No Sky Blues Ahead Just Yet: Coventry City’s Statutory Demand

By on Dec 5, 2012 in Finance, Latest | 1 comment

Over the last few weeks or so, it had been starting to look as if Coventry City finally had a fighting chance of turning a corner after a lengthy trough. A dismal start to the season saw manager Andy Thorn become one of the first managerial casualties of the season when he was sacked before August had even ended, but his replacement, Mark Robins, has made a decent fist of hauling a hitherto under-performing team in the right direction since taking charge of the team, and this has been mirrored in the FA Cup, where the reward for two wins against non-league Arlesey and League Two’s Morecambe has seen the club handed a relatively lucrative trip to White Hart Lane to play Tottenham Hotspur next month. This, however, is where the good news ends for Coventry City Football Club. The news this week that the club has been served with a statutory demand over non-payment of a £1.1m rent bill that it is due for use of The Ricoh Arena is very bad news indeed for a club that has seemed close to the financial brink for some considerable time.

What, though, does this mean? Well, in dry legalese, a statutory demand is issued using a form prescribed – against a limited company – by section 4.1 of the Insolvency Act 1986, and it gives said company one final chance to pay an amount of money owed to a creditor before insolvency action commences. At this stage, a company ordinarily has three options. It can seek to have the demand set aside through the court on the basis of a material deficiency (such as being served to the wrong address – unlikely, since the creditors are the club’s landlords and such demands are ordinarily hand-served, or because it is for a disputed amount), it can repay the debt in full or it can reach agreement to the creditor’s satisfaction to repay the debt over a period of time. These options have to be taken up within twenty-one days of the date of service.

There is also a fourth option, which will make for bad reading for Coventry City supporters – the club can enter into administration, which will protect it from any further action being taken against it. This might have dire consequences for a team whose recovery from a bad start to the season remains firmly in the ‘green shoots’ stage. A ten point deduction by the Football League would likely kill off any remaining possibility of the team making this season’s League One play-offs (and would likely throw it back into the relegation battle at the foot of the division), but possibly more troubling than this is the timing of any further action and the effect that this may have on the make-up of the squad itself. An incoming administrator may well find himself arriving at The Ricoh Arena at the start of January, and under such circumstances a fire sale of players in order to reduce the wage bill or inject a greater degree of financial liquidity into the club certainly couldn’t be completely ruled out.

The issue of the cost of the rent for the use of The Ricoh Arena has been a stumbling block for the club’s owners for some considerable time, now, and SISU, the venture capital group which owns the club, has been in dispute with ACL, the company which owns The Ricoh Arena on behalf of its joint owners, Coventry City Council and the Alan Edwards Higgs Trust charity. In August, the club was taken to the High Court in Birmingham after stopping payments of £100,000 a month in rent to ACL in April. The court told Coventry City FC to pay into a deposit fund to cover unpaid invoices to ACL, but ACL has subsequently confirmed that no agreement has been reached with SISU, leading to the demand which has now been issued. It has even been suggested in some quarters that ACL offered a substantial reduction in the rent when the club was relegated to League One at the end of last season – the figure of 50% has been mentioned more than once – but that this was rejected by SISU, who have indicated that other clubs in the league who pay rent for the use of their grounds pay an average of less than £170,000 a year.

None of this, however, seems likely to be of great interest to any court dealing with insolvency proceedings. The question that any court would ask in the event of an attempt to set aside the statutory demand would likely be, “What are the amounts payable under the contract and have the club been paying that amount?” If the answer to the second part of that question is negative, the issue of a dispute amount over the amount owed under the demand would appear to be flawed. Whether Coventry City should  be paying £250,000 per year in rent for use of The Ricoh Arena is, it could be argued, hardly in the jurisdiction of a court that is trying to establish the club’s solvency, or otherwise. ACL, its patience clearly worn paper-thin by these months of brinkmanship on the part of SISU, have already stated that the club now faces a choice between a declaration of insolvency or a winding-up order.

The decline of Coventry City Football Club and the way in which The Ricoh Arena has come to be regarded as an albatross around the club’s neck could be regarded as something of a parable for modern times. Dozens of clubs have relocated over the last two decades, and it is difficult to make a case for arguing that moving to a new ground has been anything like a panacea for the ills of a football club in a lull. Highfield Road, however, is gone and nothing now can bring it back. Coventry City Football Club may well have an extremely tough decision to make, one of whether it can, based upon its current and projected financial position, justify continuing to play at The Ricoh Arena in the long-term. At the time of writing, the club’s average home attendance for this season is 10,527 people. The rights and wrongs of the levels of rent that the club should be paying to stay at its home ground are neither here nor there, in some respects. In order to become viable in the long-term, the club needs more paying customers, and it also needs its owners to stop playing what is looking increasingly like a very dangerous game of brinkmanship with its future. There have been many protests against SISU by Coventry supporters over the last few months. It seems likely that they will reignite again in the near future if the owners of the club don’t get this particular mess decisively sorted out, once and for all.

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    1 Comment

  1. Can’t quite believe what is happening at Coventry. It actually doesn’t sound like there’s any way out of this, when both parties are so far apart in what they want I can’t see how they can compromise.

    Removals Coventry

    December 20, 2012

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