Portsmouth face points penalty if taxman appeals
Beleaguered Portsmouth face starting the 2010-11 season with another huge points penalty with the taxman almost certain to appeal the Company Voluntary Arrangement (CVA) that was agreed last month.
Her Majesty's Revenue and Customs (HMRC) has until Thursday evening to lodge an official appeal against the CVA which was passed on June 15. Under the terms of that CVA, 75% of the creditors agreed to 20p in the pound being repaid. That appears unacceptable to the taxman.
It has also been reported that HMRC is contesting the amount Portsmouth claim to owe, believing the debt to be £34 million and not £27 million as detailed in the club's accounts. The figure in the accounts enabled Pompey to agree the CVA, but if the figure is £34 million then HMRC hold more than 25% of the club's debt, meaning they can veto any CVA.
It appears highly unlikely HMRC would ever be offered more than 20p in the pound, making the aims of their appeal confusing. A 17-point deduction would make the club even more unattractive to prospective buyers, placing the club's future once more in doubt. If the club goes bust then HMRC would be left with nothing.
With the appeal unlikely to be heard until October at the earliest, it means Portsmouth will be unable to start the season with an agreed CVA in place. Under normal Football League rules this would lead to a points deduction, with a 17-point penalty likely to be handed down.
In 2008-09, AFC Bournemouth, Luton Town and Rotherham United all started the League Two season on -17, while Leeds were deducted 15 points in League One in the previous season. The Football League considered that each club had not satisfactorily exited administration through an agreed CVA by the start of the season.
It remains to be seen whether or not any exception would be made for Portsmouth, but with the Football League's hard line regarding insolvency matters, it appears extremely unlikely.
What is certain is that Portsmouth will remain under a transfer embargo, meaning they will be unable to sign any new players before the kick-off on August 7 or before the transfer window closes on August 31. New manager Steve Cotterill will have to work with a threadbare squad until the matter is resolved.
Administrator Andrew Andronikou told the Portsmouth News: "We believe the HMRC are going to appeal. That is the indication we are getting. It's going to be an irritant and, to put it simply, the embargo will stay for a longer period.
"As long as there is an appeal process, the registration embargo will continue to be in force for the foreseeable future. However, we expect any appeal hearing to be held in October or November. Before then, if the squad is below 20, we can still bring in players, regardless of the embargo. That is allowed and is something we are looking at.
"There are a few players who have been around the club for a while we are looking to release. They earn £2,000-3,000 a week, so what is the point of having them here if they are not going to play for the club? There is no point whatsoever."
Portsmouth have been under a transfer embargo since October 15 last year.
Pape Bouba Diop, Tal Ben-Haim, Kevin-Prince and John Utaka will all be offloaded shortly, and only when Pompey's first-team squad dips below 20 players can they apply for special dispensation to make a signing.
"[Portsmouth Football Club] have offered 20p in the pound to creditors, which we don't regard as an acceptable return to the taxpayer. We are determined to achieve a decent return to the taxpayer," an HMRC source told Accountancy Age last month.
HMRC is also taking action over the "football creditors rule", which places the taxman below football clubs and players when a club is in administration. The rule insists football debts must be paid in full while the taxman is forced to join the back of the queue with all the other creditors.