Warning to Ipswich Town's creditors

By Duncan BrodieSMALL businesses owed money by hard-pressed Ipswich Town could end up receiving nothing unless major creditors accept a deal, the club's administrators have warned.

By Duncan Brodie

SMALL businesses owed money by hard-pressed Ipswich Town could end up receiving nothing unless major creditors accept a deal, the club's administrators have warned.

The administrators from accountancy firm Deloitte & Touche, who were appointed on February 10, are attempting to negotiate a Company Voluntary Arrangement (CVA) to restructure the club's debts.

Any arrangement has to be approved by creditors accounting for at least 75% of the total debt - and negotiations with major creditors, such as the club's bankers and bondholders, will be crucial to the outcome.

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There has been speculation ordinary trade creditors could receive an initial payment of 10p in the pound or even less, although the administrators refused to be drawn on that ahead of a formal proposal being drawn up.

Joint administrator Nick Dargan said yesterday “constructive discussions” with the club's major creditors were continuing.

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“Our aim is to achieve a better return for creditors via a Company Voluntary Arrangement,” he added.

“The alternative would be a sale of the business and assets which, in most other football club administrations, has resulted in no return whatsoever for the ordinary trade creditor.

“However, to achieve this aim, we require the support of the major secured creditors and the approval of Crown creditors.”

That means the decision to accept or reject the CVA will effectively be taken by Ipswich Town's bankers, the holders of the 25-year bond taken out to fund the new stands at Portman Road and Government revenue collecting departments such as the Inland Revenue and Customs and Excise.

Mr Dargan confirmed that, besides the letter sent to all creditors, face to face presentations had been made to the major secured creditors which, he said, was normal practice.

“Their support is essential to a successful outcome from the administration. Further presentations are planned for next week and the result of those discussions will determine the time-scale for the administration,” he added.

On the day of his appointment a month ago, Mr Dargan expressed hopes the CVA could be completed in four to eight weeks. That now looks unlikely, although the process could still be concluded by the end of April.

The CVA document is required to set out a viable five-year business plan - a task which, in the case of a football club, is complicated by the vast gulf in income levels between the top two divisions.

“We have been working closely with the club's management to develop business plans that can be delivered on either promotion to the Premier League or the club remaining in Division One,” said Mr Dargan.

“Obviously, the actions required are markedly different depending upon which scenario becomes reality.”

In the event of Ipswich Town winning promotion back to the Premiership within a certain time frame, the CVA is likely to provide for creditors to receive a further payment in addition to the initial sum.

Should the attempts to negotiate a CVA ultimately fail, a new club would almost certainly be formed, but this - with almost equal certainty - would leave the existing club's trade creditors even further out of pocket.

Even with a CVA in place, the club would - as set out by chairman David Sheepshanks in yesterday's East Anglian Daily Times - still need to take further action to reduce the players' wage bill which remains well above the Division One average.

To restore its financial stability, Ipswich Town would also have to sell some players and raise new capital, probably through a share issue.

Mr Dargan added: “The administrators are continuing to work closely with the existing management team, who are developing future plans for the business post-administration and exploring the best equity-raising strategy which will form a fundamental component of the club's ultimate rescue package.”


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