more than 25% of the total amount of money to be included in the CVA can block the approval of the arrangement). In the case of Chester City, however, there were £4m of other debts to be taken into account. The HMRC could vote, but they didn’t have a blocking vote in the case of the Chester City CVA. The arrangement was agreed at a creditors’ meeting on June 11th.
So far, so good, then. Nothing illegal going on – a little side-stepping to get around the rules on insolvency and the ownership of football clubs, perhaps, but nothing we haven’t seen before. What was extraordinary, however, was this post on the Conference Forum yesterday morning. Could it be true that Chester City Football Club spent £143, 750 on services to a company called Hannah Industrial Services that was only formed in February 2009? A cleaning bill of over £11,000 per week? The cold feet of the Football Association and the blocking tactics of HMRC suddenly start to make a good deal more sense, as does Judge Pelling QC’s decision to revoke the arrangement. The 1986 Insolvency Act only allows two specific grounds for the revoking of a CVA – either the CVA unfairly prejudices the interests of a creditor or shareholder, or there has been some material irregularity at the shareholders’ or creditors’ meeting. The judge’s verdict, therefore, was a damning indictment of whatever has been going on at Chester over the last few months or so.
Now is surely the time for Chester City supporters to admit that this club and this regime is nothing that they can conscionably be involved with. Their club may yet stagger and lurch into the new season, bloodied, bruised and carrying a hopelessly punative points deduction. They may not, though, and it’s difficult to see where their salvation will come from at this point. The timing couldn’t come at a much worse time, of course. Any new club in Chester would almost certainly have no league to play in for a year. As things stand, however, the existing Chester City club seem unlikely to be starting next season either. The time might be right for the club’s supporters to step back from their predicament and take control of their own destinies.