Carl31’s Guest Post on How a Failing Football Team Would be Dealt with in the “Real World”

Carl31 posted this as a comment on a piece earlier this week. Unaccountably I missed it when going through comments and thought others might have done so too.

Carl started by quoting a section from my post, shown in bold below, before adding his own comments.

“One of the perennial issues about penalising football teams relates to what happens after a change in ownership. The argument goes that, if the team is sold off, why should the new owners and the innocent fans pay for the wrongdoing of the incompetents or worse who formerly owned the club?

That however simply ignores the nature of corporate entities. If that interpretation was allowed to prevail, then a football club could commit the most heinous rule breaches, and then have its assets sold to another company before the disciplinary process concluded. Thus the “club” would be innocent and all the fault would lie on the old owners. This would be the case even where the assets were sold by one company to another owned by exactly the same people!”

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Paul,

In the commercial world, this happens and doesn’t seem to be an issue for most. When a company folds, unable to pay its creditors, the new company that takes on the assets is not held responsible for the misdemeanors of the previous owners. If the new owners are the same owners as the old owners they fall foul of laws on ‘phoenixing’.

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Gratuitous Alienation and RFC 2012 PLC – Some Clarification for Clarkeng

In response to my post re Gratuitous Alienation earlier this week, I noticed that Clarkeng made a few comments disagreeing with my thesis. I think that there may be crossed wires on our parts so I thought I would clarify my argument.

Some of Clarkeng’s comments are indented below, with my responses in bold beneath.

As far as BDO challenging D&P about the value achieved for the sale of the business and the assets I do not think you will hear anything further despite Paul’s suggestion.

To be exact BDO would NOT be challenging Duff & Phelps. Instead they would be “challenging” the purchaser, Sevco Scotland Ltd (now Rangers Football Club Ltd). An administrator acts as an agent for a company in administration, and the actions of the administrator are the actions, legally, of the company.

This is unlike liquidation where the actions are those of the liquidator, as the company is in no state to take any action itself.

As for time scales, if there is to be action by BDO regarding an apparent gratuitous alienation, then I would not expect it until near the end of this year, at the earliest. Liquidations take time, especially where there are as many complications as seem to exist in the case of RFC 2012 PLC.

The Administration of Ukio Bankas and its Effect on Hearts

Whilst the Rangers story last year was about, as it is now presented, the company which owned the assets and business which made up the football club, going into administration, the situation this year at Hearts comes from the opposite perspective.

Here it is the bank which is owed huge sums by the company which owns the assets and business which make up the football club going into administration. Simples!

Ukio Bankas, the Lithuanian Bank largely owned by Vladimir Romanov and his UBIG Group has been placed into administration, and the administrators are looking for buyers for the assets. That suggests that the value which UBIG can attribute to its involvement in Hearts will be slim to zero, and slim left town.

Hearts – “A Call To Arms” – Pay Up or the Club Dies!

Yesterday I wrote about the new HMRC petition to wind up Hearts over a tax debt in excess of £400,000.

The announcement of this, which the Hearts Board had to do if they wish to proceed with their share issue, was followed by an apocalyptically titled letter to the fans – The future of Heart of Midlothian.

It reads as follows, with my comments in bold:-

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Today the Board of Heart of Midlothian plc is writing to you with the express wish that every supporter provides emergency backing for the club.

This is not so much a request as a necessity.

To use the words yesterday of John Robertson, one of the greatest players in this club’s history, this is a “Call to Arms”.

There is no greater need than now for supporters to invest in the club in whichever way you can, without delay. How can you do this?

HMRC v Hearts – A New Winding Up Petition – Might Sink Share Issue…and the Club

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.

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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”).