Much is made of how much money is invested within the football world, but when a club is faced with administration, things can go very wrong very quickly. Richard Obank, partner at DLA Piper, examines the recent administration of Scottish club Heart of Midlothian
Partner, national restructuring team
The takeover of Hearts of Midlothian plc (in administration) was completed successfully on 9 May 2013 after months of speculation that Scottish businesswoman, Ann Budge (dubbed “The Queen of Hearts”) would step in and save the football club from liquidation and extinction. DLA Piper restructuring partners Richard Obank and Graeme Henry and corporate partner John Gallon acted for Bidco, the special purpose vehicle set up for the acquisition, alongside financial advisers, Deloitte LLP.
Hearts was placed into administration in June 2012, with Trevor Birch and Bryan Jackson of BDO LLP being appointed as joint administrators. The appointment was made by the secured creditor of Hearts, BAB Ukio Bankas (ABUB), itself subject to bankruptcy proceedings in Lithuania, following a notice of intention to appoint having been filed by the directors in breach of ABUB’s security arrangements.
In November 2012, a company voluntary arrangement (CVA) was proposed by the administrators. This was approved by the requisite majorities of Hearts’ creditors and members, enabling the takeover to proceed. Had this been rejected, Hearts would have ended up in liquidation and more than likely suffered a similar fate to Rangers Football Club plc. In the case of Rangers, HMRC’s opposition to its CVA led to a deal being transacted in a matter of days whereby the business and assets of the club were acquired by a newco established by Charles Green, while the “oldco” Rangers ended up in liquidation. As a consequence, Rangers were forced to enter the Third Division of the Scottish Football League in time for the 2012/13 season. This was a fate which Hearts was most anxious to avoid, and this meant that it was critical to preserve the existing club entity by means of a successful takeover.
The Hearts deal involved the acquisition of the 79% shareholding held by another bankrupt Lithuanian entity, BUAB Ukio Banko Investicine Grupe (UBIG). This was the only way open to Bidco to make the acquisition given that the remaining minority shareholdings were held by numerous individual fans and a Swiss-based entity. The shareholding situation was complicated by the fact that there had been a fundraising by way of subscription in 2012, prior to the administration, but no shares in Hearts were issued.
Successful completion of the deal involved the bringing together of several interlocking arrangements:
Given the urgent need for decisions to be made regarding the playing and coaching staff, it was agreed that immediate appointments to the board of Hearts would be made on completion of the acquisition by Bidco notwithstanding the fact that the administrators would need to stay in office. Arrangements regarding the on-going management of football-related matters needed to be agreed to suit the requirements of all parties.
The outcome in the end was the best that could be achieved in the circumstances despite Hearts’ relegation from the top flight of Scottish football. The result means that the existing entity has been preserved and Hearts can look forward to starting the 2014/2015 season having emerged from administration and free from further sporting sanctions. Heart’s continued success, of course, now lies in the hands of its supporter base and the pragmatic stewardship of its enigmatic new owner, Ann Budge, who has ushered into Scottish football a new era of austerity, a move that has been mostly welcomed amongst fans and the Scottish football authorities since Hearts desperately needs a period of stability to rebuild for the future.
The deal was certainly challenging given the various dimensions and regulatory requirements. However, it should serve as a useful precedent for, very unusually it has to be said, any future takeover of an insolvent listed football club.
Posted on 9th June 2014 by
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