26 years on from Gary Mabbutts knee…

The administrator has finally reported.  Mr. Appleton of David Rubin & Partners needs more time to work out what is going with Coventry City FC Ltd (CCFC Ltd), currently in administration.  He has had 8 weeks to produce the report, to look over players contracts, consider who the lease agreements are between and look at how the debts of the company, which his own lawyer considered to be ‘a catastrophic insolvency’, have arisen from. He charged fees of £163,294 plus VAT for 475 hours of work.  That’s an average rate of over £340.00 per hour.  To charge such fees I personally would hope for a thorough job by an experienced and capable professional, able to ascertain the basic answers. The administrator’s solicitor too has charged £143,646 plus VAT.  Mr. Appleton has requested another six months worth of work to investigate further.  According to reports in the press, he has been unable to confirm which company listed its principle activity as a professional football club.  He also has not been able to establish in which company the players contracts reside.  He has yet to locate the ‘golden share’, the certificate which allows the club to compete in the football league.   Until the full report is available from Companies House, we have to make do with the statements made in the press and look for any clues in historical records to assist.

The Coventry Telegraph report that Appelton stated

Sisu have maintained that the footballing activities have been conducted through Holdings and that the legal and beneficial interest in both the Football League and the Football Association shares is held by Holdings.  There are a number of competing views in this regard, not least, the Football League and the Football Association, both of whom believe that the club’s footballing activities ought to have been run through the company (CCFC Ltd).

SISU, the investment company that control the club on behalf of investors, released a statement to the press when the club entered administration that claimed

It is important to stress that the Football Club itself is not under threat.  This is merely a property subsidiary, which owns no material assets and has no employees, on or off the pitch.

For one, it has rather large debts for a property subsidiary.  There is evidence that suggests this is far from clear.

CCFC, CCFC Holdings?  What’s it all mean?

The structure of ownership is complex.  SISU Capital Ltd, own the investment vehicle Sconset Capital LP.  SISU transferred their 100% shareholding in Sky Blue Sports & Leisure Ltd (SBSL Ltd) to Sconset in 2010.  SBSL Ltd is the sole shareholder of Coventry City Football Club Holdings (CCFC Holdings Ltd), via a newly established holding company, Otium Entertainment Group Ltd, which owns 100% of the subsidiary Coventry City Football Club Ltd (CCFC Ltd), the company now in administration.  SBSL Ltd publish consolidated accounts for the group of companies, but CCFC Ltd are also obliged to submit accounts of their own affairs.

CCFC Ltd acting like a football club

The last set of accounts submitted by CCFC Ltd were for the year ended 31 May 2011.  These showed a total income of £10.2 million.  £6.3 million of this came from sponsorship, advertising, club shop & promotions, with match day receipts of £3.9 million.  This would suggest the company was trading at that time as a football club.  It is worth noting that at this time, CCFC Holdings Ltd did not report any income from matchday receipts.

CCFC Ltd incurred costs of £1 million which are stated as direct operating costs, which we can assume relate directly to footballing activity. It is clearly reported that CCFC Ltd employed 102 staff members during the year, listed as players and management.  The wages paid to these employees totaled £10.3 million.  CCFC Ltd were also paying bonuses and signing on fees that totaled £2.5 million.  The company purchased services from ProZone Sports Ltd, a subsidiary originally owned by former director, Ray Ranson, which provides statistical data on player and team performance, an analysis which would be useful for the coaching staff and players.  The company also charged £5.9 million in costs associated with devaluing player contracts, which it considered to be an asset on the balance sheet, worth £2.8 million by the end of May 2011.  CCFC Ltd also made a profit on the sale of players registrations of £72,000

Conversely, CCFC Holdings Ltd had no employees listed as players or management, paid no performance related bonuses, nor any fees for statistical analysis of player performance, nor made any profit or losses from selling players registrations.  The accounts show 50 commercial staff were employed and 422 part-time stewards.  Its fixed assets consist of trade marks, freehold land, and plant, fixtures & fittings.  There are no football players registrations reported.  It lists its one subsidiary as CCFC Ltd, and declares the nature of CCFC Ltd to be the playing activities of a professional football club.

These reports should be correct and are consistent with previous years in their presentation of data.  A full audit of the accounts for both CCFC Ltd and CCFC Holdings Ltd were undertaken and signed off by the auditor, BDO LLP, an established and reputable accounting firm on 20 June 2012, a full year after the accounting date and some four months overdue.  Tim Fisher, a director of both companies, signed both sets off, dated 19 June 2012.

I believe this data to present a convincing argument that it was CCFC Ltd that considered it’s principle nature of business to be the playing activities of a professional football club at that time.  If SISU believe that football activity was conducted under CCFC holdings Ltd and not CCFC Ltd, when did this change occur?  If it was before 19 June 2012, then there is a duty of both the directors and the auditors to report of any post balance sheet events – any activity that alters the nature or trading capabilities of the company in question.  This is to ensure that anyone entering into trade agreements or offering credit in whatever form can make a judgement based on the evidence available.  This would be for the period between the Balance sheet date – 31 May 2011 and the date of submission on 19 June 2012.  The directors and auditors reports are almost identical for both companies.  However, CCFC Ltd have an additional note under post balance sheet events – the accounts state that the company was set to receive £720,000 in signed transfer agreements.  This note also includes details about the debenture over the assets that was issued by Arvo Investments Ltd after the end of May 2011.  There is no mention of the radical wholesale change in how the club and companies were being run that SISU now suggest.  This implies that any overhaul must have occurred after June 2012 and before March 2013.  As discussed, the contracts of professional footballers have a commercial value and have been recognized as such in the accounts, being agreed and signed by both the player and the club, on behalf of its trading arm.  It is fair to assume that the company that incurs the expenses, considers the contracts to have a monetary value and claims for the depreciation in that value, would be expected to have both issued and currently hold the contracts.  Companies are separate legal entities.  If this is no longer the case, how was the value of the transfer of contracts, between CCFC Ltd and CCFC Holdings Ltd reached, as the two companies have several directors in common, were they commercially priced and when was the fee paid?  When did CCFC Holdings Ltd begin to pay the players wages?  If this is the case, how has a ‘property subsidiary’ increased its total liabilities from £54,930,977 in May 2011, to an estimated £69,727,625 almost 2 years later, when we know the rent is only £1.2 million a year, as it remains unpaid?

The golden egg of the golden share

The issue with the golden share is puzzling.  One would presume that the Football League and the Football Association have a process where there is written and signed hard evidence that constitutes an agreement between the football authorities and the member clubs when purchasing the Golden Share.  Any changes to the status would under normal corporate guidelines, rules and regulations have to be made in writing and a receipt obtained.  When submitting tax returns, the government issue an electronic receipt so that we have a document that proves that the submission can be traced.  This must be the case with the FA and FL.  If not, then there are serious questions to be asked regarding their status as fit for purpose.  If no audit trail exists, this would explain the administrators difficulty in ascertaining which company owns the share.  If there is a paper trail, why is he not following it to see where it leads to provide a firm, clear and definitive answer?

I hope the report provides more answers than have so far appeared in the press.  We need clear, concise and accurate information.  The threat of an extended period of administration and the possible deduction in points on the field will be too much for many fans, particularly if the club start to play home games in a city far from Coventry.  We await the publication of the report.