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Tackling administration

Another week, another sad story of football woe. HMRC’s adjourned winding up petition against Notts County’s and the clubs ongoing financial malaise appears to have prompted another change of hands.

Last week Portsmouth obtained a temporary reprieve to another HMRC winding up petition but the fact that they have been asked to provide a ‘statement of affairs’ within the next week does not bode well. As any insolvency practitioner will tell you, when a company is asked to produce this it usually means one thing: administration. Given the Premier League’s minimum nine point penalty for clubs going into administration, this ‘statement of affairs’ will likely be made on the basis that Portsmouth is shortly going to be a Championship rather than Premier League club.

The thought of relegation will upset the club’s fans, but from a business turnaround point of view dropping down a division is not necessarily a bad thing. The issue for football clubs is that when the going gets tough – as they are at the moment with HMRC chasing unpaid tax – there is very little room for maneuver as their major fixed overhead, players’ wages, cannot quickly and easily be reduced. Leeds, of all clubs, is actually a positive example for Portsmouth as they have managed to reduce long term overheads and operate well as League One rather than Premier League club.

Things may get worse before they get better, but the silver lining is that Portsmouth, like Leeds, has a large fan-base which virtually guarantees revenue over the next few years, and should enable them to bounce back. Depending on how things play out in the next couple of weeks in the Courts, next season looks likely to see a resurgent Leeds and a under pressure Portsmouth as competitors in the Championship seeking a return to top flight football. If HMRC is to maintain its new hard-line approach Portsmouth will not be the last Premiership club visiting the High Court in 2010. For too long, top flight clubs and their owners have been able to palm off their smaller and unsecured creditors but it looks like that is changing.

The problem for clubs is that as soon as one creditor starts insolvency proceedings, as HMRC is, all the others, for example other clubs owed transfer fees, will follow suit. Many recent football insolvency (and near misses) in the lower leagues have been prompted by this change in stance by HMRC.

Guy Thomas is an insolvency specialist at SA Law.

http://www.salaw.com/about-us/people/guy-thomas.html

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