What next for Portsmouth?John Shea
Portsmouth entered administration for the second time in February 2012 however last week Portsmouth's administrators, PKF, confirmed that they have "nominated Portsmouth Supporters' Trust as the preferred bidder for Portsmouth Football Club" after the club's other bidder and also secured creditor, Portpin Limited, appeared unable to meet the requirement laid down within The Football League's Owners and Directors' test which prohibits an owner or director being involved with a football club that has suffered an insolvency event twice. Balram Chainrai, who owns and controls Portpin, was in control of Portsmouth when they entered administration in 2010 and appears to have been involved as a shadow director when the club entered administration again in February 2012 hence Portpin's inability to satisfy The Football League's requirements.
It is hoped by many Portsmouth fans that the administrator's announcement will now lead to the club being taken over by the fans group. But how likely is this?
The administrator's objective has always been to exit administration by selling the club given that a sale is likely to provide creditors with a better return than they would otherwise receive if the club was placed in liquidation. However, before any sale can be concluded, The Football League Regulations stipulate that the club must agree a Company Voluntary Arrangement ("CVA") with the club's unsecured creditors. A CVA is a formal agreement between an insolvent company and its unsecured creditors whereby a compromise is reached rescheduling or reducing the company's debts and it binds all unsecured creditors of a company. If a CVA is not approved, The Football League will only agree to transfer the club's share in The Football League to a new purchaser if there are exceptional circumstances and so the future of the club would not be guaranteed. In any event, if The Football League chose to exercise its discretion and agree to transfer the club's share in The Football League to a new purchaser without a CVA being approved, Portsmouth would undoubtedly suffer further sanctions such as a point's deduction and/or a fine. As a result, one of the conditions of sale imposed by the administrator was that any offer for the club must include a CVA proposal that was approved by the club's unsecured creditors.
The Portsmouth Supporter's Trust's bid to acquire the club, therefore, includes the following proposals:
- £2.75m for Fratton Park;
- £850,000 as a contribution to a CVA;
- Payment to football creditors as follows:
- Full payment of monies owed to other clubs, assuming this amount does not exceed £1.75m.
- Full payment of monies owed to non-playing staff, assuming this amount does not exceed £330,000.
- A maximum of £2m to the football players owed monies.
- An additional one off contribution of £3,000,000 to the football creditors in the event that Portsmouth FC is promoted to the FA Premier League any time before June 2022; and
- £1 for goodwill and £1 for all other assets.
The unsecured creditors of the company approved a CVA in June 2012 entitling the administrator to complete any sale of the club providing any bid was credibly funded, able to satisfy the requirements of The Football League and repay the debt owed to the club's secured creditor, Portpin Limited, either "in full or as compromised by agreement". It is, therefore, not necessary for a further CVA to be approved and the administrator can now complete the sale to the Portsmouth Supporter's Trust providing the Trust complies with the above criteria.
The main hurdle for the Portsmouth Supporter's Trust to overcome is satisfying the £18.6m owed to Portpin Limited, which is secured by a fixed charge over Fratton Park. A CVA cannot affect the right of a secured creditor to enforce its security so any debts owed to secured creditors cannot be compromised by a CVA and must be dealt with by direct negotiation or paid in full. Whilst the administrator can dispose of Fratton Park without the consent of Portpin or the formal release of the charge (paragraph 70(1), Schedule B1, IA 1986), Portpin are entitled to the proceeds of any such sale and given that the Portsmouth Supporter's Trust have only offered £2.75m for Fratton Park yet Portpin value Fratton Park at around £10m, it is likely that Portpin will object to any such sale and could apply to Court to prevent it on the basis that the sale is not at the true market value. The onus is, therefore, very much on the Portsmouth Supporter's Trust to reach a solution with Portpin otherwise the deal will most likely fall through.
In addition to satisfying The Football League's requirements in respect of exiting administration by way of a CVA, the Portsmouth Supporter's Trust must also prove to The Football League that they have the necessary funds to not only complete the sale but also compete in Football League competitions for the foreseeable future. Whilst the Portsmouth Supporter's Trust have received significant investment from local businessmen and claim to have raised £3m in pledges (with £1m already collected), the Portsmouth Supporter's Trust have been forced to obtain a loan of £1.45m from Portsmouth City Council in order to fund their £2.75m offer to buy Fratton Park, which has lead to some doubts over whether the Portsmouth Supporter's Trust's can raise the required funds. Terry Pritchard, who was part of the Portco consortium that were also interested in taking over the club, is one such doubter who feels that "the trust has got to do a lot to make it work and I don't think there's enough cash in the whole deal to do that."
As with Balram Chainrai's Portpin, the Portsmouth Supporter's Trust must also satisfy the Football League's Owners and Director's Test. The Portsmouth Supporter's Trust are confident of meeting the test and have already notified The Football League of their prospective board members. The Portsmouth Supporter's Trust is led by Ashley Brown and local businessman, Iain McInnes, will become Portsmouth chairman if they are successful in acquiring the club. It is also understood that other local businessman who have invested money into the bid, such as Ken Terry and Chris Moth, will become directors. The Portsmouth Supporter's Trust should have no issues in meeting the Football League's Owners and Director's Test unless, for example, any of the prospective owners or directors have an interest in more than one club, are disqualified from acting as a director and/or have unspent convictions for offences relating to dishonesty or corruption.
Whilst the administrator hopes "to conclude the sale of the club as soon as possible", there are still many legal and financial requirements for the Portsmouth Supporter's Trust to overcome before the sale can be concluded. The main issue, as explained above, will be satisfying the secured debt owed to Portpin Limited especially as Portpin have maintained that they are still intending to purchase the club in order to ensure that re-payment of their debt is obtained without difficulty. Following the administrator's announcement, Portpin confirmed in a statement that "We continue to work with the Football League to ensure we are ready to complete the acquisition of Portsmouth Football Club. Whilst we note PKF's decision, we recognise that preferred bidder status has no basis in law." It is, therefore, clear that the Portsmouth Supporter's Trust still have a fight on their hands in order to acquire the club.
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