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Apr 2, 2009

Saints in real danger of going out of business

Southampton Leisure Holdings plc, the parent company of Southampton Football Club, has gone into administration.

At a press conference on Thursday, the Administrators revealed that the Championship club could struggle to complete its fixtures this season. Specialists Begbies Traynor have been appointed as administrators.

Southampton still owe £24m on their St Mary's Stadium, which opened in 2001, and another £4m to Barclays Bank.

They have three home games remaining, their only realistic source of income, which means that after the match against Burnley on April 25 there will be no more revenue coming in to service the debt.

Joint-administrator Mark Fry admits the outlook is bleak, he said: "If we don't find a buyer for the club there is a very, very high probability that it will not last until the end of the season. Realistically it will mean the end of the football club.

"It's a very different economic climate from two years ago and football clubs have fallen as hard as anything. It's a difficult task but we will search very hard for a buyer.

"And I would say that anyone looking to buy the club will find it a lot cheaper than it would have been two years ago.''

Controversial former chairman Rupert Lowe is, according to Fry, unlikely to be among any potential buyers.

"We would welcome an approach from anybody, but as far as I am informed Rupert Lowe has not shown an interest,'' he added. "We are urging the fans to show up and support the team for the last three home games to help the cash-flow of the business and also demonstrate to potential investors the level of the fanbase.''

The move into administration has caused controversy with the parent company officially described as a separate entity to the football club itself, which means Saints should avoid the statutory 10-point penalty under insolvency rules.

But despite the insistence that the football club is not affected, the administrators' comments clearly suggest otherwise.

Derby County followed a similar route in 2003 and avoided any points penalty. There is no confirmation that Southampton will also avoid a deduction but if the Football League are unable to take action it seems likely they will again be forced to tighten up their regulations.

In 2007 they were forced to act after Leeds United and Boston United entered administration in the last week of the season to avoid a penalty for the following campaign. As with the Derby example, the Football League failed to learn from previous mistakes as Cambridge United had pulled the same move years beforehand.

Should the Football League order a ten-point penalty it will not be taken off until the end of the season when the club's Championship league position would be taken into account. Should it have no bearing on their divisional status it would be applied for 2009/10. But should they finish outside the bottom three it would result in the club being dumped into the relegation zone, though they would start next season in League One on a level playing field.

The fact they may not be docked points is unlikely to sit well with the other teams in the relegation scrap, while the League's bottom club Luton - themselves deducted 20 points relating to their own fall into administration - have been quick to voice their disapproval.

"This makes a mockery of the Football League's attempt to uphold the integrity of the competition,'' said their managing director Gary Sweet.

"If this sails through I see no reason why any football club should not set up a holding company that carries the entire debt of the club which is periodically put into administration in order to cleanse debt while attracting no sanctions.''

Dr John Beech, from the Centre for the International Business of Sport at Coventry University, an expert on insolvency in football, said: "Will they have 10 points deducted? That remains to be seen. Football League Regulation 12.3.1b states that the ten points will be deducted in cases where a club (my emphasis) "have an administration order made in respect of that Club".

"In this case, the club itself hasn't - it's the parent company that has gone into Administration. If they decide they cannot impose a 10 points deduction because of this, we can expect to see the loophole closed shortly, albeit too late to apply it to Southampton.

"Extending the catchment of the Regulations to parent companies may prove problematic. For example, in 1992 Birmingham City was brought down by the collapse of the BCCI bank, also owned by the Kumar brothers. Few would argue that the club should, in similar circumstances, be penalised with a points deduction. Deliberate structuring of companies to avoid points deductions is another matter however."

Chief executive Lowe, chairman Michael Wilde and director Andrew Cowen have all resigned from the company with immediate effect, although a statement from SLH said the club is "unaffected by these insolvency proceedings''.

Saints are currently three points from safety and face rock-bottom Charlton at St Mary's on Saturday - and the news that they may not be deducted 10 points is unlikely to sit well with the teams around them in the relegation scrap.

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