Portsmouth debt stands at £135m

First stage of CVA passed

By Insolvency News, 7 May 2010. Posted in Corporate

Portsmouth’s administrators have completed the initial stage of a company voluntary arrangement (CVA) to rescue the football club, after revealing the club’s debt now stands at £135m.

After securing the majority of votes from the club’s creditors, UHY Hacker Young will now pursue the next stage of a CVA which will mean the club pays 20p in the pound over five years.

Pompey’s owner Balram Chainrai has told both creditors who are owed less than £2,500 and charities that they will get paid in full costing him £200,000.

Due to premier league rules over insolvency, players will be paid as a priority as they fall under the category of "football creditors."

This group also includes other clubs who are owed £17m in transfer fees, along with current and former players who are owed almost £5min wages, image rights invoices and bonuses. HM Revenue and Customs is owed £17.1 in taxes and national insurance contributions.

Colin Gibson, partner at law firm Rickerbys LLP and Fellow of the Association of Business Recovery Professionals: "Portsmouth's debts were estimated to be in the region of £60-70 million when the club was placed into administration. It now transpires that the debts are nearly more than double the original estimate."

Another meeting will now be arranged within 14 to 28 days to approve the CVA, but UHY Hacker Young will need to secure at least a 75 per cent approval rate from the votes of creditors.

The first year of the CVA will be funded by releasing or slashing the wages of out of contract players, and beyond the first year, the funding will come from parachute payments made to clubs relegated from the premier league.

Under the CVA, the company Portsmouth Football Club will be liquidated after nine months and a new business will be created.

Gibson added: “This is not going to be a usual CVA as there are some classes of creditors who are not secured, but who stand to recover 100p in the pound for example "football creditors" as provided for under the FA rules."

It is understood that the assets will be transferred to the new company and that an investigation will be undertaken into the management of the previous incarnation of Portsmouth.

Gibson said that from the figures disclosed it appears that HMRC are owed approximately 25 per cent of the entire debt so they will have the ability to vote against the proposal, however there are early indications that HMRC will vote in favour of the proposal. If the proposal is not approved then the unsecured creditors are unlikely to receive any return.