Recently I wrote about the Hearts share issue, the fact that the support seemed to be fully behind the efforts to raise funds to keep the club going to the end of the season, and the numerous risk warnings which basically amounted to the Hearts Board saying that there was literally no chance at all of any return whatever in return for buying the shares.
The share issue was a cri de couer by the Board. Having pointed out that the business was effectively insolvent, the Board said that is the share issue failed, then they would have to source the money from elsewhere. Who would lend to an admittedly insolvent business?
Today saw two announcements from Hearts, both of which emphasise the parlous position the club finds itself in. I will deal with the second in a later post.
The Board Statement – Winding Up Petition
Heart of Midlothian plc (the “Club”) today wishes to make supporters and potential share offer investors aware of this most recent financial matter for their consideration in conjunction with the Share Offer 2012 brochure.
The Club has been served with an Order to wind up Heart of Midlothian plc by the Court of Session on behalf of the Commissioners for Her Majesty’s Revenue and Customs (the “Petition”).
The Club is, however, endeavouring to agree a suitable payment plan with HMRC for the outstanding amount of £449,692.04. It should be made clear that this has only recently been presented to Heart of Midlothian. The Petition is unrelated to the Club’s potential liabilities included in the Risk Factors section of the Share Offer 2012 brochure.
The Board is hopeful that a suitable agreement can be reached with HMRC to provide a suitable repayment plan.
A Club spokesperson said: “We have guaranteed future revenues from forthcoming games and related broadcast income as well as additional guaranteed transfer income which will more than cover the outstanding amount stated in this Petition. We would therefore be hopeful that HMRC will accept that winding up the Club would be totally unnecessary.”
The Club is revealing the Petition as it wants to continue being transparent in all its dealings with supporters and potential investors.
As the Hearts Prospectus made clear, there is an ongoing appeal due to be heard against assessments of nearly £2 million sought by HMRC in connection with taxes claimed on earnings of players loaned to Hearts but paid in Lithuania.
However, as the statement makes clear, this new liability of £449,692.04 is unrelated to that one, which being under appeal is not yet due.
Whilst this latest bill has, as stated by the Board, only been presented to the club recently, I find it hard to believe that the bill was not with Hearts before preparation of the Share Prospectus. Especially as there have been a number of these petitions over the last couple of years, one would have imagined that Hearts would be aware of the risks of non-payment of tax. The timescales for preparation of a winding-up application suggest that the bill, if not the petition, must have been known about by Hearts when the Prospectus was issued.
As far as the money which Hearts refer to as being available to settle this debt, bearing in mind the fraught financial position of the club, one idly wonders how the spending gap will be filled.
It would be quite wrong to suggest that the Board issued the Share Prospectus relying on using some of the proceeds to meet this undisclosed liability. It is not necessarily wrong for Hearts not to have revealed the debt to HMRC in the Prospectus, especially where there is never the prospect for an investor of a dividend or even of selling the shares.
However the imminent prospect of a winding-up might dissuade investors – they might not wish to lose their investment in a couple of weeks.
HMRC have already, on a few occasions, used these petitions to force Hearts to pay. Clearly Hearts do not owe enough overall for HMRC to back off, as, to some extent, they did with Rangers.
Hearts have the problem, as addressed in my next post, of how to avoid extinction.
Posted by Paul McConville