UKIO BANKAS being formally declared bankrupt would not mean apocalypse now for Hearts. Administration at Tynecastle is more a medium-term possibility than an imminent threat, according to a leading football finance expert.
Neil Patey of Ernst and Young today explained to the Evening News that it would make little sense for Ukio Bankas administrators to force the Edinburgh club into administration by recalling £15million of debt. He believes Hearts are more likely to be sold off in the near future to the highest bidder.
Tynecastle officials responded to talk of administration by saying they will do everything possible to continue “trading normally”. Kaunas District Court will tomorrow hold a hearing to decide whether to officially bankrupt Ukio, who are owed £15m by Hearts. That would give the administrator in charge the power to recall the debt, forcing Hearts into administration and triggering a points deduction which could potentially relegate the club from the Scottish Premier League.
However, pushing Hearts into administration would ensure the amount recouped on Ukio’s behalf was minimal. The club is technically insolvent given that total £25m debt – around £10m is due to parent company Ukio Bankas Investment Group – outweighs assets.
Patey explained that those tasked with breaking Ukio Bankas up will have other priorities before Hearts and even then, he feels they would be ill-advised to recall the debt instantly. “I would be surprised if there was any immediate action from the administrator,” said Patey. “I think it will take him months to get to the bottom of all the operations of the bank, decide what he wants to do and carry out that process.
“He will need to sell assets and many other things. Whilst there seems to be a medium-term threat of administration at Hearts, I would be surprised if the actions of the administrator in Lithuania forced them into administration in the next few weeks or so. I think it will be a long, drawn-out process. UBIG held some assets, but we understand they pledged those assets to Ukio, so in effect the administrator has a claim over Hearts. The administration of Ukio is quite a complicated affair. There is a whole lot of other stuff to sift through aside from Hearts.
“If this was the only asset Ukio held, then the administrator would be immediately focused on Hearts. Frankly, Hearts is quite a small asset to them. The administrator is dealing with a very complicated financial banking group in Lithuania and will be getting his mind round all the different parts of it. He must decide how best to realise value. Some of that will be sales, some will involve winding some assets down. I would be surprised if Hearts is at the top of his list.
“The other threat of administration would stem from funding. Vladimir Romanov and UBIG, we understand, no longer provide funding for Hearts. For many seasons the club required Romanov to meet the day-to-day outgoings. They’ve been living on a self-sufficient basis for some time now. We saw the issues with their inability to pay players’ wages and PAYE at times during this season.
“They are obviously doing everything they can to bring things under control – transferring or letting players go to bring the wage bill down. It seems from the outside that they are coping. Wages, VAT and PAYE are up to date. If at any point they didn’t pay wages or didn’t pay VAT or PAYE, then that could bring a more immediate threat of administration.”
Romanov has been attempting to sell his majority shareholding in Hearts for the last 18 months with little success. Patey believes now is the ideal time for anyone wishing to gain control to step forward and take the bull by the horns. “It’s certainly time to get your funding and proposals together and then try to get the attention of the administrator,” he continued. “He may have bigger things on his mind but, if someone knocks on his door offering sensible value for an asset pledged to him, why wouldn’t you at least entertain the discussion?
“If a consortium contacted him wanting to make an offer, I’m sure he would enter discussions to see if he’s going to get value. I don’t think he will immediately call the debt in because frankly he will know he’s not going to get it. He isn’t funding the club so it won’t cost him anything to let them continue trading until he can get value for the assets pledged to Ukio – Heart of Midlothian Football Club and Tynecastle Stadium.
“His best prospect of maximising value is to sell it, probably as a going concern. He might look at selling Tynecastle for property development but, given the current climate of UK real estate, I think there is probably more value in trying to sell the business as a going concern. As we discovered with Rangers, it can take many months to sell a football club.”
Hearts have financial agreements in place with both UBIG and Ukio Bankas regarding the debts they owe. However, if Ukio Bankas is declared bankrupt, their specific agreement effectively gets ripped up. “In effect, the agreement would cease to exist,” said Patey. “The administrator could then demand immediate repayment. The assets have been technically pledged to Ukio so he has control of them. But his best bet would be to sell them.
“He needs to maximise value for his creditors. Forcing Hearts into administration would no nothing for him. His best benefit is to start to sell the assets. I’m not totally discounting it because no-one can, but selling the assets would give most value.”
Hearts are entering a crucial time of the year with the football season about to end, meaning no games to generate income and help with ongoing costs. That could present funding problems for the club’s board.
“We are now coming to the close season, which brings different opportunities and threats,” explained Patey.
“There is no revenue coming in over the close season because there are no games taking place. That could be a difficult time. The transfer window lets them offload players and brings costs down further. So, regarding the short-term threat of administration from Lithuania, I would be surprised. But if Hearts can’t pay wages or PAYE over the summer, that could bring on administration.
“Hearts can sell season tickets for next season. However, you might get some fans saying, ‘we don’t know what we’re buying a season ticket for’, and questioning whether Hearts will be in the SPL next year.”
Key Dates in Hearts’ immediate future
TOMORROW: The Bank of Lithuania’s request for bankruptcy proceedings will be heard by the Kaunas District Court. Ukio’s liabilities exceed its assets by 1.2billion litai (£300million) as of March 18, according to the central bank.
SATURDAY: Hearts host St Mirren at Tynecastle, their first home match in almost three weeks. Admission prices have been cut to £5.
SUNDAY, MAY 12: Hearts host Hibs in their last home match of the season.
THURSDAY, MAY 16: Hearts are due to pay monthly wages.
SATURDAY, MAY 18: Hearts play Aberdeen away in the final SPL fixture of this term.
MAY: Hearts are due to pay a £500,000 instalment of the tax bill that threatened their existence in November this month. The total bill is £1.5m.
JUNE 1: SPL season officially ends. If Hearts were to go into administration before this point, they would be deducted points for season 2012/13, thus putting them at risk of relegation with an 18-point penalty. However, if they were to enter administration after this date, any points penalty would be brought in next season.