Thickandthin feels that Hereford United creditors should consider voting against the CVA.
The emotional challenge from the fan base against the new regime was loud
and clear pre-kick off on Saturday.
This Thursday (14 August) will test the commercial challenge to the new
regime at the scheduled meeting of creditors to vote for or against the
proposed CVA.
Offered 100p in the £ over 3 years, why would a creditor even consider to
vote against the CVA? Particularly when our new directors have set out that
creditors would receive nothing in the alternative - liquidation. So,
commercial suicide to vote against the CVA....surely?
Maybe not. Please read on, to make up your own mind, as I have done with the
information at hand, that why voting against the CVA, with the Club then
entering liquidation, might offer creditors at least a no-worse outcome.
There are 4 commercial reasons why voting against a CVA might make
commercial sense to creditors.
1. Revenues fall short of levels disclosed in the proposal - the CVA is
therefore undeliverable and at worst fails before creditors receive any
dividend. A few week's ago, when the proposals were circulated to
creditors, you could only put a finger in the air about prospective
financial performance. Last Saturday though has put some real perspective to
the forecasts in the CVA proposal - and for every critical revenue line it's
grim reading - a lower than forecast gate, no season ticket sales, no main
sponsors, probably lower bar/suite sales. On Day One of a new season when
crowds are historically at their highest, and this time round, against the
out and out favourites for the title - the new regime couldn't have asked
for a more attractive fixture for a dream start......but it evidentially was
a nightmare and the achievability of the CVA is immediately thrown into
fundamental doubt.
2. There's only one worse thing than a bad debt to a creditor, and that's
the risk of incurring a further bad debt through continuity of trade. Should
revenues at the Club continue to fall short of forecast, there is the real
prospect of more creditor build up - no dividend payment and no payment of
post CVA supplies. If this were to happen, creditors would be in a worse
position than if they had voted against the CVA.
3. Might a liquidation offer a more realistic return to creditors than a
CVA? We know we entered the 2013/14 season with a kamikaze budget, which,
with the benefit of hindsight, the losses incurred were never going to be
met. The CVA proposals also allude to other areas of conduct which might -
possibly and with further investigation - lead to the pursuit of civil
actions against former directors personally - only available in a
liquidation - which creditors might want to consider as an alternative
recovery to any dividend through the CVA.
4. Ultimately, a new "phoenix" club run on sound business principles and on
sensible trading assumptions, representing the community - could
realistically offer creditors longevity in a new trading relationship and
profit to help ease the impact of their loss to date. There are many
examples of fans owned clubs succeeding in this regard when the original
club failed.
Yes, the above four reasons as to why a liquidation could be the best
commercial outcome to creditors are all "what if's". Though one thing
history clearly points to is the evidence of CVA's failing - particularly
when revenues and profits fall short of levels needed to deliver the
promised outcome - and you can't get a bigger promise than 100p in the £.
Creditors should also contemplate Thursday's CVA meeting sure in the
knowledge that every single creditor vote will count.
The second voting test at the creditors meeting to approve or reject the CVA
is set out at Para 4.10.3 in the Proposal and is the critical one, as you
put to one side all the connected creditors (Agombar / Keyte etc) and you
get the view of all other "man on the street" creditors to the CVA.
If 50% of these non-associated creditors voting do not wish to accept the
proposal, because of the uncertainty in it being successfully delivered,
then it is rejected.
The proposal documentation suggests there are c£948k of non-associated
creditors (out of c£1.4m creditors in total). Not all creditors will vote,
so unconnected creditors who do vote will have a much more significant
impact on determining the outcome.
Reject the CVA and it's likely to be back to Court on 1 September to hear
the adjourned winding up petition - and for the Club to be wound up -
opening up the opportunity for something new, better and community driven to
evolve from the horrendous management and mistakes over the last few years,
and hopefully at our spiritual home, Edgar St.
In the same way as it's a fan's choice to support or not to support - so it
is a creditors in which way they vote. But if you know a creditor who is
perhaps undecided and would like a view of an alternative outcome,
independent to that disclosed by this regime in the CVA proposals, please
refer them to this note and encourage them to return their proxy form as
directed in the paperwork - their vote counts.