Administrator Q&A

[saint peach]

Darlington, much like us, are in big financial trouble.

 

I spoke to their administrator, Dave Clark, a few days ago about the processes involved and what it really entails. It is focused on Darlo but I thought it could make quite interesting reading considering out predicament.

 

What’s the purpose of administration?

 

“It’s really just a case of looking at the problems that re there and how can we protect them from creditors that are disgruntled.

 

“And it gives us some chance to sell the assets or sell the business, without being pulled about.

 

“If you can imagine, you’ve got a club there and you’ve got facilities that are in there.

 

“For example, somebody has put a carpet down in the building, and has not been paid for the carpet.

 

“Imagine if somebody comes and takes that carpet away, it makes that room unsafe so you cant use that room, so it has a detrimental affect to the business.

 

“But they aren’t going to be able to do anything with that carpet once its been taken away because its already once. So it’s got virtually no value to them, other than nuisance value.

 

“The idea of administration is that it puts a protective barrier around the business and gives the administrator a chance to look at the business with a view to rescuing it, saving the jobs, finding a new buyer or even selling it back to the existing management team with a new finance package.”

 

What are the powers an administrator holds?

 

“Administration gives the administrator the powers to trade and continue to operate the business.

 

“So instead of the chairman, and his board of directors making decisions on trading aspects, its actually our teams us that do that.”

 

How does a football club enter administration?

 

“Ordinarily, when companies get in financial difficulties they’ll go to their accountants or approach us direct to say ‘look, we’ve got these difficulties, what can you do.’

 

“In terms of insolvency practitioner there are lots of different options for dealing with the raft of financial difficulties.”

 

Are football clubs different to other businesses?

 

“Football clubs are a very, very unusual type of business because there’s not just one business there.

 

“You’ve got a bar, a restaurant facility, a shop, ticket sales. You’ve got players, coaching staff, backroom staff as well.

 

“Before you know it you’ve got the groundsman, the actual operations on the pitch, the stadium facilities to manage, you’ve got advertising, you’ve got boxes.”

 

How does that complicate matters?

 

“There are more than 20 different facets to what encompasses a football club and I think people forget how difficult it is to manage one business.

 

“But when you’ve got a business that has hot lots of intrinsic, smaller businesses within it, all of sudden the problems just multiply exponentially.

 

“Then you add in the FA and the Football League - rules that they’ve got.

 

“The Football League handbook is quite a substantial document, so you’ve got to have a rough idea, and a rough idea at best, to what these rules are and how you are going to approach the job.”

 

Does the speed of entering administration have an impact?

 

“With all insolvency jobs it depends how quickly you get involved to what the options are.

 

“Invariably, in general, people tend not to want to talk to you because they are in difficulties and they think if they speak to you it’s going to cost them money.

 

“But, by not speaking to us, it sort of removes some of the options we might have had a bit earlier.

 

“The quicker [the club enters administration], the quicker somebody can get on with leading the club properly rather than just running it on a cost saving basis, which is what we’re doing, effectively.”

 

What are the first jobs an administrator does when they go in?

 

“Initially, is a lot of fire fighting that goes on.

 

“For example, say somebody wants the pitch covers back. They can’t have the pitch covers back because it is protected by the administration but I’ve got to speak to those people and tell them what the situation is.

 

“And. in amongst all that, you’ve got to try and plan how you are going to operate the business because without looking at the costs.

 

“You’ve got to say to people ‘look we cant pay you for that service, can we cut a deal where we pay you for part of that service until the end of the season, to keep the club going.’

 

“‘Obviously, if we fight the fire you’ll be free to negotiate with the new owner how you may get paid in the future.’”

 

What are the priorities of an administrator?

 

“Well, the most important thing with any trading situation, that an insolvency practitioner gets involved in, is cash flow

 

“Making, or putting together, a cash flow or business plan for the period of time you need to market the business to ensure that it, at worst, breaks even or operates at a profit.

 

“Obviously, if I don’t make any money or I lose money, in particular in an administration situation, it is me who is on the hook personally for any shortfalls.”

 

In what sense do you cover shortfalls?

 

“If I trade for six months and lose £50,000, and don’t sell the business and don’t recover any money, then I lose £50,000 personally.

 

“So, it is obviously quite critical that whatever, in effect, has happened in the past is irrelevant in terms of trading and cash flow.

 

“What you’ve got to say is how much is going to cost me for me to run this for the next x-months, what can we bring in and what savings can we bring in.

 

“The losses the company was quoted to be making were £50,000 a week.

 

“I can’t afford to lose £50,000 in a week.

 

“I couldn’t afford to lose £50,000 in a year, so we have had to cut the costs accordingly.”

 

Do you get some negativity as the administrator?

 

“There is often quite a lot of animosity towards the administrator because they are making hard decisions, like closing the stand where you sit.

 

“At Darlington, if we were getting 8,000 for a home game then I couldn’t close the stand. But we’re getting two and a half, so fans have got to get a reality check.

 

“Either they’ve got to go out there and promote the club or they sit in a different stand.

 

“Withdrawing support, to me, seems like a very irrational thought because you want your club to succeed.”

 

What is the role of a Company Voluntary Arrangement?

 

“What you’ve got to understand is in a football club, as opposed to any other insolvency situation, there’s this ‘football creditor’ position.

 

“To get a CVA through, all football creditors have to be paid in full, otherwise the Football League will not give you your share back, when you exit it.

 

“The other point to bear in mind, the preferred route, the only route according to the FA, is via a CVA, so basically you’ve got to put together a CVA which says we will pay all football creditors in full.

 

“If you don’t pay all the football creditors in full, the FA won’t give your share back.

 

“There are, in fact, four or five different exits out of administration but the Football League said there is only one.

 

“So if you don’t do that one, you’re going to get a kicking.”

 

Does the administrator investigate the work of the previous directors?

 

“Any administrator has got a duty to investigate the circumstances surrounding the demise.

 

“We’ve got to report on director’s conduct, as part of the legislation, called the Directors Disqualification Act, which deals with insolvency situations.

 

“It’s the duty of the administrator or liquidator to make a report to the Department of Trade and Industry in circumstances where they think the directors conduct has been unfit.”