The Coventry Telegraph ran the exclusive on the Administrators proposal on 5th July 2013:
Sisu agrees to write off £32m debt in Sky Blues sale to Otium for £1.5m. [The] Adminstrator’s [sic] proposal would pay ACL £550,000 while Sisu stand to lose millions.
The report breaks down the financial aspects of the preferred bid that, subject to approval, allows a SISU owned subsidiary, Otium Entertainment Group Ltd, to purchase CCFC Ltd and move the company out of the administration process via a Company Voluntary Arrangement. Once again, the reports raises as many questions on the process as if offers answers. Tim Fisher stated in a Q&A with Coventry Telegraph on 24 May that
We have put forward proposals to the administrator which would see all creditors at the date of the administration paid in full, including ACL.
The ‘we’ is not defined and as Fisher is CEO and director of several companies in the group, it is difficult to be certain which entity he is speaking on behalf of. But Fisher clearly stated that ‘we have put forward proposals’. Seems to be a definite statement on a event which has been completed. The initial Administrators Report on CCFC Ltd showed a total of £70.1 million outstanding, mainly to SISU controlled subsidiaries; £44.7 million to CCFC Holdings Ltd; £14.5 million to Sky Blue Sports & Leisure Ltd; £10.2 million to Arvo Master Fund; and with ACL as the only unsecured creditor outside of the group, owed £0.6 million. ACL stand to receive just over half a million for unpaid rent and for a notice period on the lease, offered 25.9p in the pound on a total amount outstanding calculated to be £1.4 million.
However, the BBC Reported in June that the Administrator chose Otium because he considered
It was the bid which gave the greatest return to the unsecured, non-connected creditors of CCFC Limited by a considerable margin.
So what happened in the process that the best bid for creditors was one which fell well short of the claim, made on behalf of one of the bidders, in a public statement? The unsecured creditors were due to be paid in full, yet the preferred bid fell well short of that ambition.
The proposal from Otium will write off £24.7 million of debt owed to CCFC Holdings Ltd, which according to the original report would leave £20 million due, along with a write-off of £7.5 million to SBSL reducing the amount outstanding to £7 million. In total £27 million would be left outstanding. Yet the Coventry Telegraph states that
The report states that [these write-offs] would leave total liabilities to the two companies of £11.5 million and £7 million respectively – leaving a total remaining debt of £18.4 million. [my italics]
There appears to be a discrepancy here of around £9 million, the difference between a calculation based on the original report and this new proposal. During the recent fan forums, Fisher declared that the accounts for the group were ‘in a bit of a mess.’ The comment was suitably vague and could relate any number of issues. However, this discrepancy suggests the ‘errors’ that created the ‘mess’ may have been rectified. It would appear £9 million worth of losses have been preserved through the transfer from CCFC Ltd to CCFC Holdings Ltd. Fisher has maintained that Holdings is the football club, despite a wealth of evidence that suggests otherwise. If so, as SISU fund all the losses, this will now be shown as outstanding from Holdings to SISU instead of from CCFC Ltd. Documents have yet to be filed at Companies House within the statutory timeframe as set down in the Companies Act on behalf of CCFC Holdings Ltd. The correction should be filed with 28 days of discovery and so is now overdue.
The Telegraph continued
If the CVA is accepted, the Sisu companies would write off this £18.4 million, and another £10.25 million owed to another Sisu company, Cayman Islands-based Arvo Master Fund.
It appears that all of the debt will be removed from CCFC Ltd if the CVA is accepted. However, as discussed in previous posts, when taking control of the club in 2007, SISU restructured the original debts of the club from £43.5 million down to £8.6 million which was then reduced by a further £6.4 million. This was only ever reported in the financial reports of SBSL Ltd, the ultimate owners, and not accounted for in CCFC Ltd. So a large proportion of the write-offs as reported in the Telegraph have already been written off elsewhere. Once all of the debt is removed from CCFC Ltd, the company can be more easily liquidated should Otium wish, which will effectively terminate the lease agreement between CCFC Ltd and ACL, removing that problem from SISU’s mounting issues surrounding the club, if only in the short-term.
It is worth reflecting on the final part of the quote taken from the proposal. The other secured creditor, Arvo Master Fund, who had taken out a debenture on CCFC Ltd assets, will also write off its debt from the company. The debenture, originally for £8.4 million and had risen to the £10.25 million when interest payments were added in 2013, gave Arvo first claim on all of the company’s assets, effectively giving them preferential treatment and would ensure that the company was the first to be paid out. It was Arvo that had placed CCFC Ltd into administration. When you take out a debenture, you generally do so to ensure you will be paid and when you place a company into administration, you generally do so to ensure you will be paid. Yet Arvo will now write off the debenture and the interest due. According to www.realbusinessrescue.co.uk
wilfully entering into administration with the guidance of a knowledgeable insolvency practitioner is a reliable way to postpone legal actions, reduce the burden of unsecured debt, and relieve creditor pressures while restructuring and/or negotiating.
Arvo certainly appear now to have instigated proceedings to postpone legal events rather than ensure repayment in full – ACL had requested a hearing at the High Court, which was due to be heard the following day, to place CCFC Ltd into administration. Arvo, or SISU as ultimate owners, were then allowed to appoint their administrator of choice. And another SISU related company Otium were awarded preferential bidder status, with a bid considerably lower than one given to the press. With the Football League now agreeing to the sale to Otium and the relocation of the club outside of the City for a minimum of three years, it appears that these concerns, along with other raised, does not actually prevent consent being granted. The FL had an opportunity to insist that Otium begin talks with ACL about remaining in the City and at the Ricoh. Instead, they issued a statement that is consistent with the position of Otium insisting that an agreement was impossible. Are serious questions even being asked of Otium in relation to the FL own regulations? There are also no published plans on exactly how the club will return within the stipulated timeframe of 3 years set down. Are the regulations simply taking up space on their web-site, an exercise in spin, without any real teeth? Questions are being proposed in parliament. The DCMS should now also consider an investigation.