Portsmouth’s Five O’Clock Shadow Must Be Removed
It is, as if you hadn’t already noticed, open season on Portsmouth. There had been precious little sympathy for the supporters in the club in the media, but when it was confirmed that the club were back in court over a challenge by HMRC over the legitmacy of them placing themselves into adminstration, the gloves came off. On the one hand, the club had made themselves none too popular when the adminstrator, Andrew Andronikou, stated that he would be investigating ways in which the club would be seeking to avoid their nine point for decuction for entering into administration. Meanwhile, whilst the team itself scrambled its way to 2-1 win at Burnley. It has been more or less the only piece of good news for Portsmouth supporters over the last week and a half or so.
HMRC’s concerns over Portsmouth’s administration are well-founded. They are owed in the region of £18m and a CVA might see them (and, by extension, us) lose something like 90% of this money. Over the last few weeks, however, the clubs debt has risen exponentially with the latest figure standing at £86m. Considering that just a couple of weeks ago the clubs debt was reported by the Daily Telegraph at being £60m, it is starting to feel almost as if someone is making these figures as they go along. What we can say for sure is that if HMRC are owed from £18m a total debt of £60m, they would have a blocking vote on any proposed CVA. If they are owed £18m from a total debt of £86m, though, they wouldn’t.
On the surface, however, this doesn’t seem to be the reason for HMRC’s interest in the process of their entry into administration. There are two main reasons why HMRC are challenging Portsmouth’s administration. Firstly, they are questioning the independence of Andrew Andronikou. The role of an administrator, it should be remembered, should not be to defend or protect the interests of a company that is entering into administration. It should be to protect the interests of creditors. There would be a clearly conflict of interests if the administrator was seen to be acting in favour of indebted club rather than its creditors. The point of administration is to see if a company can be rescued as a going concern, and not for a supposedly independent administrator to work the figures in order to absolve a company of its debts.
The second issue that has been raised by HMRC is that of the loans that have been put into the club by the four owners that it has had over the last twelve months. The amounts of these loans are critical, as they will decide who holds what proportion of the balance of power at the time that a creditors meeting to vote either for or against agreeing a CVA. Seventy-five per cent of creditors by value have to vote in favour of a CVA proposal for it to be agreed. If Portsmouth, providing their entry into administration is confirmed by the court, were unable to get a CVA approved, they would almost certainly face a further points deduction on top of the initial nine points that they are almost certain to be docked, and may even face liquidation.
In short, there are two reasons in law why a CVA can be challenged by a creditor and overturned in court – unfairly prejudicing one creditor over the rest and material irregularities. It wouldn’t be difficult to draw the conclusion that HMRC are unhappy that these conditions will be met in any proposed CVA without the terms of it even having been drafted yet, none of which is likely to instil much confidence in the hard-pressed supporters of the club. At the High Court this afternoon, the case was adjourned until March 15th by the judge, Mr Justice Norris, whose words carried the ring of being damned by faint praise:
A shadow has been cast over the existing appointment of the administrators and it is clear that shadow should be removed as quickly and cheaply as possible. It is common ground before me that immediate liquidation of the company is a course to be avoided if possible. But it is only possible if properly funded administrators can be put in place.
HMRC’s viewpoint was succinctly summed up by their representative at the hearing, Gregory Mitchell QC. Any club entering into administration – and this is what football clubs and too often their supporters often seem to forget – are at the very last chance saloon before liquidation. The very least thing on the minds of Portsmouth supporters (as it should be at any club that enters into administration) should be the points deduction. It really is the least of their worries. It seems, however, that so many clubs have now entered into administration that it feels almost commonplace for it to happen, all of which understates the severity of the situation. Mr Mitchell, however, sounds a stark warning to anybody still in any doubt about this:
We say there are serious questions that arise and require full investigation as to what financial dealings there have been between the various different owners of the club and between the club and its owners.At the moment, everything is shrouded in mystery.
He also added that there is, “a real concern as to whether administration is feasible at all”. Unsurprising, perhaps, considering that the club’s assets would only cover a tiny proportion of what they owe at present, even if they were all sold. Reports in the Daily Mail today stated that Portsmouth are currently considering selling Fratton Park to Balran Chainrai for £10m and rent it back from them for £1.2m per year. At that sort of rate, the club would have used up all of this money in eight years even if this £10m wasn’t to be offset against their current debts in some form or other. Peter Storrie had overvalued the team by £17m, according to the Guardian.
The club and Andrew Andronikou remain bullish about the club’s prospects. They have no alternative to be. For supporters of Portsmouth Football Club, however, the main hope for survival of at least the spirit of their club lays with the Pompey Trust, an organisation founded only over the last few weeks, to make contingency plans for the worst and to hope amongst hopes that somehow the club can pull through. That day at Wembley, less than two years ago, must seem like a very long time ago already.