clock menu more-arrow no yes mobile

Filed under:

Explained: What Administration/Liquidation Could Mean For Reading

Michael sat down with an insolvency professional to get an expert’s take on the financial situation at Reading.

Reading v Crystal Palace - Barclays FA Women’s Championship Photo by Eddie Keogh - The FA/The FA via Getty Images

It has been horrendous for an exceptionally long time now, but fans have found a moment to breathe in recent weeks, after improving performances and results. As usual, Dai Yongge insisted on throwing a spanner into the blue and white cogs of this club. Our club has been treated like a second-hand car, barely moving with twenty-quid top-ups once it really starts chugging and ignoring the pedestrians while mounting the curb.

In recent months we have seen key staff let go, redundancies and a level of distain for the club that would make Thames Valley Royals a fathomable proposition (if it were an option right now), which was a thing of nightmares at the time.

The reality is that we are living in a nightmare, constantly surrounded by negativity, hopelessness and despair. Too many wasted hours scouring Twitter/X, hoping for an inkling of better news or ideas on how we can all help. Not knowing our fate is a huge pill to swallow and knowing any action we take could hurt the club as we try to help.

I wasn’t particularly keen on a pitch invasion, knowing that doing so might result in another fine, potentially paid for by selling one of our academy products. Dai, however, simply doesn’t respect the rules and doesn’t even pay the fines, which paints the picture that he isn’t trying to preserve the image of the club for a sale.

Placing the club into administration also seems illogical, considering he had several interested parties looking to pay substantial money, but not enough for Dai. Could this mean he has other ideas for the club such as picking it apart, down to the bones, and making as much money as possible in non-footballing ways?

I, like many fans, have been unsure on the path we may end up taking and what Dai can legally do, so I reached out to a professional in insolvency to get his take.

A huge worry for fans right now is that we are being asset-stripped and are on our way to being Dai’s third club turned to ashes. Is he able to do so, without any real pushback from any authority?

If Dai chooses to sell an asset, be it player or land, he is able to do so. However, should the club enter into an insolvency event at a later date, transactions such as this will come under review to determine whether they were made in the ordinary course of business.

As part of an insolvency process, a review is undertaken into the conduct of any director who held office in the three years immediately prior to the insolvency event. This review covers various areas including trading performance, banking transactions and asset disposals. This review is then submitted to the government who assess the evidence to determine whether it is in the public’s interest to use public money to disqualify an individual from acting as a director.

This report also forms the foundation for further investigation by an insolvency practitioner (IP). As part of the review, certain transactions may have been identified which warrant further investigation and/or legal action. The IP has certain powers available to them to assist in protecting and restoring the assets of a company in the event of negligent behaviour.

Reading v Bolton Wanderers - Sky Bet League One Photo by David Horton - CameraSport via Getty Images

For example, an IP could look at asset sales in the trading period prior to insolvency to determine whether the transactions were conducted for the benefit of the club and that fair consideration was received as part of any sale. If, for example, it was determined that an asset was sold for less than its value, this transaction could potentially be reversed or compensation received into the club to restore it to the position it would have been in had the transaction not taken place.

Although Dai could theoretically take steps to liquidate the club and Reading FC would ultimately die, it wouldn’t be in his financial interest to do so. Selling certain assets piecemeal, such as the training ground, would generate far less income compared to wrapping up these assets as part of a wider sale of the club.

The training ground in particular has benefitted from significant investment and would be worth far more as part of a wider sale than, say perhaps, to a developer. It would not make financial sense to dispose of this separately as it is likely that this asset will play favourably in securing a greater offer for the club, notwithstanding the fact further extensive work/investment would be required to develop and repurpose the land.

Is there a possibility that administration can be triggered by anyone other than Dai himself?

There are several ways to place a company into administration. The two main ways into administration are either 1) the holder of a qualifying floating charge (QFCH) appoints an administrator or 2) the company/directors appoint an administrator.

A QFCH is typically a bank or other party (which could be a connected company) which has obtained appropriate security over a company’s assets.

Typically the directors would initiate an administration procedure after having received advice from an IP. Where a QFCH is involved, the directors are required to notify the QFCH of a potential appointment and serve formal notice of a potential administration on them. The QFCH could then choose to make their own application and appoint their own administrator.

Where a QFCH was minded to consider a potential administration appointment, either before or after a director may have taken the decision to appoint, it is likely that the QFCH would liaise with the company directors and advise them to speak to an IP in order that a formal review was undertaken into the affairs of the company to consider the options available to it and the impact on its creditors, such as the QFCH.

Unless there was an urgent need to do so, an administrator wouldn’t normally be appointed until a strategy had been devised to ensure an IP could take control of the business and assets from day one. Should trading in administration be considered appropriate, the IP must make themselves comfortable that they will be able to continue to trade the business for the benefit of the company’s creditors. As such, consideration should be given to how trading will be funded, salary payments, ensuring suppliers continue to trade with the business, regulatory/membership issues etc.

In football clubs it is well known that an administration event immediately triggers a points deduction. However, the timing of administration can determine when the deduction is applied. A carefully thought through administration could mean the difference in suffering the points deduction in the current season or those points being transferred to the next. This may play a significant role in determining whether the club avoids relegation and therefore limits any potential further damage to its valuation and/or sale price.

That being said, creditor pressure plays a great part in the above and may be the main reason a club goes into administration, especially when PAYE isn’t paid. If the club simply does not have the funds to fight off any further winding-up petitions from HMRC, it may be forced to go into a process.

We saw the government step in at Chelsea, forcing Roman Abramovich to sell. There seems to have been issues with Dai getting money into the country. Could we possibly see any tangible pressure from the government or the EFL in your opinion?

Unlikely, unless he has been similarly sanctioned or broken the law to the necessary degree.

The EFL pressure is likely the best we can hope for as they ultimately hold the key to the Club’s future, being its membership to the football league. We know the EFL will play a key part going forward and they will expect a proper process to be followed. It is pleasing to see the EFL’s recent statement and we hope that they continue to work with the club and closely monitor the situation.

Chelsea FC And Roman Abramovich Photo by Jakub Porzycki/NurPhoto via Getty Images

Are there any stages before liquidation? Can it be avoided if an interested party has the money?

Liquidation is a slightly more drawn-out process than administration. The process is a lot more public and involves several meetings. A board meeting is initially held where the directors resolve that the company is insolvent and should be placed into liquidation. A meeting with the company’s shareholders is called for them to resolve whether the club should be placed into liquidation.

The process is driven by the directors and the shareholders pick their liquidator assist. At the same time, creditors are asked to decide - typically on the same day as the shareholders meeting - whether they agree with the shareholders’ choice of liquidator or whether they would like to select their own. Once determined, the liquidator takes office and takes control of the company.

The whole process typically takes approximately 20 days, although it can be shorter. Administration is a far quicker process, which could be effected in a matter of days.

Any insolvency event can be avoided if any party injects sufficient funds to enable a company to meet its liabilities as and when they fall due.

Is there anything fans or potential buyers can do to delay or even stop liquidation? Local MPs have assisted in making it harder to sell the stadium for non-sporting reasons, but it isn’t enough

It is difficult for third parties, other than those who directly do business with the club, to have any real reach to delay/stop any process. However, the directors of the club have their own statutory and fiduciary duties that they must adhere to and they should ensure that they are being properly advised throughout this process.

Protesting is the only real way fans can continue to make a difference. Legal protests will continue to help keep the country’s eyes on the club and focus attention to the situation, potentially alerting other potential buyers to take a look at us. As noted above, the involvement of the EFL is also reassuring as we know they will be keen to ensure a proper process is followed.

As the Q&A has shown, selling the club is the best option over administration for Dai to receive maximum return. It seems the country is now talking about us and hopefully it will help clubs in the future.

However, for us the future is now and we need a plan. I don’t think another pitch invasion will work as well a second time and we should look to directly hurt Dai’s ego, reputation and finances.

Other examples of protest and ways we can help:

  • Protest at his businesses
  • Keep letting the world know the club is up for sale, getting media coverage in varied ways

There is no easy solution but we must remain united, pull strings with MPs, the EFL and potential buyers if at all possible. Thanks for reading.