Portsmouth's Administration: Postponement or Salvation?

A nine-point deduction will reduce Portsmouth’s Premier League total to a feeble seven. That is the immediate consequence of the administration that now seems inevitable at Fratton Park, a fate the club can only avoid by finding new owners before the end of the week. After seventeen years of opulence, the mask is slipping from the face of the Premier League.

Portsmouth’s situation has grown more desperate in the past fortnight. The club tried to persuade the Premier League to bend transfer window rules, allowing them to sell players who could then immediately feature for their new clubs this season. While FIFA gave positive signals, the league refused, stating that this would “not be an appropriate course of action at this time”. This decision effectively scuppered any chance of raising quick cash by making their players more attractive assets to potential buyers.

The club’s only hope now is a new buyer, but that prospect appears dim. The path to administration is all but confirmed.

The Mechanics of Collapse

Entering administration will at least freeze Portsmouth’s debts and halt legal action against them. A court case scheduled for Friday, where HMRC was set to petition for the winding up of the company, will not be heard. An administrator will be appointed, paid for by owner Balran Chainrai, to manage the club's affairs. The administrator's job is not to act in the best interests of Portsmouth Football Club, but to secure the best possible deal for its creditors. Andrew Andronikou of the accountancy firm UHY Hacker Young has reportedly been approached for the role. His task will be to sell assets to keep the business alive as a going concern while searching for a buyer.

With a nine-point penalty looming, relegation is a certainty. The real problems will begin once Portsmouth drop into the Football League. The rules there are notoriously strict for clubs exiting administration, as Rotherham United and Luton Town can attest. Any club leaving administration without a Company Voluntary Arrangement (CVA) in place has historically faced further points deductions of between fifteen and twenty points at the start of the following season.

The CVA Sticking Point

Why would a CVA prove so difficult for Portsmouth to agree? The answer lies with two powerful creditors: the FA and HMRC. The FA insists that all football debts are settled in full, and Portsmouth still owe at least £10m for the transfer of Sulley Muntari. HMRC, meanwhile, is owed around £12m and is known to be intransigent, refusing to vote in favour of CVAs that see the taxpayer lose out. Lord Mawhinney, the Football League chairman, recently highlighted this view:

People try to find excuses about why clubs have had to go into administration. One of the sadnesses is that there is never enough recognition of the small businesses, the taxpayer, and worthy groups like St John Ambulance who are left owed money after doing business in good faith.

Without the funds to pay these debts in full, securing a CVA seems highly unlikely. Portsmouth could therefore start next season in the Championship facing a fight to avoid a second successive relegation.

A Questionable Saviour

Three groups are believed to be interested in buying the club, but recent attention has focused on Victor Cattermole, a New Zealander. Cattermole requested thirty days for due diligence, which was unsurprising given the financial chaos, but confirmed he would not purchase the club before Friday’s court hearing. His company, Endeavor Plan, specialises in “network marketing”, a business model that appears virtually indistinguishable from pyramid selling. In 2003, the company attracted the attention of New Zealand’s Securities Commission, which banned its advertising for not complying with the law and warned the public about committing money to the scheme. Whether he would pass the “Fit & Proper Person” test remains an open question for now.

Portsmouth will likely disappear from the Premier League radar at the season's end, but their problems are just beginning. Leeds United, Sheffield Wednesday, Queens Park Rangers - the list of established clubs reduced to shadows of their former selves by financial mismanagement grows longer. Supporters of other clubs may feel a sense of relief that it is not them, but the belief that it will always happen to someone else is not a healthy one. The Pompey Trust, formed just in time with 1,000 members already, will have its work cut out for it.

All eyes now turn to Friday's court hearing, and to Andrew Andronikou.