With the new HUST board having its first meeting this evening, 'Onlooker' takes a look at issues facing the new board.
This is by far the most important issue facing the new HUST board. The Hereford United Supporters Society Ltd (HUSS?) is governed by a constitution that was signed on 7th September 2013 by Jonathan Hale, George Webb and Martin Watson, all now directors of Hereford FC Ltd. In the constitution the Club is defined as Hereford United FC and HUST (I shall continue to refer to it thus although I cannot find the word Trust anywhere in the document) has the authority to “buy and hold shares in the Club” Rule 6.5. This would appear to question the legality of HUST’s purchases of shares in Hereford FC although Rule 100.1 might provide an escape clause as it permits HUST “to invest the funds of the Society in shares of any company or society.” Redefinition of the Club to include Hereford United FC until December 2014 and Hereford FC thereafter is the first major alteration required.
Rule 5.2 allows HUST to “secure democratic and accountable representation on the Club’s board.” This opportunity never arose with Hereford United FC so it is no surprise that the method of selecting candidates for the Club’s board is missing. With HUST now able to fill three places on the Hereford FC board it is essential that HUST decides whether to recommend to members that candidates for these positions should be HUST board members or simply HUST members. A democratic process covering the selection and approval by the membership of the candidates should be incorporated into the Constitution.
It should be noted that amendments to the original constitution have to be agreed by members through a Special Resolution which will require a 75% vote in favour of the resolution. The quorum for the meeting will require participation in the vote of a third of HUST members eligible to vote based on current membership. To achieve a valid result voting by post, email or by proxy will almost certainly be required.
Share Purchase
The Articles of Association state that the Authorised Share Capital of Hereford FC Ltd is one million £1 shares comprising A Ordinary Shares which can be purchased only by HUST and Ordinary Shares which can be purchased by others. The Articles do not indicate how many shares of the two classes there are but stipulate that HUST can own no more than 50% of the issued share capital and individual shareholders no more than 24%.
The details of the Company’s share capital structure has been announced by various Club Statements. Whether these are backed by board resolutions, and indeed whether they are legally binding, is not known. The initial Statement advised that 250,000 Ordinary shares would be available immediately and 250,000 A Ordinary Shares would be available for HUST to purchase over a three year period. Three founder shareholders each purchased 50,000 Ordinary shares with the remaining 100,000 available for purchase by individual supporters. A further founder investor appeared and was allocated 50,000 shares. Individual supporters purchased 39,000 of the remaining 50,000 shares when they were offered for sale. The Company now wants to issue a further 50,000 shares to another investor thereby increasing the number of Ordinary shares issued to 289,000 with HUST
having the opportunity to buy a similar number of A Ordinary shares with the option to purchase
period extended by two years. HUST has at present purchased 50,000 A Ordinary shares. This leaves HUST with the option to purchase a further 239,000 shares over a period of four to five years.
HUST must decide whether they will realistically be able to find the money for this.
If it seems unlikely that HUST can raise this money they may as well not bother to purchase any further shares because all the benefits of being a shareholder in Hereford FC Ltd have been granted immediately and will not change whether further shares are purchased or not. The benefits mainly involve the right to appoint three of the seven directors on the Hereford FC Board. There could be a case for buying another 40,000 shares which would increase HUST’s shareholding to more than 25% of the shares issued giving it the power to veto any change to the Articles of Association in future. As HUST is the exclusive holder of one of the two classes of share it may possibly have this power already.
If HUST feels it can raise the necessary funds within the timescale set out by the Club it should seek to improve HUST’s power in the decision making of Hereford FC Ltd to apply when it completes the purchase of its’ share allocation. This negotiation should be put in hand immediately. It would be extremely risky to purchase the shares then seek to negotiate improvements, a policy recently advocated by some members of the HUST board.
The Articles of Association
As mentioned previously the Company’s Articles of Association allow HUST to provide three members of the Board. This is a remarkably generous concession as it applies immediately even when HUST has only a nominal shareholding. However, I feel that it is grossly insulting that these nominations can be rejected by the directors representing the founder investors and I would recommend that HUST registers an immediate objection to this clause.
HUST will always be outvoted on the Hereford FC Board as long as the current Articles remain unchanged, even when they have completed their purchase of the 289,000 A Ordinary shares. The appointment of a further HUST director would not improve this situation as the Articles allow the Chairman a second vote in the event of a tied vote. It might therefore be necessary to appoint an Independent director as well as a fourth HUST director and remove the Chairman’s second vote to achieve true equality.
The advice given to the previous HUST board by Supporters Direct and/or others when the Articles were first submitted for approval should be made available to the new board members and further legal advice regarding the current Articles and further share purchases should be obtained if HUST proposes to take up the full share allocation.
Feedback to members
Since the formation of Hereford FC the feedback to members from HUST board meetings and Hereford FC board meetings has been almost non existent. This should be remedied immediately by regular reports of the items discussed at the Board meetings. If HUST members thought they genuinely had a say in the Club through their representatives on the boards of HUST and Hereford FC Ltd and were not just ticket fodder the decline in membership might be arrested.