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The A Word
With time in the transfer window slowly ticking down, Birmingham City are left with the unenviable proposition of having to move players out or face the dreaded “A” word – administration. There’s been some talk about administration and I guess the big question is – would it be that bad?
I’ve spent the last week or so reading about administration and what it entails to try to get an idea of what would happen to the club; and I’ve spoken to fans of clubs who are and have been in administration. I should hasten to add that I’m not saying it’s a certainty that administration will definitely happen but as the likelihood grows I believe forewarned is forearmed.
How does a club go into administration?
From a simple point of view, a company can go into administration one of two ways. A holder of a “floating charge” – for example, in Blues’ case HSBC can as they hold a debenture – can put a company into administration or the company’s own directors can put a company into administration to protect it from hostile creditors – which in a football club’s case is normally HMRC (the Taxman).
The way I understand it with Blues is that whilst the club is currently keeping up with its debts the lack of cashflow means it will get increasingly difficult to do so until the end of the season. One of the biggest bills that Blues have is from HMRC – PAYE (income tax) and VAT bills as an example – and as a rule the taxman doesn’t hang around if payments are late. The first indications that Blues are in very serious trouble will be if players’ wages are delayed and once that happens we will probably be able to bank on administration following.
What happens when a club goes into administration?
From a football point of view two things normally immediately come into play – a transfer embargo on players coming in (if there isn’t already one in place) and a ten point deduction. The Football League have enough flexibility in their rules to ensure the deduction is applied in such a way that affects a club most – ie they can apply the deduction to the next season’s points total if they so wish.
From an accountancy point of view, all actions on debts are stopped. An administrator is appointed who takes over the running of the club from the directors and he will decide if it’s best to either sell the club as a going concern or liquidate it and sell the assets. He will make business decisions to reduce outgoings and will negotiate with creditors to secure a debt repayment which will be suitable for the club and the creditors.
Who gets to appoint the administrator?
This is the tricky bit. Taking Portsmouth as an example, the most recent time they went into administration they were put there by the secured creditor, Balram Chanrai. He wanted Andrew Andronikou of UHY Hacker Young to do the job again, as he had the previous time that they went into administration. The Portsmouth supporters trust however fought that in the courts and managed to convince the judge to pick their preferred choice, Trevor Birch of PKF.
Whilst one might think that administrators are much of a muchness it’s not the case; Portsmouth fans were very disgruntled with Andronikou’s first spell as administrator and therefore wanted someone else that they thought would do a better job.
What happens to the players?
Under Football League rules, the contracted players along with any clubs owed fees are all termed football creditors and are automatically first in the line – controversially ahead of the taxman. Unfortunately, under Football League rules the football creditors have to be paid off first, and have to be paid in full unless a compromise agreement can be reached. Thus any thoughts of being able to rip up Nikola Zigic’s contract on entering administration are wrong – a compromise would have to be reached with Zigic to be able to release him – much the same situation we’re in now.
Furthermore, the Football League can also order future “parachute payments” to be paid directly to football creditors. At this moment in time I’m not sure from the accounts if there is figure for transfer balances outstanding but they would come out of the parachute money before it comes to the club.
The Football League can also limit the size of the squad allowed at the club. At Portsmouth, they were allowed 20 players when they went into administration last season. That’s 20 players maximum allowed to be used in first team football – they couldn’t call up youth or academy players to add to that so if they had ten injuries then it was tough luck, you’ve got ten players you can use for a game. At this moment in time I count 36 players with squad numbers at Blues with a further two out on loan. Thinking on our current injury crisis and how bad it has been trying to put a team together, imagine how hard it would be with 16 fewer players (even if they are just kids from the academy) to choose from.
Twenty isn’t a hard and fast figure – the number can be set at the Football League’s discretion – but any limit on squad size would make things doubly hard for Blues if they were fighting a relegation battle.
How long does administration take?
This is the proverbial “how long is a piece of string” question. The length of time that a club is in administration depends on several factors – but one of the ones that is in Blues’ favour is that there are groups out there who would be interested in taking the club on in that situation. Obviously it would take time for an administrator to look through bids and decide on a preferred bidder but the hope would be that it would make a sale of the club likely and whilst it would be pain in the short-term it would potentially make things better in the longer view.
However, I have concerns about the debts owed by the club to Hong Kong. There has been mention in the accounts that there is no formal agreement for the loan from Carson Yeung to the club and I have reason to believe that the loan payments made to the club were possibly “unusual”. An administrator will go through the books and will look at what has happened and I’d be worried that there may be something uncovered that could cost us further in points deductions or similar. I must make it clear that I’m not saying that is definitely the case – to do so would be wrong – but the worry remains all the same.
I also would add from a personal point of view that I would be worried that the club may lose some of its office staff. I’ve dealt with many of the behind the scenes staff at the club and I would be upset if we had to lose some of them because of the club going to administration – particularly as I know the players are looked after in a far better way.
In short – administration need not be the end of the world, but it would be painful. I know that there are some people out there who see administration as the panacea to our ills which would force the sale of the club from the current owner’s hands – which is true – but the short-term implications are quite frightening and I hope that it doesn’t have to come to that.