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Portsmouth win creditors’ battle, but no one emerges with credit

Portsmouth FC‘s future is secure, at least in the short-term, after HM Revenue & Customs‘ challenge to their Company Voluntary Agreement (CVA) was thrown out yesterday. Their long-term future, however, remains far from assured, and it remains to be seen whether Thursday’s high court decision is a genuine reprieve or merely a stay of execution.

Under the terms of the CVA and Premier League rules, as part of Portsmouth’s five-year business plan ‘football creditors’ (essentially other clubs and players) can expect to recover their debts in full. Non-football creditors, however – which includes both HMRC and small, local businesses – will only receive 20% of what is owed to them.

The Premier League claims the football creditors rule is in place to protect the spread of the disease to other clubs. For instance, in one of the most blinkered, self-serving statements I have ever heard, they claim Watford would have gone out of business if outstanding transfer monies owed to them were not repaid as justification for the rule. They make no mention of the hardship (and potentially closure) which non-football businesses will suffer as a result.

In fact, so much of the outcome of this case leaves a bitter aftertaste. Looking in from the outside, this is what I see:

Balram Chainrai took control of the club for purely pragmatic reasons, after the previous owner defaulted on debts owed to him. He put the club into administration and is likely to re-emerge as Portsmouth’s owner in the interim, with not only his debt repayments secured but the possibility of making a profit on any onward sale.

HMRC have wasted a large amount of public money on legal fees in pursuing a reported £37m debt – it will now have to write off at least 80% of that sum – and have now set a dangerous precedent in law which will make it doubly difficult for non-football creditors to secure a judgement against any other football club who go down the same route.

With the Championship season kicking off tonight, Portsmouth’s playing squad is down to the bare bones, numbering just 15 earlier this week, and with no senior goalkeeper on the books. While they are now free to move forward on the signings of goalie Jamie Ashdown and other players, their continuing financial constraints will limit both the quantity and quality of players they can bring in. The cupboard will remain bare for a while yet, and with their best player Kevin-Prince Boateng certain to be sold, things may get worse before they get better.

Non-football creditors – many of whom are relatively small but can ill afford the hole in their cashflow created by Pompey’s bad debt – will have to wait five years under the terms of the CVA to recover even 20% of the money owed to them. So the builder owed £56,000 for work carried out on the Fratton Park dressing rooms will receive no more than £11,200, paid piecemeal over five years. Not very much, is it? And that’s the best-case scenario. Portsmouth’s five-year plan is predicated on revenues relating to them continuing as a Championship side for the duration. Larger clubs with superior personnel – Leeds United, for instance – have discovered this is not necessarily a given. If Pompey were to be relegated to the third level of English football – as Leeds were in 2007, three years after exiting the Premier League – oblivion will await them, and their non-football creditors will not even receive their 20%.

Finally, consider this. During the last three seasons, Portsmouth have played in two FA Cup finals (winning one) and qualified for the old UEFA Cup (now the Europa League), effectively benefitting from having broken both Premier League rules and the law at the expense of other clubs. Who is compensating the clubs who lost out on revenue and glory as a result of Pompey’s misdeeds? No one, obviously.

As I have stated before, I have nothing against Portsmouth FC or their fans. But although their medium-term future remains far from certain, I cannot help but feel they have got off the hook incredibly lightly. If they had been a ‘normal’ business, they would have been liquidated long ago. And I categorically reject the notion that they should be considered a special case because of the attachment of the fans or their place in the local community. I don’t see too many struggling local shopkeepers being saved from folding on the basis of them being integral to the community, do you?

As usual, the football community has closed ranks and ensured it has protected its own interests, with anyone outside its four walls being no more than a mildly irksome afterthought. Portsmouth remain alive – and I wish their fans well – but no one emerges with any credit whatsoever from this affair.

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My previous thoughts on Portsmouth’s battle for survival:

Pompey lived the dream, but woke up to a nightmare (February 26)

Who’s to blame for Pompey’s plight? No one, apparently (February 27)

Portsmouth’s continuing farce: who’s winding who up? (March 2)

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About Tim
Father of three. Bit of a geek. That's all, folks.

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