No news is not good news?

There is very little information forthcoming from any of the parties involved after the meeting between the creditors of CCFC Ltd and the independent Administrator held on 29 May 2013 at the Hilton Hotel in Coventry.  The meeting lasted around three hours and has been adjourned until June 12 in two weeks time.  What can be holding things up?

There are just four companies listed in the Administrator’s Report as owed money from the company in administration and in total £70,123,001 is outstanding.  The companies are Arena Coventry Ltd (ACL) £636,381; Arvo Master Fund (Arvo) £10,250,977; Coventry City Football Club Holdings Ltd (CCFC Holdings Ltd) £44,738,004 and the incorrectly listed Sky Blue Sports [& Leisure] Ltd (SBSL Ltd) £14,497,639.

For the company to exit administration, an agreement must be reached between 75% of the creditors, in cash terms.  As Arvo, CCFC Holdings Ltd and SBSL Ltd are all part of the SISU group and collectively are owed £69,486,620, then it seems relatively straightforward.  They are owed 99% of the money listed.  So what can be the problem?

One omission from the list is the money owed to the Alan Higgs Centre, reported in the Coventry Telegraph on April 10 as owed £14,000 in rent and repairs which relates to the training facilities used by the clubs academy.  In the press report, CCFC Holdings Ltd are quoted as being happy to take on the debts to retain access to the facilities.  It would appear that the original debt is accepted as due to CCFC Ltd.  In the Administrators report, the income and expenditure account shows no income and no expenses incurred.  So the debt appears to be still outstanding but has not be accounted for by the Administrator.  Why is this?

The accounts for ACL for the year to 31 May 2006 state that the lease on the stadium and surrounding land is part of an agreement between the ACL group and the company which built the stadium, Coventry North Regeneration Ltd.  The agreement is for 50 years, less three days.  When the agreement on the Ricoh was signed between the landlord and the club, the previous owners of CCFC Ltd were looking for long term stability and a quick return to the Premiership, so it is reasonable to assume that the agreement between CCFC Ltd and ACL is for a similar period.  Once CCFC Ltd entered administration, the current rent outstanding was reported to be around £1.3 million – the agreement is around £1.2million per year.  The accounts for ACL report that a rental deposit of £500,000 was being held on behalf of the club, hence the total outstanding of around £600,000.  However, once the contract is broken, then the total value of the signed agreement surely becomes due.  CCFC Ltd would now be in breach of the contract due to non-payment and the remaining 43 years rent is immediately payable.

If you lease a shop from a landlord for five years, and your business fails after the first year, the landlord expects the rent for the remaining four years to be paid.  If you are able to sub let to another tenant, if the terms allow, but their business fails after a subsequent two years, the rent for the final two years of the original contract is still due.  In deed, the sub-let can default on the rent after 18 months, but you are still liable to ensure the landlord gets his monthly rent under the original agreement. The landlord can attempt to recover the remaining rent by using the courts to force payment in full for the full term – it is common business practice.  So, it is reasonable to assume that ACL have claimed for the full term of the contract after CCFC Ltd broke the original agreement.

If the lease to CCFC Ltd still has 43 years to run, this would amount to close to £50 million.  This changes the balance of power amongst the creditors – the total outstanding is then closer to £120 million, with ACL becoming 43% of the total value of creditors, and SISU and its related companies 57%.  Obtaining agreement between 75% of the value of creditors becomes almost impossible.  And yet the Administrator has not included this valuation as part of his initial report.  ACL have a duty to their shareholders to ensure their future is secure, so it seems unfeasible that such a claim would not be submitted.  The begs the question, on what basis has the Administrator omitted the full value of the contract?

Does this go some way to explain the delays in what should have been quite a straightforward meeting of creditors?  We await the press releases and, more importantly, the Administrator final report.

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