More Myth Busting - Administration

[Dave_Og]

In the continuing absence of any clear indication of active and credible potential buyers I see the prospect of administration being mentioned again.  What often seems to be assumed is that a process of administration will necessarily mean a nice, clean debt free club will emerge out the other side.  Ain't necessarily so...

 

Firstly the following are the parties that can seek an administration order:

 

• the company,
• the directors of the company,
• one or more creditors of the company (including contingent or prospective creditors

 

In our case the first two are essentially the same thing.  It is then down to a court to confirm or reject the application.  Assuming that is confirmed then an administrator would be appointed.  This is a simple summary of their role

What duties does an administrator have to creditors in a formal insolvency procedure? | Begbies Traynor Group - The UK (begbies-traynorgroup.com) but it does rather gloss over the key responsibility which is:

 

Administrators must:

• Act in the best interests of creditors as a whole

 

That simply means that they must assess very quickly what course of action gives the creditors the best possible chance of a return.  Clearly, if a business is loss making then allowing it to continue to trade will not be in the best interest of creditors unless it has assets which can be sold or there is a buyer willing to take on outstanding obligations.  The administrator will be in breach of their legal duty if they simply allow the business to continue trading and thus making any return of debt even less likely.

As we know, a takeover of a football club is often a protracted affair with no guarantee of success so unless an appropriate buyer is ready and willing the administrator has only one option which is to sell assets.  It could therefore be seen as a positive that during the just closed transfer window Vaughan and Couto remained at the club as they (along with maybe a few lower profile youths) appear to be the only assets we have that could be sold for meaningful money.  It's safe to say though that no bidder would feel the need to be generous.

 

So to summarise.  If we went into administration:

 

1. A points deduction would follow and relegation would be all but confirmed

2. The assets we have would be subject to a fire sale.  This is problematic at this time of year as they would still be contracted so couldn't move outside before the next transfer window

3. If the administrator felt that losses incurred before assets could be sold would exceed potential revenue from those sales then they would be obliged to commence the process of winding the business up.

 

It is not the panacea that some may think.

 

 

 

 

 

 

[basilrobbie]

Good post. I would add to what you have said that - as I understand it - the ownership of key assets at your club is also a bit of a mess. Selling it as a clean, whole entity might not be all that easy. This is compounded by the fact that  the balance between liabilities and assets isn't exactly optimal. Another hidden liability in administration is that you would have to settle a minimum of 25% of debts owed to non-footballing creditors   or incur a further 15 point penalty when you come OUT of administration.

 

Going into administration now is also pretty bad timing, from a football point of view. It would relegate you at a stroke ; and the challenge  of preparing the club  for the National League in an environment like that would be one of the toughest task you can imagine. How do you do the rebuild you need when there is no certainly about budgets, investment and little to "sell" to prospective incoming players as a reason to come?

 

The only thing to be said for administration is that is that it is better than liquidation. But once you commit to it you subjugate the long term interests of the club to the short-term (statutory) obligations to creditors. A weapon of absolute last resort, in my view.

 

[Dave_Og]

3 minutes ago, basilrobbie said:

Good post. I would add to what you have said that - as I understand it - the ownership of key assets at your club is also a bit of a mess. Selling it as a clean, whole entity might not be all that easy. This is compounded by the fact that  the balance between liabilities and assets isn't exactly optimal. Another hidden liability in administration is that you would have to settle a minimum of 25% of debts owed to non-footballing creditors   or incur a further 15 point penalty when you come OUT of administration.

 

Going into administration now is also pretty bad timing, from a football point of view. It would relegate you at a stroke ; and the challenge  of preparing the club  for the National League in an environment like that would be one of the toughest task you can imagine. How do you do the rebuild you need when there is no certainly about budgets, investment and little to "sell" to prospective incoming players as a reason to come?

 

The only thing to be said for administration is that is that it is better than liquidation. But once you commit to it you subjugate the long term interests of the club to the short-term (statutory) obligations to creditors. A weapon of absolute last resort, in my view.

 

Yep - that.  The club has no meaningful  assets other than playing contracts and most of those are valueless as they expire this summer.  The bricks and mortar (and what it sits on is of no relevance to and administration process as they are owned by a different entity altogether

[basilrobbie]

Just now, Dave_Og said:

Yep - that.  The club has no meaningful  assets other than playing contracts and most of those are valueless as they expire this summer.  The bricks and mortar (and what it sits on is of no relevance to and administration process as they are owned by a different entity altogether

I wish I'd been as succinct as that.....

 

It's not really an option at all, in my view. Not given where you are, anyway. And if you look five months on, I have a feeling that preparing to compete in the National League is as much a challenge as it is in L2. It's not a easy way out of your problems and has huge risks attached..

[Dave_Og]

Just now, basilrobbie said:

I wish I'd been as succinct as that.....

 

It's not really an option at all, in my view. Not given where you are, anyway. And if you look five months on, I have a feeling that preparing to compete in the National League is as much a challenge as it is in L2. It's not a easy way out of your problems and has huge risks attached..

 

I've been trying to make the same point for many months - hence the separate thread

[Monty Burns]

Is anybody elses advert about bankruptcy??

Made me smile anyway.

[Canada_latic]

The 2 main positives are that club will be taken out of the hands of Abdallah and Mo. Also the asking price will be much lower and set by the administrator. 

[Dave_Og]

1 minute ago, Canada_latic said:

The 2 main positives are that club will be taken out of the hands of Abdallah and Mo. Also the asking price will be much lower and set by the administrator. 

I'm not sure you are getting it.  

[Dave_Og]

Because of the separation of club and ground, if we went pop then to a large degree whether a club re-emerges at Boundary Park we are very, very dependent on the goodwill of Brassbank. Assuming they/Blitz remain creditors. 

[nzlatic]

Under administration, would a prospective new owner just have to agree to meet the ongoing liabilities of the club if looking to take over? Or would they be responsible for repaying all creditors in full?

 

What substantial creditors are there likely to be other than the landlords and HMRC?

[basilrobbie]

29 minutes ago, nzlatic said:

Under administration, would a prospective new owner just have to agree to meet the ongoing liabilities of the club if looking to take over? Or would they be responsible for repaying all creditors in full?

 

What substantial creditors are there likely to be other than the landlords and HMRC?

Football creditors get 100% of what they are owed. What HMRC would get is an interesting question ; they are in a far better position legally than they used to be, and could in theory demand 100% as well. It's worth keeping an eye on what is agreed at Derby, as it may set a precedent for the future. Unsecured, non-football creditors have to be offered a minimum of 25% or a further points penalty gets imposed.

 

Bear in mind the club would have to pay the administrator's fees as well. That would be at least high six figures, maybe seven if it proves at all complex and racks up billable hours.

 

 

 

[Dave_Og]

14 minutes ago, basilrobbie said:

Football creditors get 100% of what they are owed. What HMRC would get is an interesting question ; they are in a far better position legally than they used to be, and could in theory demand 100% as well. It's worth keeping an eye on what is agreed at Derby, as it may set a precedent for the future. Unsecured, non-football creditors have to be offered a minimum of 25% or a further points penalty gets imposed.

 

Bear in mind the club would have to pay the administrator's fees as well. That would be at least high six figures, maybe seven if it proves at all complex and racks up billable hours.

 

 

 

 

Has any non-football creditor ever challenged why they suffer?  I've never understood how that could possibly stand up.  i suppose it's a known risk of doing business with a football club - I'd want cash on delivery!

[BP1960]

7 minutes ago, Dave_Og said:

 

Has any non-football creditor ever challenged why they suffer?  I've never understood how that could possibly stand up.  i suppose it's a known risk of doing business with a football club - I'd want cash on delivery!

 

Programme producers seem to miss out a lot.

 

[Canada_latic]

1 hour ago, Dave_Og said:

I'm not sure you are getting it.  

Right now we are at the mercy of Al's ludicrous asking price and who he decides to sell the club too. With administration the administrator makes those decisions not Al. I would rather take my chance with Administration than another season of those 2 idiots ruining the club.

[Dave_Og]

Just now, Canada_latic said:

Right now we are at the mercy of Al's ludicrous asking price and who he decides to sell the club too. With administration the administrator makes those decisions not Al. I would rather take my chance with Administration than another season of those 2 idiots ruining the club.

We have no idea what his asking price is, do we?  I was trying to make it clear that the administrator could decide before lunchtime that the business is not viable and put t straight into liquidation.

[basilrobbie]

30 minutes ago, Dave_Og said:

 

Has any non-football creditor ever challenged why they suffer?  I've never understood how that could possibly stand up.  i suppose it's a known risk of doing business with a football club - I'd want cash on delivery!

I think HMRC challenged it Dave, because they used to be down at the bottom of the list with the hoi polloi.

[deyres42]

1 hour ago, Canada_latic said:

Right now we are at the mercy of Al's ludicrous asking price and who he decides to sell the club too. With administration the administrator makes those decisions not Al. I would rather take my chance with Administration than another season of those 2 idiots ruining the club.

He's in no position to ask for a ludicrous price now he's told everyone he wants to sell.

[Dave_Og]

2 hours ago, BP1960 said:

 

Programme producers seem to miss out a lot.

 

Everybody bar football creditors and the taxman loses out equally.  I'm still ashamed that the last time we went pop one of the organisations that missed out was St John's Ambulance

[kowenicki]

3 hours ago, Canada_latic said:

The 2 main positives are that club will be taken out of the hands of Abdallah and Mo. Also the asking price will be much lower and set by the administrator. 

Deary me. 
 

 

[peanuts2]

11 minutes ago, Dave_Og said:

Everybody bar football creditors and the taxman loses out equally.  I'm still ashamed that the last time we went pop one of the organisations that missed out was St John's Ambulance

have always said there should be some sort of collection or flag day for stJohns/red cross at grounds to assist with funding its done at motorsport events alot as with out them they wouldnt run .

[Dave_Og]

7 minutes ago, kowenicki said:

Deary me. 
 

 

can but try...

[wiseowl]

A relevant post/thread.

 

We must always remember that it is "only" the club we are talking about here (badge/players etc.) - in many respects the ground being owned by a separate entity could actually be a blessing in ANY insolvency situation.

 

If I was a betting man, my money would be on a Pre Pack Administration. I won't bore you with the technicalities of a pre-pack but it allows for agreement of a very swift sale of the club PRIOR to the appointment of an administrator. The sale then formally completes as soon as possible after the administrator is appointed.

 

Advantages of a Pre-pack (via Begbies Traynor Group)
 

Allows for the sale of a business as a ‘going concern’ without impacting on the continuity of business operations upon appointment of an administrator

Preserves the value of assets (particularly ‘work in progress’) and debtors which often become more difficult to realise following the appointment of an administrator

 

An administrator may not always be able to trade a business without revenue streams decreasing. Completing a sale immediately upon appointment can prevent losses which would reduce funds available for creditors.
The appointed insolvency practitioner is in a position to choose the most appropriate buyer for the business assets, whether that is a third party wishing to use the assets in an existing business, or director(s) of the insolvent company about to start a new one.

The image and business ‘brand’ is unlikely to be compromised by adverse publicity, leading to the increased likelihood of jobs being saved and suppliers being paid under the new ownership.

 

In my opinion, a pre pack administration would be a better outcome than normal administration - not withstanding, of course, that I assume the same penalties from the EFL would apply. The big difference is you have a willing buyer fully aware of the facts. I`ve always thought Blitz/his company would be the buyer in a pre-pack (and indeed could effectively "force" one) and that he would then package the club/ground into one entity before selling on (at a profit).

 

Let's wait and see.

[Dave_Og]

1 minute ago, wiseowl said:

A relevant post/thread.

 

We must always remember that it is "only" the club we are talking about here (badge/players etc.) - in many respects the ground being owned by a separate entity could actually be a blessing in ANY insolvency situation.

 

If I was a betting man, my money would be on a Pre Pack Administration. I won't bore you with the technicalities of a pre-pack but it allows for agreement of a very swift sale of the club PRIOR to the appointment of an administrator. The sale then formally completes as soon as possible after the administrator is appointed.

 

Advantages of a Pre-pack (via Begbies Traynor Group)
 

Allows for the sale of a business as a ‘going concern’ without impacting on the continuity of business operations upon appointment of an administrator

Preserves the value of assets (particularly ‘work in progress’) and debtors which often become more difficult to realise following the appointment of an administrator

 

An administrator may not always be able to trade a business without revenue streams decreasing. Completing a sale immediately upon appointment can prevent losses which would reduce funds available for creditors.
The appointed insolvency practitioner is in a position to choose the most appropriate buyer for the business assets, whether that is a third party wishing to use the assets in an existing business, or director(s) of the insolvent company about to start a new one.

The image and business ‘brand’ is unlikely to be compromised by adverse publicity, leading to the increased likelihood of jobs being saved and suppliers being paid under the new ownership.

 

In my opinion, a pre pack administration would be a better outcome than normal administration - not withstanding, of course, that I assume the same penalties from the EFL would apply. The big difference is you have a willing buyer fully aware of the facts. I`ve always thought Blitz/his company would be the buyer in a pre-pack (and indeed could effectively "force" one) and that he would then package the club/ground into one entity before selling on (at a profit).

 

Let's wait and see.

 

Yep, exactly my point.  The only way we survive administration is if there is a willing buyer lined up and ready to go.  They would however have to go through the EFL process and that's not quick (or indeed effective...)

[kowenicki]

3 minutes ago, wiseowl said:

A relevant post/thread.

 

We must always remember that it is "only" the club we are talking about here (badge/players etc.) - in many respects the ground being owned by a separate entity could actually be a blessing in ANY insolvency situation.

 

If I was a betting man, my money would be on a Pre Pack Administration. I won't bore you with the technicalities of a pre-pack but it allows for agreement of a very swift sale of the club PRIOR to the appointment of an administrator. The sale then formally completes as soon as possible after the administrator is appointed.

 

Advantages of a Pre-pack (via Begbies Traynor Group)
 

Allows for the sale of a business as a ‘going concern’ without impacting on the continuity of business operations upon appointment of an administrator

Preserves the value of assets (particularly ‘work in progress’) and debtors which often become more difficult to realise following the appointment of an administrator

 

An administrator may not always be able to trade a business without revenue streams decreasing. Completing a sale immediately upon appointment can prevent losses which would reduce funds available for creditors.
The appointed insolvency practitioner is in a position to choose the most appropriate buyer for the business assets, whether that is a third party wishing to use the assets in an existing business, or director(s) of the insolvent company about to start a new one.

The image and business ‘brand’ is unlikely to be compromised by adverse publicity, leading to the increased likelihood of jobs being saved and suppliers being paid under the new ownership.

 

In my opinion, a pre pack administration would be a better outcome than normal administration - not withstanding, of course, that I assume the same penalties from the EFL would apply. The big difference is you have a willing buyer fully aware of the facts. I`ve always thought Blitz/his company would be the buyer in a pre-pack (and indeed could effectively "force" one) and that he would then package the club/ground into one entity before selling on (at a profit).

 

Let's wait and see.

I’m not sure Blitz is motivated to do so.   

Key question. Is the land worth more for development, after flattening the ground, than he would achieve by selling the club plus stadium…?

[wiseowl]

2 minutes ago, kowenicki said:

I’m not sure Blitz is motivated to do so.   

Key question. Is the land worth more for development, after flattening the ground, than he would achieve by selling the club plus stadium…?

In an insolvency situation, he will turn out to be our saviour - that's why you'll never hear me slagging him off. WE NEED BLITZ ON BOARD.