Liverpool chairman tells of administration fears
Harry Harris, Football Correspondent
Liverpool chairman Martin Broughton has told ESPNsoccernet that administration and the docking of nine points is a frightening possibility that he is desperately fighting to avoid.
Speaking from Washington, he talked candidly about the threat of administration on Liverpool. With the Royal Bank of Scotland's deadline for the repayment of £237 million looming on October 15, a Liverpool civil war will take place in the High Court just days before the banks can foreclose on Tom Hicks and George Gillett with the option of taking control of the club or putting it into administration.
Broughton told ESPNsoccernet: "It could happen, yes. This is all part of why it is important that we made the decision on Tuesday to accept one or the other of the two very acceptable bids. Heading for administration was a very likely outcome if we didn't."
"Even now with the court case looming, administration cannot be ruled out," Broughton confessed. "It is not inevitable, and I am not going to start giving percentages of how much it is possible. That is why we are going to court to clarify our position on the sale of the club, and we have to win in court,
and we will win in court."
When Broughton was reminded that it isn't just Liverpool fans who want to see the club survive, and the whole of football would mourn once-mighty Liverpool, one of the global brands in the game, he responded: "Yes, I agree with you. Yes, this is about Liverpool, but it is also about football, not just Liverpool, and all of football would want to see Liverpool in a healthy state. Yes I am confident that we shall succeed, but lawyers are always confident - on both sides."
The impact of administration is not lost on Broughton. He said: "Going into administration needs to be avoided at all costs, as the negative impact would be catastrophic. Setting aside the nine-point deduction, it would have an impact on Liverpool's value and be wide open to predators, whereas we have what we believe is the right new owners to take the club forward."
With a court case looming, the legal team backing Liverpool have advised Broughton to be circumspect about what he says about Hicks and Gillett.
However, Hicks' public declaration that he had not given any undertaking to Broughton about the constitution of the Board and the sale process will be central to the court case. Clearly, Broughton's argument is that an undertaking was given to the Royal Bank of Scotland as part of the agreement to increase the facility for the loan
Broughton said: "If an obligation is given to RBS as part of the agreement then an obligation has been given to the major creditor and one would expect that to be honoured."
http://soccernet.espn.go.com/news/story?id=830852&sec=england&cc=5739
---------- Post added at 06:58 PM ---------- Previous post was at 06:42 PM ----------
A fair Kop?
by Bernd Ratzke
Liverpool chairman Martin Broughton seems to have finally found a viable bid for the club. But do shareholders Tom Hicks and George Gillett have the power to block the deal? Legal expert Bernd Ratzke discusses the likely outcome of next week's High Court challenge
Liverpool FC co-owners Tom Hicks and George Gillett have a tough battle on their hands. The American duo, shareholders of Kop Football (Holdings) Limited, will take their case to the High Court next week in an attempt to force the board to abandon its plans to sell the football club to New England Sports Ventures (NESV). Hicks and Gillett are unhappy with the £300m offer on the table from NESV, which would represent a loss of around £140m on their original investment, once the Royal Bank of Scotland, the principal creditor, has been paid.
Although they are the major shareholders, Hicks and Gillett are outnumbered on the board, which voted in favour of selling the football club. On Wednesday, Hicks and Gillett tried to reverse that decision by attempting to sack managing director Christian Purslow and commercial director Ian Ayre.
On the face of it, the Liverpool board, chaired by Martin Broughton, is acting correctly. Kop Football (Holdings) Limited is deeply indebted to the Royal Bank of Scotland, which holds a legal charge over the shares in the football club. The bank has now demanded repayment of its facilities and has set a deadline after which it will exercise its security. That deadline offers Hicks and Gillett very little room for manoeuvre.
The board’s legal obligations are clear. It must follow whatever course of action is most likely to see Kop Football (Holdings) Limited’s creditors repaid and, once they have been dealt with, to account for any residual value to its shareholders. That the residual value of Liverpool FC amounts to a loss doesn’t alter the board’s duty.
The bank has made clear its intention to exercise its security if its facilities are not repaid by the deadline. For the football club, that would mean going into administration. Under FA rules, administration brings with it a points penalty that would threaten the club’s Premier League survival, thus putting at risk a valuable revenue stream and no doubt significant sponsor support. If relegated, the value of the club would be severely diminished.
The trick therefore is to keep the club playing and to sell it as a going concern. The way to do that is to sell the subsidiary through which the club is operated for cash and to pay off the bank, with any balance being left in Kop Football (Holdings) Limited for the shareholders. There is no question here of the company being sold off without Hicks and Gillett’s consent. What is happening is that the board are converting Kop Football (Holdings) Limited’s major asset into cash. The shareholders will get whatever is left. If that represents a loss, it merely reflects the poor performance of the company in which they chose to invest.
So will the High Court halt the board’s current plans? It seems unlikely. Section 172 of the Companies Act 2006 lays down a general duty—so far untested in the courts—for each of the directors to act “in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole”.
The section goes on to lay down six further criteria: 1) The likely consequences of any decision in the long term 2) The interests of employees 3) The need to foster good relationships with suppliers and customers 4) The impact of the company’s operations on the community and the environment 5) The desirability of the company maintaining a reputation for high standards of business conduct and 6) The need to act fairly as between members of the company. It’s important to note that the duties prescribed in Section 172 are owed by the directors to the company, not its shareholders.
Hicks and Gillett face at least two hurdles. First, in appropriate circumstances, the duties owed to the company under Section 172 become duties owed to creditors. Assuming administration is inevitable in the event of the company being unable to meet its obligations to RBS, it is hard to see why the interests of creditors would not prevail.
Additionally, a sale of the football club as a going concern seems more likely to safeguard the interests of its employees than a break-up. Although Hicks and Gillette could argue that the holding company itself has no employees whose interests need to be considered. In addition, loyal fans might also take the wider view that new owners would do much to enhance the football club’s prospects.
There are two further arguments to consider. It is not for the courts to make decisions that fall within the remit of company directors. So long as a director has acted reasonably, having considered all relevant factors, any decision he or she takes will be justified. It is irrelevant whether that decision proves right or wrong. What matters is that directors reach decisions for which they are willing to be accountable. This appears to be the case with the board of Kop Football (Holdings) Limited, which has taken plenty of advice and is quite willing to stand by its decision.
Earlier this year, binding undertakings not to change the composition of the board were demanded from Hicks and Gillett when RBS agreed temporarily to extend its facilities to Kop Football (Holdings) Limited, so attempts to oust Purslow and Ayre from their executive roles are unlikely to succeed. It rather looks as if the deal with the Red Sox owners is set to go through.
Bernd Ratzke is Head of Corporate at Dawsons LLP
