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The perils of administration. A cautionary tale.
Since October 2012 the Pompey Trust’s bid business partners have committed £800,000 of their own money to the club. If the Trust bid succeeds they will convert this sum to equity in the club. If the Trust bid fails they lose the lot, some individuals to the tune of six figures. As an article of faith in the Trust bid that is quite something.
The bid partners, collectively referred to as the High Net Worth Individuals (HNWI), and some of the members of the Trust presidents’ club, have been keeping PFC running since October by making up the shortfall in the club’s running costs.
If the bid fails to get control of the club they stand to lose the lot. They will get nothing back in liquidation and nothing if someone else takes control of the club.
The question that many erudite Pompey fans have been asking is; ‘Why have they had to do it?’ Indeed, why has the club been running at a loss month to month whilst in administration? The HNWI began subbing the running costs at the end of October 2012, when the Trust became the preferred bidder of the club, after the previous preferred bidders Portpin failed to satisfy the Football League’s questions and were deemed ‘unlikely’ to pass the Owners and Directors’ Test.
Since then the HNWI have put £800,000 into the club over four months, indicating an overspend of about £200,000 per month. Fans have to ask what money was being used in the months before that, from August when players were signed until October. £600,000 came from … where? Was this creditors’ money?
January saw a round of cost-cutting and the recent player cull indicates that the club is now likely to be able to run at break-even and the HNWI can take a breather from writing the cheques. So, those same erudite fans are forced to ask, ‘Why weren’t those costs cut back in October?’
Meanwhile, some of those same players culled from the wage bill complain that promises were made that have not been kept. These are players signed in August, six months after we went into administration. So again the erudite are puzzled. Who was in a position to make promises to these players? And why was that person signing players whose wages took us into the red? If we were working to Portpin’s budget proposed in the June CVA why weren’t these issues addressed at the beginning of October when Portpin ceased to be a viable option?
Pompey could be accused of cheating by fans of other clubs if their results hadn’t proved to be so irredeemably awful. Actually that hasn’t stopped some.
It could be said, in mitigation, that the administration would have been over in December if the court case to decide the value of Fratton Park had gone ahead. It was all that was needed to settle the sale of the club to the Pompey Supporters Trust. The HNWI may well have thought they were in for six weeks cheque writing rather than three months.
But the court case was adjourned. The cause seems to be two issues in the remit of the administrators; the paperwork for the sale of Fratton Park to the Trust’s Property Developer partner, Stuart Robinson, and the possible over-sight of a floating charge held by Portpin on PFC.
Fan erudition to the fore; ‘How can such a highly rated firm as PKF make these basic errors in the detail of their case?’
In respect of the sale of Fratton Park, this oversight has been beneficial to the Trust as they were able to take the time allowed to improve their bid. They are now in a position to own Fratton Park outright without relying on Robinson to buy it. Loans are in place from Portsmouth City Council and another source, at preferential rates, that will enable the club and the ground to be in the Trust’s ownership from the start. These loans have been factored into the business plan and will be paid off over two years.
The Trust bid is fully funded, signed, sealed and ready to go. Frustratingly the rest of the deal is out of their hands. All that is required is for the courts to agree the value of Fratton Park for the purchase to go ahead. The adjourned date was part of that process. Portpin are being intransigent on the setting aside of their charge of £18m on the Club and ground. The Trust offer, based on several independent valuations, is £2.75m for the ground plus a settlement of the agreed unsecured and football creditors bill as detailed in the CVA.
It is a puzzle how the£2m floating charge was missed as it is part of the only charge held over PFC (2010) Ltd. Portpin’s charge was both fixed (on Fratton Park) and floating (on the business of PFC). The Trust’s offer was on the assumption it dealt with the charge. So why would PKF make an application to the court that did not do so?
This charge is not going to disappear. The Trust bid is not going to increase to cover it, as it is a fixed price offer, already agreed. So does anyone have to pay it? Are PKF liable for this possible mistake? Are Portpin in a position to exploit this error?
Portpin and PKF have been talking. As they should if a resolution to the case is to be sought. The adjournment of the hearing due on 31 January until 14 February can only be to allow these discussions to continue, surely? Although it seems the whole situation is taking on the flavour of a game of cat and mouse.
Meanwhile the Trust is expected to wait. The £800,000 is spent; £800,000 which was given in good faith by the nominated preferred bidders of the administrator. One final thought from the erudite, ‘If the Trust bid fails due to the administrator’s mistake, are PKF liable for this money?’
Fans are asking why this is taking so long. There is a viable buyer ready and waiting. This club has suffered enough at the hands of self-interested businessmen. It would seem it still has to wait on the wrangling of two more groups of them. It seems administrators prove to be no better at running football clubs than any other businessman. The culture of overspend prevails.
The Trust has reached a point where negotiation is no longer an issue. It is time to say enough, it stops here. Time to set PKF a deadline beyond which our offer will not reach. The Trust chair has stated they have a target date of 1 March for their takeover. Any hitch in the completion of that deadline will not be down to them.
So what are the administrators waiting for? Fans would like to know just why they cannot complete on the deal.
The Pompey Supporters’ Trust is still taking pledges for community shares. Details can be found here.
You can follow SJ Maskell on Twitter by clicking here.
You can follow Twohundredpercent on Twitter by clicking here.
Re: floating charge.
If what Micah Hall states is correct here:
then this charge is of questionable validity. This is presumably what is being argued between Portpin and PKF. If PKF are reasonably sure of this not being valid then why not just test it in court? If they are not so sure about the charge being invalid then this is the sticking point.
Portpin can hold out for whatever they desire in order to lift the charge even though they wouldn’t pass a Fit and Proper Person Test. So PKF are left unable to sell the club to a buyer who would actually be able to take control. Madness if so.
Of course, the answer to the question is – as ever with Administrators – the £000’s per hour they are paying themselves. Every penny honest Pompey fans hand over ends up in the pockets of T.Birch esq.
Just say no – walk away, find a ground and start again. Make your money work for you, not a userer.
A great article, well written and easy to understand. The Trust deserve to be applauded, I hope it won’t be long before they take rightful ownership and we can leave all this behind and start concentrating on the football. Wouldn’t that be good.
Re: Floating charge
If it is true that the Administrators had overlooked the Floating charge over the assets of the club then they should be liable for the continued Administrators costs over the additional time that this oversight has caused in reaching a conclusion. As professionals they cannot profit from such oversights and continue to claim their high levels of fees and costs during this additional period.
Who lobbied for the appointment of PKF? HMRC.
People forget that.
We did them over the Football Creditors and missed payments now it’s payback time.
…and thank you for this illuminating article. It shames the feeble depth of coverage undertaken by lazy ‘professionals’ at the Portsmouth News.
If the floating charge of £2m is based on the ‘business’ of PFC2010, which has already been demonstrated to be a failed business and is months away from liquidation, my question is that surely this charge is virtually worthless?
[…] Pompey: The £800,000 question – from Two Hundred Percent's SJ Maskell: Actually that hasn’t stopped some. […]
Thanks for the article. Can you explain how the new share structure would work following the takeover? The trust has currently raised c.£800k to £1m. The HNWs have put in £800k to cover the running costs that will be converted into equity. Is that sum in addition to the money they pledged for their share of the new business, or is that an advance on the sum pledged? I only ask as surely if that is in addition, then the trusts shareholding must be diluted. A related question. If the original plan was for the trust to have (I think the figure was 25%) when they raised £2m, what would happen to the share percentage if the trust failed to raise the target figure?
why is the public purse subsidising the survival of a 3 times bankrupt firm?
if the deal goes tits up – will all the funding be lost?
‘lets close a hospital to save pompey rar rar rar’
there are far more deserving causes than a bancrupt football club
close it down
An Administrator can sell floating charge assets without the chargeholder’s consent under insolvency law, but he can’t do the same with fixed charge assets, hence the Court application only needs to deal with the fixed charge ie Fratton Park.
Thanks Simon. But doesn’t a floating charge crystalise to a fixed charge if a default occurs – which is the case here. CSI defaulted on payment of purchase price of PFC on which a charge was held by Portpin. Does this not make a difference to the value of the asset to be sold – the asset being PFC and Fratton Park? Therefore making it germane to the case?
@ Tax payers pay.
The purchase of the club is not being subsidised from the public purse. The Trust will be LOANED money by the Council and will repay with interest. The public purse will, in fact, make a profit on the deal.
I can’t give you exact figures of the bid as that is subject to NDA. But the Trust has raised over £1m in funds for community shares and is on track to own 51% of the club – which has always been the intention.
[…] leave that aside for now for others to comment on such as the excellent SJ Maskell has done in her latest blog, but there’s one issue outlined in this narrative where exasperated just doesn’t cut it – […]
I gather PKF capped their fees at £2.5m some time ago Terry. If so there is more to the delays than increasing their bill.