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Advice for Owners of Sports Clubs
Company debt advice for sports clubs
How can you protect your sports club business from rising costs due to Covid-19, Brexit, and sector challenges? Understand formal insolvency procedures to help save or close your sports club, such as a Company Voluntary Arrangement (CVA), Company Administration or Creditors’ Voluntary Liquidation (CVL).
The emergence of the COVID-19 pandemic affected sport across the board, from professional top flight clubs, down to the amateur game. While many of the elite level teams have fully recovered from this period of upheaval, the temporary cessation of operations has left a huge funding gap in many community sporting projects, as well as lower league and grass roots clubs, pushing some to the financial brink.
Left without the ability to raise funds and with memberships frozen, many clubs were forced to dip into their cash reserves to keep their club ticking over, something they are still financially recovering from today.
While elite teams from the country’s upper playing tiers can rely on lucrative broadcasting and sponsorship deals, as well as the backing of wealthy owners, the same cannot be said of amateur and semi-professional sporting teams playing in the lower leagues who are often wholly owed by fans. For these clubs, the money generated on matchday - whether through ticket sales, or sundries sold on the day such as programmes and food and drink - represents their main revenue source. Should these income channels dry up, problems can quickly start to mount.
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If your sports club is finding itself increasingly reliant on its cash reserves and unable to generate income, you may be considering your options for the future. When it comes to financial distress, there are often a range of solutions, depending on the financial position of the company, its future viability, and the desire on behalf of shareholders or members to continue operating.
One option you may be considering if your sports club is insolvent, is to place it into a liquidation process. Liquidation is a formal insolvency procedure which brings about the ultimate end of a company. It is a huge decision to take, and in the majority of cases it is irreversible. Before making any decision, you should make it a priority to seek the services of a licensed insolvency practitioner who will be able to talk you through the whole process and help you understand what this will mean for all involved at the club. They will be able to talk you through any possible alternatives to liquidation if you are keen to continue operating in spite of your current challenges.
The liquidation of an insolvent company is achieved through a Creditors’ Voluntary Liquidation – or CVL and is a process which can only be entered into under the guidance of a licensed insolvency practitioner. As part of the CVL, all assets belonging to the sports club will be identified before being independently valued and sold. The proceeds of this will then be distributed amongst the clubs outstanding creditors on a proportional basis according to a set hierarchy of priority, before the company is wound down and removed from the register held at Companies House.
As a corporate insolvency process, a CVL is only something that a limited company can enter. If your sports club is not registered as a limited company yet you still want to close it down, you will need to seek a respective process which suits the structure of the club. Our team of licensed insolvency practitioners are here to advise you on this, whether your sports club is incorporated or unincorporated, or even if it is run as a Community Amateur Sports Club (CASC) or has adopted Charitable Status.
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Founded in the 1800s, the cricket club has always been a central figure in Edward’s local community, home to a number of all-age cricket teams, as well as the clubhouse which was a popular venue for post-match socialising and also as a private hire function venue. While the cricket club itself did not have shareholders, the clubhouse was treated as a separate entity and operated as a limited company.
The COVID-19 pandemic meant all upcoming fixtures were cancelled during the spring and the league temporarily postponed. While the cancellation of the season affected the takings of the bar to some extent, it resumed operations once restrictions were lifted in July, and continued to see steady trade.
However, once restrictions on social gatherings were imposed and the club was forced to then close its doors once more, the situation became worrying. While members still continued to pay their annual fee despite the club being closed, the business was losing huge amounts of money which would have ordinarily been taken over the bar or through the hiring out of the function room.
The cash flow of the business was severely affected and the club had fallen into arrears with a number of creditors. After discussions with Real Business Rescue, Edward decided to enter into a CVA in order to safeguard the future of the club and lower the contractual monthly repayments. This allowed the club to conserve cash reserves while trade was low, confident that this could be replenished fully once the club was able to be fully operational once again.
It is not unusual for sports clubs to be bought and sold, whether this is to wealthy foreign investors, or to a group of fans keen to save their club from extinction. Selling a sports club is not an easy thing to achieve, although it could be the best way of allowing you to cut ties with the club while still allowing it to continue plying its trade.
Depending on the size of the club, its history, supporter base, and reputation, you may be able to sell your sports club to an interested investor even if it is experiencing financial difficulties. The first step is to understand who may be a likely buyer for your club. For some this may be an outside investor; for others, it could be a consortium of fans.
Sports clubs are often a huge part of the local community and a great source of pride for those living in the local area; due to this, it is becoming increasingly common for clubs to become fan-owned. If you are looking at selling your sports club, remember that even if you don’t believe it’s an attractive prospect to an outsider, you may be able to sell to a set of loyal fans looking to save the club’s legacy and history.
Regardless of who you are looking to sell your sports club to, it always helps to have an expert adviser on board to help guide you through the process. At Real Business Rescue, we have a team of corporate finance experts, ready to help you through the full transaction process. We can help when it comes to negotiating a favourable deal, identifying a proceedable buyer, through to conducting the appropriate due diligence on any potential transaction.
If it is decided that selling the club is not going to be possible, yet you are keen to give the club the best chance of survival, you can discuss the options for rescuing and restructuring the club and its operations with your insolvency practitioner.
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If your sports club is current facing a financially perilous time, all is not lost. Many clubs are in the same position, and the good news is that there are a variety of ways to save your sports club, particularly if the club is incorporated as a limited company.
An insolvency practitioner will be able to take an independent view of your club and talking you through what options could be appropriate for saving the business. This will involve looking at the club’s financials and understanding what led up to the club’s current position. An assessment will be done to help judge the future viability of the club and its chances of effecting a successful turnaround.
If the club has previously been in a solid financial position, there is a possibility that a plan can be put in place to help you weather the storm and ensure the club is in a good position to bounce back once restrictions are lifted both on and off the field.
Cash flow is the lifeblood of any business, and once this starts to become squeezed, problems can quickly escalate. When revenue takes a significant and unexpected hit and once guaranteed income streams dry up, cash flow is affected almost immediately. Taking out a form of commercial finance could help to rebuild a company’s cash reserves and allow for outgoings to be paid. This may be an option if you are confident in your club’s ability to bounce back once restrictions are lifted.
Alternatively, if the gap in income has caused you to fall into arrears with your obligations, whether to trade creditors, your bank, your landlord or HMRC, embarking on a process of negotiation could be the most suitable option.
Tax arrears could be repaid via an agreed set of installments rather than as one lump sum by arranging a Time to Pay (TTP) agreement directly with HMRC. You can enter into these negotiations yourself, or we can liaise with HMRC on your behalf. We have arranged countless TTPs for a whole variety of companies, and we know exactly how to present your case in the best possible light, improving your chances of success.
For those sporting clubs who owe money to a range of creditors, a Company Voluntary Arrangement (CVA) may be more suitable. A CVA is a formal insolvency process which is entered into by an indebted company and its creditors, and supervised by a licensed insolvency practitioner. A typical CVA will run for between 3-5 years, depending on the agreement, and is legally-binding on all parties. A CVA allows for the indebted company to make lower monthly repayments, and is contingent on creditors agreeing to this reduction.
In order for the CVA to become legally-binding a minimum of 75% (by value) of voting creditors must give their agreement to the proposal put forward. The proposal will be put together by the company’s insolvency practitioner, and the payment terms offered will be based on how much your club owes and how much it is able to repay.
For those clubs facing legal action by creditors, placing the club into administration can help provide immediate relief from litigation threats, and allows for valuable time for a robust plan to be devised. This may involve selling the whole, or part of, the club, embarking on a restructuring process to divest the club of unprofitable areas, or entering into an alternative process such as a CVA or liquidation through a CVL.
When a company enters an insolvent liquidation process, all eligible employees have a right to claim redundancy once their job is no longer there. What many people do not realise, however, is that, in many cases, redundancy pay also extends to company directors.
As the director of your sports club, it is highly likely you are also classed as an employee. As long as you have at least two years’ service, work a minimum of 16 hours per week, and are paid a regular salary through PAYE, you could well be eligible for director redundancy.
The amount you may be entitled to claim will depend on a number of factors such as your age at the time of the club entering liquidation, your length of service, and the salary you were paid by the company during this time.
As part of the liquidation process, your appointed insolvency practitioner will be able to refer you to a fully regulated claims management firm who can help qualify your entitlement to claim.
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