Administration - somebody please explain how it works

[Triggaaar]

If, as an individual, you don't pay your debts, your creditors can petition for bankruptcy. If you still haven't paid your debts after a year (or so) then the official receiver can sell your family home from under your nose.

Priority number 1 = your creditors. They get paid until you have nothing left. You may reach a pence/pound deal, but that's up to them to accept or not.

So why is it not the same with football clubs? They have players, often worth millions - why aren't the most valuable players immediately put on the market (window shouldn't apply to a club selling when in administration), so that the debt can be paid? The club could still continue as long as they have 15 players left, it doesn't matter if they're relegated, the priority is paying back creditors.

Then, if that doesn't help, the remaining players and ground (assuming the club owns it) should be put on the market. If no one wants to buy it all as a going concern, for the market value of the players and ground (or the amound owed to creditors if that's less), it should all be sold off and the club closed.

Could somebody please explain why that doesn't seem to be the case for football clubs.

 

[Dick Knights Mumm]

Factors:

1. Creditors can also be supporters

2. When they are looking to sell the club administrators know there is greater income in a higher division to tempt suitors.

3. The priority is not paying back creditors.

 

[perseus]

A bit like Murder

They set the dogs on to you. Sniff out any dosh or even goods you have and not squirrelled them away somewhere secret.

 

[shaolinpunk]

I might be wrong, but wasn't there a case years ago that resulted in the law getting changed after some guy bought loads of stuff (house, everything to furnish it, a car) etc as gifts for his son on credit cards and then declared himself bankrupt as he clearly couldn't afford it. Because they were all gifts, none of the things he bought could be claimed back.

This story might be a figment of my imagination but I'm sure this happened

 

[Triggaaar]

Factors:

1. Creditors can also be supporters

Understood, although not all of them will be (for example HMRC) and they never seem to get their money back.

2. When they are looking to sell the club administrators know there is greater income in a higher division to tempt suitors.

Sure, but if no purchasers are coming forward then why not sell the assets that you can sell?

3. The priority is not paying back creditors.

Oh - why not? That is the priority for individuals, why is it different for football clubs?

 

[Alex Alex Dawson oo! oo!]

If, as an individual, you don't pay your debts, your creditors can petition for bankruptcy. If you still haven't paid your debts after a year (or so) then the official receiver can sell your family home from under your nose.

Priority number 1 = your creditors. They get paid until you have nothing left. You may reach a pence/pound deal, but that's up to them to accept or not.

So why is it not the same with football clubs? They have players, often worth millions - why aren't the most valuable players immediately put on the market (window shouldn't apply to a club selling when in administration), so that the debt can be paid? The club could still continue as long as they have 15 players left, it doesn't matter if they're relegated, the priority is paying back creditors.

Then, if that doesn't help, the remaining players and ground (assuming the club owns it) should be put on the market. If no one wants to buy it all as a going concern, for the market value of the players and ground (or the amound owed to creditors if that's less), it should all be sold off and the club closed.

Could somebody please explain why that doesn't seem to be the case for football clubs.

No. The reason a business enters administration is to protect itself from its creditors because it cannot meet its liabilities and is therefore insolvent. In the case of Pompey, HMRC is so pissed off that it forced the issue and was going to the High Court next monday to try to wind the business up. If that had happened then any assets would have been sold and the proceeds shared amongst the creditors.
An insolvency practitioner (administrator) is appointed and takes over running the company from the previous management; his priority is to keep the business trading whilst seeking a new buyer. During this period the company is protected from the "pre-admin'n" creditors but has to trade solvently.

 

[Triggaaar]

No. The reason a business enters administration is to protect itself from its creditors because it cannot meet its liabilities and is therefore insolvent. In the case of Pompey, HMRC is so pissed off that it forced the issue and was going to the High Court next monday to try to wind the business up. If that had happened then any assets would have been sold and the proceeds shared amongst the creditors.
An insolvency practitioner (administrator) is appointed and takes over running the company from the previous management; his priority is to keep the business trading whilst seeking a new buyer. During this period the company is protected from the "pre-admin'n" creditors but has to trade solvently.

Thanks for the explanation.

So as long as the club breaks even on a day to day basis, they can continue. Does that involve paying interest on outstanding debt?
But a new buyer takes on the old debts, which leads back to the main question:
When a new buyer comes along offering old creditors 10p in the pound, why don't they just say 'no thanks', as the club still has assets that could be used to pay the creditors back?
Is the club allowed to keep playing under administration until all players are out of contract, so it's assets have drastically reduced?

 

[Alex Alex Dawson oo! oo!]

Thanks for the explanation.

So as long as the club breaks even on a day to day basis, they can continue. Does that involve paying interest on outstanding debt?
But a new buyer takes on the old debts, which leads back to the main question:
When a new buyer comes along offering old creditors 10p in the pound, why don't they just say 'no thanks', as the club still has assets that could be used to pay the creditors back?
Is the club allowed to keep playing under administration until all players are out of contract, so it's assets have drastically reduced?

I'm no expert and my company's never been in this position. However, I believe there's a time limit on how long a company can stay in administration and if no viable offers are received then the business will be wound up.
Any new buyer seeking to take over the company has to settle with the existing creditors. At Southampton, their new owner settled the debts 100% but in the cases of Leeds, Palace and Pompey (#1) the creditors were offered considerably less. Pompey's was 20% and Palace 1.9%. As a creditor you're faced with taking a %age of what you're owed or possibly getting much less if the company is liquidated. Currently, Pompey have no real assets apart from the staff so winding them up is probably not going to realise that much - however, I guess that HMRC are probably playing a different game now.

 

[tubaman]

1. Run a football club with money you do not have and spend £££££££££ on players you can't afford.
2. Decide that you really don't want to pay all those you owe money to.
3. Apply to go into administration.
4. Write off all your debt at vastly reduced rates and leave everybody out of pocket.
5. Buy back the club for £1 and start all over again.

Or something around this model.

 

[Triggaaar]

Pompey's was 20% and Palace 1.9%. As a creditor you're faced with taking a %age of what you're owed or possibly getting much less if the company is liquidated.

Thanks, that's how I thought it was, but I just thought these clubs would be worth more than that once liquidated.

Currently, Pompey have no real assets apart from the staff so winding them up is probably not going to realise that much

Any guesses on figures, and same question for Rangers?

however, I guess that HMRC are probably playing a different game now.

Oh, what's the new tactic?

 

[beorhthelm]

important point to note is football clubs aren't any different.

 

[BensGrandad]

Does this now mean that HMRC will just wipe off their portion of the debt and start all over again. Why can a football club have football debts as a first priority just because the FA deem this so, and have had it installed in Football League Rules is it not the law of the land that makes HMRC a preferred creditor.

 

[Alex Alex Dawson oo! oo!]

Any guesses on figures, and same question for Rangers?

No idea and I don't think it's useful to speculate when you don't know any facts. Fratton Park and the surrounding ground are owned by the previous two owners and not by Portsmouth FC neither of whom want to be involved with the club any more.
Rangers own Ibrox and their training ground and £9m to HMRC in unpaid PAYE and VAT. There's also an outstanding court case for something like £40m or so in evaded tax going back years. Verdict is due any day and if HMRC win then Rangers and some former staff will really have trouble. I watched the Rangers administrator's press briefing yesterday; some thoughtful and detailed questions from the Scottish press and the administrator clearly seemed unhappy with some aspects of what they've found to date. He was very critical of businesses using collected PAYE and VAT to fund the trading of a basically insolvent business - any reporter asking Andronikou a question on that about Pompey will probably find themselves banned from the ground.

Oh, what's the new tactic?

They're going to have someone, issued a winding up order here after two months missed PAYE. Seemed very aggressive with Rangers over the last few weeks forcing Whyte and his cronies to expedite a resolution of face an HMRC instigated administration.

 

[Alex Alex Dawson oo! oo!]

Does this now mean that HMRC will just wipe off their portion of the debt and start all over again. Why can a football club have football debts as a first priority just because the FA deem this so, and have had it installed in Football League Rules is it not the law of the land that makes HMRC a preferred creditor.

One to ask Tony Bloom at the next Fans Forum (if there is one), he voted for it. HMRC challenged the FL rule in court last November, verdict is due next month - FL case was based on some bollocks about "preserving the integrity of our competitions and leagues". A complete crock of s**t without a doubt.

 

[BensGrandad]

I am reasonably sure that when as a member of ILEA (Inntrepeneur Leaseholders Association) which was formed to help leaseholders when their pubs were taken over and many were going bankrupt that many took out IVAs and in all cases the creditors had to agree the repayments and their had to be a 75% vote in favout of accepting the IVA. If this is till the case and applies to a football club in administration could HMRC if they are owed the vast majority of the 75% of the total debt still oppose a settlement and thus cause the liquidation of the club. For example if HMRC are owed £2m in taxes and are offered 1p in the pound as per the last time, why should they accept such a paltry payment of £20k why shouldn't they object to the proposals and vote against them perhaps others who will receive much smaller sums of money would side them. A creditor owed £10k would only get £100 hardly anything at all.

 

[Alex Alex Dawson oo! oo!]

I am reasonably sure that when as a member of ILEA (Inntrepeneur Leaseholders Association) which was formed to help leaseholders when their pubs were taken over and many were going bankrupt that many took out IVAs and in all cases the creditors had to agree the repayments and their had to be a 75% vote in favout of accepting the IVA. If this is till the case and applies to a football club in administration could HMRC if they are owed the vast majority of the 75% of the total debt still oppose a settlement and thus cause the liquidation of the club. For example if HMRC are owed £2m in taxes and are offered 1p in the pound as per the last time, why should they accept such a paltry payment of £20k why shouldn't they object to the proposals and vote against them perhaps others who will receive much smaller sums of money would side them. A creditor owed £10k would only get £100 hardly anything at all.

Exactly. Btw the 2010 CVA at Pompey was 20p in the pound - not that anyone's been paid anything yet. The ongoing CVA liability is also one of the financial problems that have contributed to the current administration because Pompey's business model was not self-financing. It required regular cash input from the parent company, who have themselves been in administration since October.

 

[BensGrandad]

Sorry got it mixed up was it Palace that offered either 1 or 2p in the pound. Can also understand why TB should vote in favour of football debts beinga priority to protect football clubs but cannot understand how the law of the land allows this. Why has it taken the courts so long to issue a ruling in respect of HMRC application.

 

[Westdene Seagull]

Oh, what's the new tactic?

I'm no expert but I would suggest the new tactic of HMRC is to force the issue in some hope of either getting full payment or at the very least prevent the club from trading and thus avoid building up new debts to HMRC ( or better put - US ! ).

I fail to see how the Football Leagues stance on preferred creditors being football creditors can possibly be legal. If I stopped paying my income tax and my credit card then I'd go to jail for the former but the latter could only take me to civil court and get a CCJ against me. I'm afraid it's time for HMRC to start winning some cases and if that means both Pompey and Rangers go under then, as a tax payer, I won't shed any tears.

 

[Alex Alex Dawson oo! oo!]

Sorry got it mixed up was it Palace that offered either 1 or 2p in the pound. Can also understand why TB should vote in favour of football debts beinga priority to protect football clubs but cannot understand how the law of the land allows this. Why has it taken the courts so long to issue a ruling in respect of HMRC application.

You underestimate the vested interest groups here. The real owners of English football have had the ear of government for decades and they don't want to see their nice little world tarnished by grubby irritations like transparency and decent corporate governance - god forbid. I could be pleasantly suprised but am not holding my breath about the outcome of the HRMC Court Case.