Does Administration – Or Perhaps Even Liquidation – Now Beckon For Coventry City?

By on Mar 13, 2013 in Finance, Latest | 5 comments

This evening at The Ricoh Arena in front of a paltry looking crowd of less than 9,500 people, a free kick two minutes into stoppage time at the end of the match between Coventry City and Colchester United rescued a point for the home team which might have previously appeared lost. It was a result which leaves the Sky Blues in ninth place in League On. The team is now six points from the play-offs, which would not be an insurmountable shortfall to have to make up on the clubs above them in the table were it not for one not insignificant detail – Coventry City seemed destined to collapse into either administration or liquidation over the next few days or so as a result of a lengthy dispute with their landlords over the terms of the lease that they have, for now, at their home stadium.

The story of Coventry City’s slide towards this position has been one of brinkmanship in the face of overwhelming evidence suggesting that such a hard-headed negotiating position might not necessarily have been the wisest of ideas. The club has been in dispute with Arena Coventry Limited, the company who run the stadium on behalf of Coventry City Council and the Higgs Trust, for many months now. It claims that it is massively overpaying for use of the stadium – even though this was a tenancy agreement which was agreed presumably without guns being held to the head of those that did so on behalf of the club – and that it cannot continue to survive without a huge reduction in rent and getting its hands on match day revenue, which it is not currently contractually entitled to.

Things started to come to a head when the club was issued with a Statutory Demand, giving it twenty-one days to pay the amount of rent that it owes in full, or face the possibility of a winding up petition being lodged against it. This didn’t follow, but that this happened may have been due to the apparent fact that Coventry’s non-payment of their rent was starting to have a serious effect on ACL itself. Starved of its biggest source of income by its truculent tenant, the company approached Coventry City Council, agreed in January to take over ACL’s mortgage on more favourable terms with the lender, Yorkshire Bank, relieving a little of the pressure on the company. This was followed up with the issuance of a Third Party Debt Order over the unpaid rent which froze the club’s bank account, and it was then hit with another transfer embargo at the start of this month after failing to submit its annual accounts on time for the third year in a row. All of this came with ACL having confirmed three weeks ago that talks with regard to renegotiating the lease for the stadium were emphatically off.

The one constant throughout this entire mess has been the brinkmanship of the club’s owners, the hedge fund SISU, over the last few weeks, and this has continued this week with the thoughts of the club’s chief executive, Tim Fisher. “ACL have been robust in their external statements that they are not in negotiations with us anymore and that negotiations have stopped,” Fisher said. “We are at a tipping point and insolvent liquidation cannot be reasonably avoided. “They need to re-enter negotiations pronto or we file. We’ll have no option because there would not be reasonable probability of avoiding insolvency liquidation. We entered the twilight zone on the 22nd February [which was when ACL announced that negotiations were off] and the twilight zone will become the dead of night very soon unless negotiations are re-entered. We have to show our lawyers that negotiations are ongoing.” So far, so emotive, but is this sort of language actually helpful in terms of getting this matter resolved? After all, SISU would stand to lose a considerable amount of money were the club to enter into administration or be liquidated. Would they accept this loss over the level of money that they are currently arguing over with ACL, or is this just yet another attempt at what seems to pass for “negotiation” on the part of SISU these days?

Exactly why ACL has been forced to such extreme action is not difficult to understand. The club owes more than £1.3m in unpaid rent, and while the issue of match day revenue may sound like relatively small beer, such an agreement, were it ever to be agreed by ACL, would effectively reduce the value of the rental package to £150,000 through increases in catering revenue and a reduction in business rates. They have made attempts at compromise before with SISU and seem them thrown back in their faces to the extent that when it had been understood by ACL after meetings with SISU that an arrangement had been agreed which would finally allow all concerned to put this matter behind them, only for them to find that SISU tried to move the goalposts again after the meetings had completed:

Instead of confirming its written acceptance, CCFC then proposed an alternative Heads of Terms, which bore no relation to that agreed. It demanded the waiver by ACL of all rent arrears claims pre-dating 1 January 2013. It demanded also the withdrawal of the statutory demand for the payment of rent arrears issued by ACL against CCFC on 5 December 2012. It was accompanied by an emailed statement from Tim Fisher declaring that CCFC has `no option but to build a new venue’ and that CCFC’s proposals were predicated on playing at the Ricoh Arena for a ‘run-off period of three years.’

Against such a background, we might have expected the team’s torpor on the pitch to have continued following their relegation from the Championship at the end of last season. On the pitch, however, the club has been reasonably successful after a slow start, and it now sits in ninth place in the League One table. This is all in spite of having now had three managers this season – Andy Thorn, who was replaced at the start of this season, Mark Robins, who perhaps unsurprisingly left this chaos behind on Valentines Day to join Huddersfield Town, and Steven Pressley, who left the Scottish club Falkirk four days ago to take over at Coventry instead. With four points from his first matches in charge of the club, Pressley has made a reasonable start to his time at the club. Outbursts like Fisher’s, however, may well leave the new manager wondering what he has let himself in for by coming to this club at this particular time.

If the club does enter into administration, though, any remaining hopes of getting promoted back into the Championship at the end of the season will be gone. A ten point deduction would – at the time of writing – see the club drop to fourteenth place in the league table, a surely insurmountable sixteen points from the play-off places in the division. This, however, pales in comparison with the threats now being made by Tim Fisher. Are these threats aimed at ACL in as part of one final attempt to try and force the arm of the stadium owners to accept further reductions in the rent, or are they aimed at focusing supporters against a common enemy in the form of ACL and deflecting attention away from themselves over a mess which, it seems from this distance, is largely of their own making? Or, perhaps, both? Coventry City supporters, who by now must be tired with this apparently perpetual gamesmanship, must be heartily sick of this situation by now. Liquidation would, of course, be a different matter altogether, and in an increasingly high-stake game of bluff and double-bluff it is starting to seem impossible to see a happy resolution to problem which now seems to be rapidly spiraling out of all control.

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    5 Comments

  1. You on the ACL payroll? No secret which side of the fence you stand. You could have made that article far more balanced had you paid a bit more attention to the utterly ludicrous position of ACL in this sorry affair.

    Craig

    March 13, 2013

  2. I’m not sure that I’d read the comments you quote in the piece as necessarily threatening liquidation. I suspect the quotes are borne out of the advice the board will surely be getting from their lawyers about the risk of liability wrongful trading under s214 of the Insolvency Act 1986. That section is couched in terms of insolvent liquidation, but its effect is not to require directors to liquidate, but to take every step with a view to minimising the loss to creditors, after the point they conclude that insolvent liquidation cannot reasonably be avoided [if they don't take some other action, it doesn't say but should be read as meaning]. The typical step, for football clubs, particularly, who are worthless in liquidation, is to put the club into administration.

    The lie of the land, I’d guess, is that the directors, while ever they can show there’s a chance of negotiating away some of the rent debt and reducing outgoings in future, can get away with saying that they’re not trading wrongfully. Take away the negotiations (or the prospect of them) and they’re directly in the line of fire (s214 liability is personal to them).

    In other words, I suspect that the true import of the statement is that, unless the landlord restarts negotiations, administration is both inevitable and imminent. Where that leaves the club is unclear. Unless someone can fund the administration, can the club meet its outgoings (particularly the ongoing rent payments, which are likely to be a liability the administrator must pay)? If not, can the landlord afford to agree a rent holiday or temporary reduction? Cutting a solution, unless there’s a reasonably cash rich buyer readily available, looks quite a daunting prospect.

    David Rawson

    March 13, 2013

  3. It never fails to amaze that no matter how wretchedly the owners run a particular club – as SISU have undoubtedly done at Coventry – there will still be some fans prepared to swallow their nonsense time after time and take to sites like this to defend their indefensible position.

    SW

    March 13, 2013

  4. From any objective perspective, it is evident that SISU are trying to run the club properly. They may have made mistakes, largely because they inherited a mess but most of their decisions have been right, certainly recently.

    Amazingly, given no stadium, debt, and a running deficit, there are still fans out there who think that SISU should invest on new players. Especially moronic because Coventry fans should know by now that running up a debt needed destroyed the club under previous owners. These same fans believe that SISU have an endless supply of investors. In truth, there are no investors willing to waste more money.

    No one owes Coventry City a living and therefore, it is time for the club to be run as a business. This means having a sustainable future, which in turn means having some access to their stadium and close to 100% access of all revenue income.

    It is ACL and the Council who have engaged in brinkmanship as well and in SISU they have found someone else who are prepared to play along with such a dangerous game.

    The fans should be out in force demanding that ACL and the Council back down and give in to SISU to give the club a fighting chance.

    Fat Dave

    March 13, 2013

  5. Perhaps nobody in football should bother paying any of their bills…

    fwis

    March 14, 2013

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