HEREFORDSHIRE Council has admitted that no “separate” due diligence report was done on the financial state of Hereford United ahead of the ground leases being re-assigned.
But the council is standing by its actions as landlord to the club saying an “appropriate level” of due diligence was carried out, but has not outlined the extent of how it was carried out.
The admission comes ahead of this morning’s full council meeting and questions due to be asked about the council’s culpability in the current crisis facing the club.
Cllr Jim Knipe had asked whether a due diligence report was prepared on behalf of the council to establish the “financial credibility” of the club prior to the leases being amended.
Cllr Knipe wanted any such report – if it existed – to be made public to avoid “unnecessary speculation”.
An advance copy of the answer offered by Cllr Harry Bramer, cabinet member for contracts & assets says:
“The council has been aware of the situation the football club has been facing for some time and has been doing what it can to support the retention of league football in the county whilst protecting public assets.
“The council carried out the appropriate level of due diligence when restructuring the Hereford United Football Club leases, as it would do with any existing long term tenant who is not a new entity; no separate report was prepared at that time.
“The conditions have not been met to enable the leases to be extended beyond 2044."
Hereford United and Herefordshire Council are closely entwined as tenant and landlord respectively.
The Hereford Times has revealed that the now wound up Hereford Futures (HF) helped Hereford United identify potential development partners for the club’s Edgar Street ground.
An HF business plan from 2011 reveals the role of the “arm’s length” company set up by Herefordshire Council also played in advising the council over the future for the ground and to lead negotiations with development partners.
The report - confirming a direct link between the council, the club and HF - refers to the ground as “generally in a state of considerable disrepair” with the club constantly facing the challenge of maintenance to a standard required by the Football League and other statutory authorities.
That acquisition of the club in 2010 and subsequent buying of debt is said to have “cleared the way” for HF to lead negotiations with the club on the council’s behalf over redevelopment.
The report says the club had appointed “professional advisers” with HF supporting the club’s work in identifying potential development partners and “suitable uses” for the ground.
As reported by the Hereford Times earlier this year, Herefordshire Council has paid out nearly £3 million in financial support to HF over years.
The council has denied that the sum shows HF as having been “exclusively funded” by the public sector, either directly or indirectly, throughout its existence.
The council, as reported by the Hereford Time, is to consider terminating the ground leases with reports on options open to the council to resolve the crisis at the club are being prepared for council leader Tony Johnson to decide on or after July 25.
So far, the council has refused to comment on the detail of termination - or other options that may be under consideration - beyond confirming what information the Hereford Times had.
Behind the scenes at Brockington there is frustration that financial assurances offered by the new owners of the club have not yet been made good.
The Hereford Times has revealed that a senior council officer had met with former Swindon Town chairman Jed McCrory in February to directly “explore” the leases on Hereford United’s Edgar Street stadium.
The meeting was set up at the request of former Hereford United chairman David Keyte.
In a statement the council confirmed that Mr McCrory met with one senior officer to “explore” the terms and conditions of the leases on the ground.
As also reported by the Hereford Times, Mr McCrory and Hereford United's new owner Tommy Agombar were involved in a company at Swindon Town called Seebeck 87.
Hereford United’s new manager Jon Taylor was the assistant boss at Banbury United, a club formerly owned by Mr McCrory.
Earlier this month, Swindon Town's ownership battle was settled after a High Court judge ruled chairman Lee Power's takeover was carried out properly.
Mr Power and his Swinton Reds 20 firm took control of the club from Seebeck 87 in December.
But Mr McCrory disputed the manner of the takeover and commenced legal action.
It was reported at the time that Mr McCrory said a £300,000 payment from Lee Power into Seebeck was used to pay off Mr Agombar and two others – forcing them out of the holding firm and paving the way for Mr Power to take a senior role.
The council is already under pressure to “come clean” on what it knew about Hereford United’s finances ahead of the ground leases being re-assigned.
As landlord to the ground, the council has ruled out an immediate scrutiny inquiry into the way the leases were re-assigned five years ago.
Cllr Sebastian Bowen, chairman of overview and scrutiny, has said that though such an inquiry is not on the committee’s agenda over the foreseeable future, there was scope for a hearing “when the dust has settled.”
Cllr Knipe, who raised the issue last year, backed a call from Cllr Jim Kenyon, to set up a scrutiny inquiry as soon as possible with the club’s fate now effectively lying with the High Court.
“It is important to establish whether a due diligence report was prepared on Hereford United before the leases were amended. If it is proved that no such report was prepared to establish the financial position of the club, then the Council could be negligent in its fiduciary duty to the residents of Herefordshire,” said Cllr Knipe.
More needed to be made public about payment plans that were the basis of assurances made to the council by the club's new owners, he said.
The High Court has given the club another three weeks of life to arrange a voluntary agreement with its creditors.
Calls for an inquiry into the lease negotiations came in tandem with pressure on the council to release a report into due diligence it carried out on Hereford United ahead of leases being re-assigned five years ago.
The council’s Independent group, to which Cllr Knipe belongs, is pushing for the report to be made public amid doubt that it actually exists.
Independent leader Cllr Bob Matthews raised the issue of due diligence when group leaders were given an update on the council and the club last month.
At the time, Cllr Knipe said he was “disappointed and alarmed” that, on the evidence so far, the council failed to carry out carry out a due diligence examination to establish the club’s financial position before negotiations over the leases began.
In a statement the council said it carried out the “appropriate level” of due diligence when restructuring the leases - as it would with any existing long term tenant who was not a new entity.
The statement said the council was aware of the situation the club faced as was “endeavouring to help them where possible.”
While the council is the landlord of the Edgar Street ground, it does not have any direct control or involvement in the club and its decisions.
Two leases refer to redevelopment of the Meadow End and Blackfriars End and stipulate that any proceeds be re-invested in the ground and its facilities.
The council is considering a request by the new owners for a transfer of those leases to a holding company within their ownership.
Around £65k in rent arrears, business rates and legal fees is owed to the council by the club.
As yet, no related repayments have been made despite the council accepting assurances from the new owners that all outstanding monies will be paid up.
The council was not on the list of Hereford United’s creditors put to a High Court winding up hearing last week – and the council says it doesn’t know why not.
The High Court adjourned a winding up order sought by United’s former manager Martin Foyle and gave the club another three weeks of life to put a Creditors Voluntary Agreement package in place.
In a statement the council said: “We are unaware of why we may have been omitted from the creditor list during the recent winding up order meeting.”
Within the council there is a willingness to wait until the latest three week High Court deadline is up before taking further action over what is owed, so the authority will know where it stands.
As renegotiated, the leases on the ground continue to be held by the club. If the club folds the leases would revert to the council.
Assigning the Edgar Street leases – one for 75 years on the ground and terracing to the west, the other for 33 years for the stand and parking area to the east and both dating from 1982 - was one of the last big deals done by the former Hereford City Council.
During the late 1990s, with United facing severe financial problems, the leases were reassigned to property developers in return for a £1m capital injection into the club.
The money was made available through two companies, the BS (Bristol Stadium) Group and Chelverton.
BS and Chelverton took equal ownership of a special purpose company called Formsole Ltd which made the investment and held the leases – as the tenant under both – with the club holding sub-leases.
By August 2001, BS had sold its “loan” to Chelverton which ran into trouble little over a year later when control of the leases passed to Carillion Richardson.
United still owed £1m plus interest to Formsole which stayed solvent when Chelverton went into liquidation.
The reassignment of the leases was supported by Herefordshire Council when it took control of the former city council’s affairs.
Getting the leases back was pitched as a political priority when the news broke in April 2010 that then United chairman Graham Turner and vice chairman Joan Fennessy were ready to sell their majority shareholding in the club.
The club began negotiations with Carillion Richardson for the return of the leases almost as soon as the Keyte-Russon takeover was completed in June that year.
That deal was done by December with the club paying £452,000 to secure the return of the leases and settle a £1,069,500 debt to Richardsons Developments, clearing the way for a new single lease and the development opportunities that could bring.
The deal was intended to offer the club security for the next 30 years and ensure future re-entry to the Football League - which requires a 25-year secured tenancy.
It also opened up opportunities for grant funding for any future development - £400,000 in the Conference and £750,000 in the Football League.
The council was ready to allow an extension to the new stadium lease of 250 years once development at either end was underway, with proceeds from the sale of development areas held in a joint escrow account.
That money was intended for the construction of two new stands - one at each end of the ground - and modernisation work on the existing stadium.