THE timetable has been changed but the choices remain the same. When Hearts administrators BDO meet the club’s creditors next Friday rather than today, they will still ask them to accept a Company Voluntary Arrangement (CVA).
And those creditors will still have the same three options as they would have had if the meeting had gone ahead as originally planned today: vote yes, abstain, or vote no.
In fact, the delay, while frustrating for all concerned, is if anything likely to clarify matters. Previously there was a worry that the administrators of Ubig, having had insufficient time to come to terms with that group’s tangled finances, would abstain from voting at the creditors’ meeting. That would have meant a week of uncertainty between that meeting and the members’ or shareholders’ meeting. Now that both meetings are taking place next Friday, with Ubig having an extra week to determine its position, there appears to be no point in abstaining.
Both meetings need a majority to vote in favour of a CVA. At the creditors’ meeting, 75 per cent is required; at the shareholders’, a simple majority is enough.
Neither poll is one member, one vote. Instead, the majority needed is a percentage of the debt and the shareholding – and only of those who actually vote. In both cases, the decisions taken by Ubig and Ukio Bankas, which is also based in Lithuania, will be crucial.
Of Hearts’ total debt of around £28million, Ubig is owed £8.2m and Ukio £15.5m. Together, they account for more than 75 per cent, and if they both vote in the same way it does not matter what any other creditor does.
Similarly, Ubig owns 50 per cent of the shares in Hearts, while Ukio has 29.9 per cent. Together they can ensure either a yes vote or a no vote.
The law stipulates two separate meetings before a CVA can proceed because creditors and shareholders are often two entirely different groups. In this case, they are the same two companies – and what is more, companies which, although now both in administration and being run by different groups, have very close historical connections.
Ubig – the Ukio Bankas Investment Group, to give it its full name – began as an offshoot of Ukio Bankas itself, but then became technically independent several years ago. Until earlier this year, however, both organisations were controlled by Vladimir Romanov, and worked closely together.
For example, the security over Tynecastle held by Ukio – essentially, a mortgage that Hearts have with it – used to be held by Ubig. No official reason has ever been given for the transfer, but it means that Ukio, as the sole secured creditor, is the only one that will get any money back from the CVA.
Secured creditors must be repaid in full before any other creditor – except the administrators themselves – gets a penny. In this case, as the CVA on offer is worth an estimated £2.5m, Ukio will get a small percentage and everyone else will get zero.
That small percentage may not look immediately attractive to Ukio, but it is the only deal on offer to them. The Foundation of Hearts, having been made preferred bidders for the club by BDO, have already increased the size of the CVA to the limit of what they can afford. They need to retain a budget to be able to run the club efficiently in the event of a successful takeover.
For Ubig, as for all the other creditors, the choice is to vote yes to a CVA and get nothing, or to vote no and get nothing. In that case a disgruntled abstention would be understandable, but because of the connections between the two companies it is almost certainly in Ubig’s interest for Ukio’s balance sheet to be improved.
Presuming such an abstention is discounted by the two big creditors and shareholders, there is a very clear choice for them to make. Vote yes or no.
In the event of a yes vote by the required majority at both meetings next Friday, there would then be a 30-day cooling-off period before the process of leaving administration began for Hearts. Once they have voted yes, companies or individuals cannot simply change their minds. Instead, they must come up with a legal reason for no longer being satisfied with the CVA that they agreed.
Should the vote go through, the cooling-off period would end just after Christmas. If neither Ukio nor Ubig raises any objections, BDO can then start the process of handing over control of the club to the Foundation of Hearts. If the Foundation completes its takeover and gets the club out of administration before the end of January, Hearts will then be able to sign under-21 players – until the transfer window closes on the 31st. Thereafter they will be able to sign free agents regardless of age.
The escape from administration would mean the beginning of a new era for Hearts. Free of debt, and run by an organisation controlled and funded by around 7,600 members, the club would be able to rebuild slowly and cautiously.
By that time of the season, of course, the fight against relegation might already be lost, in which case the new owners would not necessarily feel that making new signings was quite so urgent. But even if Hearts were to go down from the SPFL Premiership to the Championship, the Foundation and the club’s supporters would still feel entitled to be optimistic about the future.
Conversely, if there were a no vote next Friday, that future would be bleak. The meetings of creditors and shareholders are not meant to be for haggling or posturing: that is done beforehand. By the time all interested parties sit down, they are expected to know what is on offer, to have done any negotiating they think worthwhile, and to have arrived at an informed decision. Barring some unforeseen technicality, a no vote next week would spell the end to the Foundation’s hopes of taking over at Tynecastle and leave liquidation appearing to be the only remaining option.