Thursday, 8 November 2012

Winding up petition for Hearts - Again!

The machinations of Scottish football continue with the well known Hearts football club in danger as a result of a winding up petition  lodged by HMRC for unpaid crown debt. Failure to pay will lead to a winding up order being granted by the court and the appointment of a provisional liquidator will be inevitable who will call a meeting of all of the company's creditors to report on the financial affairs of the company and seek their permission to be appointed as liquidator and proceed to sell the company as a going concern, or sell off assets for the benefit of creditors. Could this be the end for Hearts?

Hearts have a history of brinkmanship when it comes to crown debt and indeed its own playing staff. For some time now staff wages have been paid late and indeed in July 2009 Hearts previously faced a winding up petition as a result of unpaid crown debt. Then the problem was solved as the debt was paid and the petition withdrawn.

On this occasion, the Heart of Midlothian Board have appealed to fans to come forward and provide funds to save the club, whilst it negotiates with HMRC re payment over a period of time, although it is fair to assume that HMRC have lost patience with the company and may not have the heart to listen to any more pleas for time to pay.

Difficult times for Hearts, but with the existence of a winding up petition, it could get a lot worse.

The directors cannot now put the company into a creditors voluntary liquidation and they cannot sell company assets, such as players. The directors could consider applying to court for an administration order in order to protect the company from the winding up petition. If successful the administrator could propose a Company Voluntary Arrangement  (CVA), a powerful and effective mechanism to preserve a company and its business, providing it has a viable future. Alternatively the administrator may seek to sell the company to a new company or other buyers, or if no buyers come forward, move to liquidation to realise asset value for the benefit of creditors.  If the club does exit via a CVA then it will not be deducted points.


Often though when a winding up petition is lodged at court, it can lead to immediate problems quite apart from the court hearing. For example, section 127 of the Insolvency Act 1986 states that any dispositions carried out by a company following the lodging of a winding up petition could be void. This means that any funds paid out by the company in question may be deemed void and in the event of liquidation, the liquidator could request that these dispositions be paid back to the company by company's bank. Banks, often fearful of this risk, will on learning of the petition, freeze the company bank account, an act that often spells the end of the company, even before the hearing in court to decide whether the winding up petition should be granted. Having taken such drastic measures, the only way unfreeze an account is to make an expensive court application for a validation order which if successful will validate or approve dispositions required to allow the company to continue to function, pending the outcome of the winding up process itself.

I'm left wondering how Hearts plan to manage any monies received as a result of their appeal to fans if the company bankers have frozen the accounts?

Football, famously a game of two halves, but for Hearts, is it all over now?

No comments:

Post a Comment

Web Analytics