Tuesday, 20 January 2009

Administration rumours

Rumours, totally uncorroborated, have been circulating that the club could go into administration by the end of February 2009. However, the source is not totally unreliable.

My personal view is that the club's financial position is not so bad as to require that. On the other hand, if one was going to go into administration, it would be better to do it this season when we are almost certainly relegated and take the points hit now.

A new investor could then acquire the substantial assets of the club at a substantially reduced price. However, I do not see how that could benefit the current board, who have lent substantially to the club. Hence, I am inclined to discount it as a possibility, but I would not rule it out altogether.

8 comments:

Inspector Sands said...

Is this off the mailing list? There seem to be a few people with agendas on there...

Wyn Grant said...

Yes, it does, but from someone who doesn't seem to have a particular agenda and has something of an inside track. Not the Rickster, I hasten to add. I don't really believe it, but there's enough in it to fly a kite.

Anonymous said...

Given the continual enormous losses being incurred , I would think its an absolute certainty to be honest.
From the Director's point of view , theyve probably written off their investment in their own minds anyway since the Zabeel transaction fell over . Noone else is going to come along in the current financial environment , so they have to decide how much more of their money are they prepared to shovel in when its a one way downward bet. The banks will have withdrawn/ witheld support by now If you were Richard Murray , would you want to keep personally funding Nicky Weaver's £18k a week or Andy Gray's c £9 to £11k.

Chris said...

Wyn, I’m no expert but I don’t think this makes any sense. Consider these definitions;

Administration is a legal process that protects insolvent companies from aggressive creditors until a way out of financial problems can be found. When a company enters administration all legal actions against the company are stopped. The aim of administration is to protect the company while a plan is drawn up to rescue it, sell it or liquidate it.

Alternatively, a CVA (the approach used by Bates at Leeds) is a legal arrangement which allows a company in debt to continue trading. In a CVA the company and its creditors agree to a phased repayment of debts over a defined period, usually 5 years. These repayments are made from future trading profits. Normally only an agreed fraction of debts will be repaid and interest and other charges will be frozen during the period of a CVA. Normally a CVA will be accompanied by a restructure within the company to improve the business. Once the CVA is completed all remaining unsecured debts are written off and the company continues to trade profitably.

In other words, administration or a CVA might make sense (or be a necessity) for Charlton if the Club were being chased by creditors, say a bank, for either interest payments or repayment of principal (or short-term funding) with the objective then being to buy time (sell assets/players say) and then recapitalise and/or default. But, as I understand it, this is not the situation the Club is in. With the exception of a long-term mortgage, the interest on which I assume is very manageable; Charlton’s main creditors are the Directors who are also major shareholders as well as being fans. It really isn’t clear to me how either administration or a CVA is in their interests on any level.

Charlton’s financial problems are not with their creditors, but are much more prosaic. The Club simply needs to cut costs, probably still very significantly, to stop cash continuing to bleed out of the business. This won’t be easy and will almost certainly be very painful, but it is not clear how going through a CVA, for example, would make it any less traumatic or easier to manage. As noted above, I’m no expert and have no knowledge of Charlton’s current financial situation (some of the numbers may now look rather different from the accounts published recently), but if the cash flow position were so serious that the club were becoming illiquid, ie. couldn’t pay wages, admin costs, rates etc, I don’t think we’d have been seeing players being signed or loan deals being struck during the transfer window.

What is clear, of course, is that the Board needs to find a buyer with deeper pockets than they have. I’m not holding my breath. Zabeel was ideal but also probably a very rare bird indeed. Without that buyer, it will be a hard struggle in Division 1 next season.

Dave Peeps said...

Wyn - Having come out and stated that we will not go into Administration only a fortnight ago, Richard Murray would lose any remaining personal credibility he has left if it comes to pass. That's not to say it won't happen but surely he was speaking on behalf of the PLC board when he made that statement and he has a good enough view of the finances ahead to have made it with some degree of confidence? Dave.

Wyn Grant said...

Chris, you may not be an expert, but it's a very helpful explanation. Dave Peeps also makes a good point. I think that we can consider this story stone dead.

Anonymous said...

The AGM next Weds should reveal some intresting items.

sm said...

Anon

Unfortunately - I don't think that administration would give the club much protection from the demands of overpaid players (at least in relation to thier performance levels) - I think the FA require that the reformed club have to pick up the contracts of the existing players - which of course gives them much better protection than ordinary mortals who are limited to statutory redundancy.

So administration would only provide protection from bank and trade creditors (HMRC would probably object to any renegotiation of their claims, and the directors would not benefit since the first thing the administrator would do is to turn their loans into worthless equity) - which are probably not yet a problem especially given the rather valuable asset provided to the banks as collateral.

The only circumstances where I could see the banks/directors perhaps triggering administration would be where there was disagreement anong the directors as to a potential takeover party - which leads to an uncontrolled asset grab - but I don't think that the club has directors like that.