BCFC: The A Word

As Birmingham City are now in the bottom three of the Championship, the more worried members of the fan base are talking about relegation and the implied financial Armageddon that comes with it. With this in mind I have written this piece to explain what Administration really is – and why it’s unlikely as things stand to happen to Birmingham City.

Finances and BCFC

The A word is one that I think terrifies football fans. We’ve seen in recent years what it did to Bury and Bolton, and we’ve watched on as Wigan struggle following their descent into administration in June.

However, it’s important to understand what Administration actually is, and how it happens, because in doing so we can see why it won’t happen to Blues unless things change fairly drastically in Hong Kong.

What is Administration and how does a company get put into it?

Administration happens when a company cannot pay its debts. An administrator comes in to secure as much money as possible for the creditors (people who are owed money), either by selling the business or by putting it into liquidation.

There are five ways a company can enter administration.

The simplest and most common way is that after a board meeting, a majority of directors on a company’s board decides that Administration is the only way out of debt. This requires neither shareholder nor creditor approval.

Shareholders can also force a company going into Administration. This takes a little bit longer than the first option, as a shareholder meeting has to be called which needs 14 days notice unless 90% or more of the shareholders agree to hold it at shorter notice.

At the meeting, a vote is called and if a majority vote for Administration, then documents are filed in court and any qualifying floating charge holder is notified. Once a further five days has elapsed, if the charge holder agrees (or there isn’t one), then the appointment of Administrator documents can be filed and the deed is done. It does not require court consent.

If there is a qualifying charge holder, then they can appoint an administrator of their choice anyway. They must hold a debenture, which is a fixed and floating charge on the company’s assets.

Alternatively, if a creditor has filed a statutory debt notice and 21 days have elapsed, then they can file a winding up petition if more than £750 is owed. Because of the cost of doing so, this is normally only done if the debt is more than £10,000; it’s normally the route taken by HM Revenue and Customs if a tax debt is owing.

If a company is already in a company voluntary arrangement (CVA), the supervisor can also bring in administrators.

How do Blues stand with each of these options?

Documents held by Companies House shows that Birmingham City Football Club plc (company number 27318) has three charges against it, but all three of those charges are fixed.

This means that they are against a particular thing; HSBC has one against a bank account while Macquarie Bank have two against transfer instalments for the Che Adams and Jude Bellingham transfers.

There was a debenture held against the club by HSBC (as reported by Often Partisan at the time), but this was satisfied in 2015.

Birmingham City plc (the UK parent company, company number 3304408) has no outstanding charges.

This means that there are no qualifying charge holders who could force administration. Likewise, neither the club or its parent are in a CVA so there is nothing to worry about there either.

That leaves three options.

HMRC did file a winding up petition against the club in December 2019, but that was dismissed at court as the debt had been paid. While no comment was made by the club, I am of the belief that debt was the result of an error or a dispute rather than of a lack of ability to pay. There is nothing to suggest that HMRC will file another winding up petition in the near future.

As BCFC plc is 100% owned by BC plc, that would mean the same shareholders who own BC plc would have the right to put the club into administration.

Right now, more than 96% of shares of Birmingham City plc are owned by a combination of two entities – Birmingham Sports Holdings and Oriental Rainbow Investments. Likewise, the boards of both Birmingham City plc and Birmingham City Football Club plc have been appointed by Birmingham Sports Holdings.

It would make no sense for BSH to put the club into administration. To do so would make life very difficult for the continued listing of BSH shares on the main board of the Hong Kong Stock Exchange – and as we know that is where the investors are making profits, they are going to be very loathe to let that go.

ORI is a different story.

Because ORI are a British Virgin Island investment company, they don’t need to worry about a stock listing. They assumed their portion of the debt owing when they bought a stake in BCFC, and as has happened at Wigan when their HK listed parent sold out to a BVI limited partnership, if ORI felt they wouldn’t be paid the debt owing then they could push the club into Administration and force the issue.

However, as it stands ORI only owns 21.64% of Birmingham City plc and doesn’t currently have any directors on the board of either company. So for now, ORI would not be able to force the issue if they fell out with BSH about the club.

That would change if BSH sold another tranche of the club. Once the balance tips to ORI (or companies working with them) owning more than 50% of Birmingham City, they would then call the shots. It’s also likely that in that position, BSH would not be so affected by the club going into administration anyway.

Conclusion

In conclusion, even if the absolute worst happens and Blues are relegated, as things stand the stranglehold of the HK listing would actually protect the club from it dropping into administration.

However, if BSH do go ahead and sell another 28.37% or more of Birmingham City plc to Oriental Rainbow Investments (or another third-party investment company which agreed with ORI’s decision to force Administration), then Administration would become a possibility. As we’ve seen with Wigan, that could be horrific.