THE prediction by one of the people at the centre of negotiations proved accurate. As he had forecast on Thursday night, yesterday was indeed a time to smile, but not to dance, at Tynecastle.
While fans were able to celebrate significant progress in the Foundation of Hearts’ campaign to take over the club, those directly involved are all too aware that there is still a long way to go before the process is complete. For the Foundation, becoming owners of Hearts will be just the start. Years of hard work will have to follow before the club is in a stable, healthy financial state.
But although the steps taken yesterday do not guarantee future success, they were absolutely necessary. Without the approval of a Company Voluntary Arrangement (CVA) to take Hearts out of administration, liquidation would have been all but inescapable.
Tomorrow’s Scottish Cup fourth-round tie at home to Celtic would almost certainly have gone ahead, but the plug would have been pulled shortly thereafter. As Bryan Jackson of Hearts administrators BDO explained, there was no Plan B.
“It would have been difficult to see anything other than liquidation if this had failed,” he said after the meetings of creditors and shareholders had approved the CVA by the required percentages. “I don’t see where else there was for us to go. I don’t know how we would have achieved anything else.
“I made all the usual enquiries and asked: ‘Is there a Plan B and what would that be? How would we implement it?’ And to me there was absolutely no other feasible option. It’s not something I even want to think about.
“We are mid-season, there is no other proposal, where else do you go? The floating-charge creditor, who is also the secured creditor [Ukio], could have turned round and said: ‘Don’t use any more of our money, close now, we’ll liquidate and sell off the assets’.
“It would not have happened automatically – we would have had discussions with the footballing authorities and the secured lender and explored every option. But the likelihood is there was no other option.”
Instead of saying that, Ukio threw its weight behind the CVA. The creditors’ meeting was 87 per cent in favour, with Her Majesty’s Customs & Excise understood to have voted against. The members’ or shareholders’ meeting was 100 per cent in favour.
Ubig, Hearts’ parent company which like Ukio is in administration, abstained from both votes. Its administrators have only recently been appointed, and need more time to unravel its accounts before they agree to sell its 50 per cent shareholding in Hearts to the Foundation.
The completion of a CVA is dependent upon the successful purchase by the Foundation of Ubig’s stake in the club. Once they can add that to Ukio’s 29.9 per cent share, they will be able to go ahead and buy Hearts for the £2.5million they have offered. Only when that is complete and all other loose ends are tied up can the club leave administration.
“This is a good result for Hearts, but we clearly have some way to go before this deal is concluded,” Jackson continued. “It is positive that the creditors’ and members’ votes approved the CVA, but we still have to obtain the 50 per cent shares held by UBIG. We also have to conclude the sale and purchase agreement and complete this within a fixed time frame.
“There remains a lot of work to be done, but the decision today is clearly an important step toward the ultimate goal of the club coming out of administration. There remain some issues which need to be sorted and some positions clarified, but each step is in the right direction.
“I hope that the fans, the manager, team and staff at the club as well as the wider community in Edinburgh, who have remained incredibly supportive throughout, can continue to believe in the club. Without everyone involved with the club remaining loyal, Hearts would not have survived, and they must take the credit for their actions, for their understanding and, let’s not forget, their cash.”
Jackson introduced a more lighthearted note to his media conference when he said he “would expect Hearts fans not to buy Christmas presents this year – they’ll be donating their money to the club”. Although on current projections BDO have enough money to run Hearts until the end of February, they would certainly not turn down any additional income from supporters. As the precise timing of an exit from administration is dependent on Ubig getting permission from its own creditors to sell its shares, Jackson knows that could mean carrying on into March or even April.
“When the money runs out will depend on how much the supporters give us but, on the basis of what we have now, then I would say things will get a bit hairy going into February and March. We have enough funding to get to March, but once we get past that then we would be forced to start selling season tickets for the following season to raise money, and that is a very difficult thing to do.
“We’ve been asking and asking, and I know it’s difficult to keep asking fans for support. But the reality is that I don’t know what lies ahead, and if we start to run out of time then I’ve nowhere else to go.
“I’ve always said this is a question of survival, and that’s still the case. We might effectively need a loan from fans, although things will be clearer when the sale purchase agreement moves forward. We will be working closer with the Foundation of Hearts, planning ahead and – if we are optimistic – looking at cashflows together.
“I’d like supporters to donate directly to the club, because I’m concerned about today. The Foundation is the future and will require their own cashflows and will have to make their own plans. I’m looking for all the assistance I can get with our cashflow.
“My problem, to some extent, is the unknown. I keep getting asked about timescales and I don’t know. Only so much is within my control. We will push on as much as we can and advance towards the sale purchase agreement, but I can’t predict how long it will take for events in Lithuania to proceed; different country, different procedures.”
What happened at Hearts yesterday?
Two meetings at Tynecastle voted in favour of a Company Voluntary Arrangement (CVA) designed to take Hearts out of administration: 87 per cent of the club’s creditors said yes (75 per cent of the vote was needed for it to pass) and 100 per cent of the shareholders (50 per cent was required).
What happens next?
There is a 30-day cooling-off period before yesterday’s vote becomes final. To reverse their vote, any creditor or shareholder must show a sound legal objection to the proceedings. Simply changing their mind is not enough.
So will Hearts come out of administration at the end of the cooling-off period?
No. Three separate stages have to be completed before that can happen.
First, Ubig – the club’s parent company which is itself in administration and abstained from the vote – has to reach agreement with its own creditors before going ahead with the sale of its shareholding in the Tynecastle club to the Foundation of Hearts.
Second, if and when Ubig sells its shares, the Foundation will then have to negotiate a Sale & Purchase Agreement with Hearts’ administrators BDO. That will involve tying up any number of legal loose ends.
Thirdly, the Foundation will sign a contract to buy Hearts, and pay the £2.5million it has offered under the terms of the CVA.
How long will that take?
Nobody knows. Ubig’s dealings with its creditors could go on at least until the end of January. The Foundation and BDO can begin negotiations before then, but it could be March or even April before everything is in place and Hearts can leave administration.
How much money do BDO have to keep the club going?
At present, BDO have the funds in place to run Hearts until roughly late February or early March. If they are still administering the club after that time, they will need to find fresh funding, and could attempt to make a temporary arrangement with the Foundation as well as appealing directly to fans.
What effect would remaining in administration beyond the end of January have on Hearts’ transfer embargo?
They are unable to sign players while they are still in administration. If they were to come out of it after the January transfer window closes, they could sign free agents.
How will BDO’s fees be paid?
As administrators, BDO’s fees will be paid first from the £2.5m offered under the terms of the CVA. The exact amount of their fee is yet to be determined.
What happens if the Foundation cannot reach agreement to buy Ubig’s shares?
Their takeover deal falls through and what was achieved yesterday collapses. Purchase of Ubig’s 50 per cent shareholding is an indispensable element of the CVA.