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Why is the takeover taking so long?
One question that I have been asked a lot of late is “what if?” What if Carson overturns his appeal? What if Blues pull off the impossible dream and gets promoted? What if Trillion Trophy Asia decide they don’t want to fund Birmingham City any more?
In some ways it is impossible to answer these questions. As Ernst and Young along with Trillion Trophy Asia have declined to make anything public since August 2015 with respect to the prospective takeover of Birmingham International Holdings and/or BCFC we’re left very much in the dark.
However, I think it is possible to understand just WHY the club and the holding company are at the impasse they are – and it’s with this in mind I’ve written this piece. I warn you in advance it’s going to be fairly long – so if you’re not interested in just why the takeover is taking so long and just what is so wrong with BIH, then look away now – or read the main link I have used for information right here.
On 28 August 2015, The Hon Justice Anthony Chan Kin-keung gave his judgement in a case in the Hong Kong High Court which affirmed Ernst and Young’s position as joint and several Receivers of BIH and set aside an application made by Carson Yeung to discharge the receivership order.
The Receivers were appointed due to BIH making an ex parte application to the High Court to be put into Receivership, which was granted by Deputy High Court Judge Wilson Chan on 16 February 2015.
At the time, BIH was in a complete mess. The board was fractured into two camps – one led by Victor Ma Shui Cheong which included Panos Pavlakis; the other led by Peter Pannu. Although Carson wasn’t on the board of BIH (due to his being convicted of money laundering), he still remained (and remains) the largest shareholder in the company.
Using the rights available to him as owner of 27.89% of BIH, he twice tried to force an EGM to depose those directors in the Ma faction, to be replaced by directors of his own choosing – including his de facto spouse Wang Manli, and his former bodyguard/driver Arjun Kumar Gurung. Carson’s brother-in-law, Wang Lei also tried to force an EGM to achieve the same ends via his ownership of 15.5% of the company.
The Ma faction considered their options, and at a board meeting unattended by Pannu and his faction, voted to apply to put BIH into Receivership.
Ernst and Young took quick action to steady the ship; the EGMs were quickly denied while those directors that didn’t resign from the board -including Pannu – were forcibly removed. Clearly unhappy with this, Carson upped the ante by applying to get the Receivers removed on 23 March 2015.
This is where the crap hit the fan.
Chan pulled no punches in his judgement, confirming Carson (and his legal team) were using every argument they could think of to get their way.
Despite having virtually no time to consider the arguments, Chan made the decision it would make sense to deal with the case sooner rather than later – and in his words:
…and decide on the existing evidence what is best for the Company and the shareholders as a whole without delay…
This was termed in his judgement as a “Forward-looking approach”.
Chan noted that BIH were in a “parlous state”, confirming that:
The trading of the Company’s shares has been suspended since 4 December 2014. It was brought about by a leak of inside information in respect of the Company by Pannu. It appears that the termination of Pannu’s appointments…was related to these matters.
Then there was the suspected misappropriation of over HK$38million from the company. Former compliance officer Jerry Ko was named on this website as the man arrested by police on 20 January, with Chan noting in his judgement:
The suspected misappropriation of over HK$38 million belonging to the Company involves its former Financial Officer (“Ko”) who was later promoted to become the Corporate Accountant (head of Finance Department). Ko was working under the direct supervision of Pannu, according to information obtained by the Receivers from some former directors of the Company.
As Chan notes, the accounts for the financial year ending June 2014 were withdrawn due to reasons stated in a letter from the auditors to the BIH – also on 20 January.
“Our position and decision to withdraw
We regret that despite continuous and repetitive requests to the Company’s Board of Directors for the return of signed letter of representation, directors’ declarations regarding their remuneration and the Company’s audited financial statements for the year ended 30 June 2014 for our completion, there had never been any response from the Company or the Board.”
Chan also notes the Receivers’ summary in their first report to the court something I have continually talked about – namely that the listing on the HKSE is worth more than the club. To wit:
“The main and substantial assets of the Company are the [Club] which is estimated to worth HK$360 million and the Company’s listing status … which is worth approximately HK$400 million.
BCFC weren’t in a good state at the time – and the Receivers confirmed that too, saying on 30 March 2015 that:
[The Club] can run till 31 May 2015. The 2015/2016 budget suggests that [the Club] needs HK$10 million a month. The cash on hand in Hong Kong is approximately HK$16 million as at 30 March 2015 which is not enough to support [the Club’s] 2015/2016 budget. The required amount is about HK$300 million (including HK$120 million for [the Club’s] operating budget and some large debts due to various parties).
If no investor can be found to provide such funding by 31 May 2015 to [the Club], [the Club] would be at serious risk of being put into administration, which would affect the value of [the Club] substantially and in the worst case scenario, the administrator will dispose of [the Club] on a liquidation basis and the listing status of the Company will be lost.
Therefore, it is the Receivers’ top priority to rescue [the Club] in order to maximize and protect the value of the Company and its assets which is in the interests of the shareholders. If the required funding cannot be obtained, say by mid-April 2015, the Receivers will have to consider the last resort which is to sell [the Club] as a going concern basis in order to protect the interests of the shareholders, subject to any such offer from interest parties.”
We all knew that the sale of the club was important – but I don’t think any of us knew things had been quite that bad at the time. To quote Chan’s judgement again:
Had this funding [from Trillion Trophy Asia] not been provided, the Club would almost certainly have been unable to operate in the 2015/2016 season, and the 10-point deduction might well have applied.
Interestingly, the judgement notes that the negotiations between TTA and BIH should be concluded in “early 2016”. It appears we are behind schedule.
Why was BIH in such a parlous state?
To quote Chan
The Receivers have, through investigating the affairs of the Company, uncovered a series of irregular contracts and transactions under which funds of the Company and BCFC were apparently misappropriated by Yeung and Pannu.
After taking legal advice, the Company and BCFC have commenced an action on 13 July 2015 in Hong Kong against Yeung and the two companies (owned and managed by Pannu and/or Yeung) which received the misappropriated assets of the Company and BCFC.
Add to this confirmation Ryan Yeung was paid HK$80,000 a month by BIH which works out a fairly handy £86K per annum – not too bad for a student who did nothing at BCFC. Ryan also got two bodyguards and drivers (a further HK$58k per month), a car and a house. No wonder Carson was suggested to be treating BIH as his “cash dispenser”.
Chan noted in his dismissal of Carson’s application that
The court does not lightly deprive a shareholder of his rights to nominate and vote for directors. However, unusual circumstances call for unusual action to be taken. Where the merits of the case so demand, the court does not shrink from acting with a firm hand.
Also considered was an application made by eight minority shareholders – Lyu Yobo, Luo Chaokui, Sha Tai Sheng (translit), Leung Ka Shun, Liu Qin (translit), Tsoi Yan Yee, Lee Anton Chung Man and Chuang Ngai Tin – that EY remain in place until the shares are relisted or a further order of court is made.
This application was granted – although the Receivers are seen to be expensive Chan saw what I think we all see here – that the company is/was making progress back to normality under proper management. The judgement confirmed that the date for the relisting of the shares to be was February 2016 – which has also not come to pass.
Since that court hearing, we’ve seen two sets of accounts – from Birmingham City PLC and BIH which have confirmed that BCFC has only managed to maintain operation due to the loans made to it from TTA via BIH.
However, much of what made up the parlous nature of the company has yet to be resolved; the legal action against Pannu and Carson for their management of the company is still outstanding as is the action against Wang Lei. No further progress has been made in light of the allegations with respect to the misappropriation of funds either; and it’s these factors that have delayed the relisting of shares… which has kept EY in place.
Although things have been great on the pitch I think it’s absolutely key now that BIH pursue resolution of these issues as quickly as possible as the current credit limit on the loan from TTA runs low – and I’m not going to lie, if TTA walk away I think the club is in real, real trouble.
The biggest personal fear I have is if Carson wins his appeal – as that wipes clear his barrier from being a director of the club or the holding company and will give him renewed confidence he can wrest back control of both.
It is most certainly interesting times.