The 'Southman' has a few thoughts on what could happen on Monday when, once again, Hereford United are back in the High Court.
One thing is certain the club do not have in place sufficient funds to see off the petition otherwise they would have done so. Hence the working behind the scenes spoken of by (advisor Joel) Nathan. It is of course funds in place rather than funds full stop that will be important.
1986 Insolvency Act gives a number of reasons as to why a company may be involuntary wound up by the High Court. Those reasons pertaining to the football club are:
(f) the company is unable to pay its debts,
(g) the court is of the opinion that it is just and equitable that the company should be wound up
Under the provisions of said act a company is deemed unable to pay its debts, and therefore insolvent:
(a) if a creditor (by assignment or otherwise) to whom the company is indebted in a sum exceeding £750 then due has served on the company, by leaving it at the company’s registered office, a written demand (in the prescribed form) requiring the company to pay the sum so due and the company has for 3 weeks thereafter neglected to pay the sum or to secure or compound for it to the reasonable satisfaction of the creditor,
(e)if it is proved to the satisfaction of the court that the company is unable to pay its debts as they fall due.
(2)A company is also deemed unable to pay its debts if it is proved to the satisfaction of the court that the value of the company’s assets is less than the amount of its liabilities, taking into account its contingent and prospective liabilities.
Under provisions of the same act
Section 125 Powers of court on hearing of petition.
(1)On hearing a winding-up petition the court may dismiss it, or adjourn the hearing conditionally or unconditionally, or make an interim order, or any other order that it thinks fit; but the court shall not refuse to make a winding-up order on the ground only that the company’s assets have been mortgaged to an amount equal to or in excess of those assets, or that the company has no assets
(2)If the petition is presented by members of the company as contributories on the ground that it is just and equitable that the company should be wound up, the court, if it is of opinion—
(a) That the petitioners are entitled to relief either by winding up the company or by some other means, and
(b) That in the absence of any other remedy it would be just and equitable that the company should be wound up,
The options facing the football club are:
• Pay the debt and costs in full
• Reach an agreement with the creditor to settle the debt or repay over a period of time
• If there is a genuine dispute, contest the petition. A witness statement in opposition must be filed in Court no less than five business days before the date fixed for the hearing
• Placing the company into an alternative insolvency procedure, such as a Company Voluntary Arrangement or Administration, which may allow the directors to retain control of the business and maximise realisations
• Placing the company into a Voluntary liquidation
• Allow the company to be wound up and to cease trading.
The question facing the judge is therefore simple enough. Is Hereford United insolvent yes or no? Except of course it is not that simple. It has nothing to do with jobs on the line or any kind of sympathy for a community asset. Those ideas will play no part in any order given or not given by the judge. The judgement is a legal judgement and will be based on argument about the points. It does not matter if the debt has been restructured. The only thing that matters is the ability to pay the petitioners their dues.
Given that a winding up order has been issued there is a presumption of insolvency by the petitioners. Certainly HMRC only go down the involuntary insolvency route with this presumption. It means that the onus is on the club to refute this presumption.
The difficult petitioner for the club is HMRC. They will not budge by as much as a single penny and although they are open to delayed payment and such, they do, usually look for at least a 50% down payment because of presumption. However the amount to be paid over time will be the full amount. One option for the club would be to pay off HMRC, remove them from the equation and then try to manoeuvre with the other petitioners.
After liquidation the OR will attempt to salvage as much in the £ as possible for the petitioners. For HMRC insolvency is more about a principle as the monies will not be unduly missed. For other creditors the loss of monies through insolvency could be significant.
The order of priority for the OR will be
1) Secured debt
2) Fees for the OR – paid in full before
3) Any other creditors
Therefore creditors do stand to lose a lot of money if the club is dissolved. So an option for the club here is to play to that fact and seek an agreement to pay off the arrears. It does not have to be a formal arrangement like a CVA. Any arrangement would remove some (significantly so) of the risk of being wound up.
It is worth noting that the CVA did not fail. It was not accepted (therefore it is NOT a failed CVA. A failed CVA is one where the obligations of the debtor to the creditors were not met) and therefore would play a very minimum role in any judgement of insolvency.
One thing that might cause a problem is if somebody like the council ‘piggy back’ onto the petition. Adding a significant debt like that would test the argument of the club.