Why PFC owe Portpin absolutely nothing...

On Friday 17th February 2012 Justice Norris appointed Trevor Birch as Pompey's administrator. In doing so he questioned why Portpin held a debenture over Pompey at all. It's a very good question.
 

A debenture is just a mortgage by another name. Portpin loaned Pompey £6m on October 6th 2009. They took a charge on Fratton Park for £7m, which is the oft referred to value in the Land Registry. (That doesn't mean it's worth £7m, it just means it secured up to £7m of loans). Source: Companies House

In January 2010 Portpin took a further charge on "all the assets, monies and enterprise of Portsmouth Football Club" to the value of £17m, so effectively Portpin were claiming to have loaned a further £11m in November and December. Source: Companies House
 

For the purposes of this article, I'm not going to dispute that, as no one has ever produced audited accounts to prove it one way or the other.

It would seem to me the biggest problem with the charge comes when Portpin 'bought' Pompey out of administration in October 2010. It's complicated so stick with me. 

At that time, Pompey were in administration and for sale.

Portpin bought Pompey from administration in October 2010 and my understanding is paid for the club by swapping it for their debenture. The alternative would be Portpin would have been given the club for free. In other words, it's a bit like you not paying your mortgage (in this case PFC hasn't kept up its loan repayments) and the bank (in this case Portpin) takes your house in return.

Portpin had already taken (or in effect been paid back by PFC) £4m in February 2010, and Andrew Andronikou agreed with representatives from the Pompey Virtual Alliance at a meeting in April 2010 that this needed to be deducted from the £17m debenture, leaving "around £12.8m, call it £13m" to quote Andronikou.
 

So Portpin effectively swapped their debenture on Portsmouth City Football Club Ltd for the assets of PCFC Ltd, ie they repossessed it. So what assets did PCFC Ltd have, what was it worth?

Well, Fratton Park at their security valuation of £7m – Source: Title Number: HP375034.

He also inherited the debt from Miland Property to PFC2010 Ltd of around £4m - this was the entry in the books which Miland should have, but did not, pay for the land around the ground. Any outstanding debt is an asset, and there is an ongoing investigation into this transaction by Baker Tilly aimed at recovering the money for PFC2010 Ltd.
  

After paying the CVA there was a further £2m of excess parachute payments. This is an asset of the new company.

All player contracts are an asset of the new company. Let’s be ultra-conservative here and value them at £2m. This doesn't include possible transfer fees.

Then add in £500,000 for the fixtures and fittings of Fratton Park, logo, intellectual property, TV rights payments - again an ultra-conservative valuation. I've even decided to omit the revenue from 10,000 season tickets, running into millions, from this equation.

So add that up. Assets of PFC2010 Ltd in October 2010 were conservatively around £15.5m.

So in return for a charge of £13m, Andrew Andronikou it appears sold all the assets of Portsmouth City Football Club Ltd to Portpin's new company, PFC 2010 Ltd in return for the debenture.

The question then, is if the value of the assets (£15.5m) exceeded the value of the charge, (£13m), why would there still be a charge of £17m? Surely, Portpin should have been paying an extra £2.5m cash to own PFC 2010 Ltd, not keeping £17m of secured debt?

 
Roll forward to January 26th 2011, and the Transfer of fixed and floating charge of 7th January 2010 to PFC2010 Ltd. Source Companies House.

The whole £17m Portpin charge which should, in my view,  no longer exist, is transferred from oldco, (PCFC Ltd) to newco, (PFC2010 Ltd) by Andrew Andronikou, and accepted by whoever on the board of PFC 2010 Ltd thought accepting £17m of debt for apparently nothing was a good idea. The board of PFC 2010 Ltd at the time included Deepak Chainrai and Levi Kushnir, who coincidentally are directors of Portpin. No doubt they excused themselves from the transaction owing to the apparent conflict of interest.

So what we have here is the equivalent of a bank repossessing your house, selling it for above market value and then telling you that you still owe them the entire amount of the mortgage which is now secured on your new house. 

As the tale winds on it becomes more inexplicable. CSI Ltd bought Pompey, and when CSI was put into administration, by Portpin, Portpin created a new charge of £17m on CSI Ltd, while maintaining the old one on PFC 2010 Ltd. Source: Companies House

It's no wonder the judge was perplexed. I'm perplexed. So the new deal seems to be that the Football League are allowing Portpin only £5m of secured debt, which is still not bad considering PFC apparently don't owe them anything.

 
If you look back at the October 2010 transaction in the light of the Football League’s ruling, the only way it makes sense is if PCFC Ltd had no assets at all, no stadium, players, contracts etc. But if that is true, how can you transfer secured debt to a company with no assets? Either PCFC Ltd had enough assets to pay off the charge when Portpin took us out of administration, or no assets at all and therefore nothing to secure the new charge in January 2011.

Portpin have agreed to pay unsecured creditors of PFC 2010 Ltd and PCFC Ltd a total of £500,000. Now CSI Ltd are owed £10m....by PFC 2010 Ltd, in return for all those players CSI bought that PFC couldn’t afford.

As creditors of newco, CSI get 2p in the pound as opposed to £0.04p in the pound for oldco. So of that £500k, CSI will get £200,000. Portpin are the secured creditors of CSI. So that £200k will go from Portpin to CSI to Portpin again.

Moreover, Portpin have made an offer to pay the creditors, but that offer apparently includes no new money coming into the club, just old debt. So who will pay the £500k? Portsmouth Football Club apparently. Once we pay the £500k from our revenues to our creditors it will, if Portpin's bid is correct, go down in the books as a debt PFC owes  to....Portpin.
 

So the net effect will be that in paying CSI £200k PFC will be giving £200k to Portpin but still owe them £500k plus interest.

All of the above is complex and for all I know is entirely legal and above board. The forthcoming Baker Tilly report should answer at least part of that question.

Portpin's PR company was contacted and given the opportunity to review, comment upon and correct any inaccuracies in this article. A spokesman said: 'Portpin decline to comment on this story.'

Micah Hall is a Portsmouth supporter who blogs regularly at FansNetwork (access an archive of his work here) (He’s on Twitter here)
 
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