Hereford United - Company Voluntary Agreement could be a breach of ground leases

Hereford United supporters protest outside Herefordshire Council HQ

Hereford United supporters protest outside Herefordshire Council HQ

First published in News
Last updated
Ledbury Reporter: Photograph of the Author by , Senior Reporter

THE future for Hereford United could come down to “closed doors” meeting underway at Herefordshire Council’s Brockington HQ this morning.

At this meeting senior council officers and political group leaders are set to discuss whether or not a Company Voluntary Agreement (CVA) sought by the club is a breach of lease agreements on the club’s Edgar Street ground, the Hereford Times has learned.

The council is saying nothing about the meeting.

But, if those present agree on the CVA being a breach of the leases, the council could consider action to rescind the current lease agreements.

The council already faces calls from councillors for an “official investigation” into the authority’s part in crisis at Hereford United .

Some members say serious consideration has to be given to bringing Hereford United Supporters Trust “to the table”  for talks on realistic takeover terms.

All councillors  have been e-mailed  allegations from parties working on behalf of the supporters trust  that questioned the validity of the club’s share issue and related claims on ownership of the club.

 At the  centre of these allegations are the club’s Articles of Association as a company, with the concern raised being that the share capital of the company could not legally be increased without amending  the Articles of Association – effectively the constitution under which the club operates as Hereford United (1939) Ltd.

The allegations outline a restriction placed on the number of shares that may be issued – 40,000 in the case of Hereford  United (1939) Ltd.

While the 2006 Companies Act allows companies no restriction on the number of shares, companies  such as Hereford Utd (1939) Ltd can operate with these provisions if they adopt updated Articles  of Association to include changes introduced in 2006.

The club is accused of not adopting new Articles of Association ahead of the share issue.

In July last year, the club’s directors issued documents that announced a proposal to increase the share capital from the existing 40,000 to a figure of around six million.

The allegations raise questions about the accuracy and legal validity of the documentation to the extent  that any shares supposedly issued above the existing 40,000 could have their legal basis challenged.

Such a scenario  opens up to doubt claims to the ownership of Hereford United (1939) Ltd through a majority shareholding, and the vulnerability of such claims to a legal challenge.

The 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.

Repeating this admission at a meeting of the full council last week,  the council stood by its  actions as landlord to the club saying an “appropriate level” of due diligence was carried out.

Cllr Harry Bramer, cabinet member for contracts and assets told members that, at the time the leases were being negotiated, the council was dealing with a club that it had been dealing with for some time.

“The amount of due diligence for someone who is known to us is different to that if you don't know them,” he said.

As also reported by the Hereford Times one of the three people to sign off the Heads of Terms for the re-assigned leases at Edgar Street was the former chief executive of Hereford Futures, Jonathan Bretherton.

Mr Bretherton’s signature is the first on the document, with the signatures of Geoff Hughes, Herefordshire Council’s director of places and communities, and David Keyte, then owner of Hereford United below.

Mr Bretherton signed on April 26 2012 and Mr Hughes and Mr Keyte on April 30 2012.  

 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.

Then, the new owners of the club - David Keyte and Tim Russon - were pitched to the council as “ambitious to realise the club’s fullest potential”.

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 Times, 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 until Monday to arrange a voluntary agreement with its creditors.

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 the previous High Court winding up hearing, 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.

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.

, the council has conceded the appearance of  having “wholly funded” HF since 2012.

HF was set up by the council in 2010 as an “arm’s length” company to drive redevelopment in the city.

It was a successor to Edgar Street Grid (Hereford) Ltd.

In May last year, the council confirmed HF was being wound up.

The company – with the council acting as guarantor – was not subject to audit and accountancy obligations that apply to regulated local authority companies, nor was it covered by Freedom of Information regulations.

Figures produced for a council scrutiny report show the council’s total contribution to HF from 2004-05 to 2014-15 to be £2,891,556, with a peak annual contribution of £409,405 in 2012-13.

Support over the last financial year is shown as £355,322, reducing to £130,628 in 2014-15.

The council  funded a five-figure pension contribution to the chief executive of HF.

In the year ending March 2013, HF made a contribution of £31,392 to chief executive Jonathan Bretherton, compared to £12,667 in the previous financial year.

The council has conceded that as the sole funder, to all intents, of HF since 2012 it had, in effect, funded the payment.

But the payment, the council said, was a decision for HF recommended by the remuneration committee and sanctioned by the HF board.

The council says it was for the HF board to determine how to reward its chief executive, and he had advised officers he exercised a contractual option to waive salary and to take payment as an additional pension contribution instead.

Concerns were  raised over any “residual liabilities” in relation to this pension with HF wound up.

Councillors and the council’s former chief executive attended HF board meetings, with the council saying that any councillor who attended an HF board meeting would have done so only “in their capacity as a director of the company”.

In March, the council effectively ruled out  further scrutiny investigations into issues around HF with a tacit acceptance that “things could have been done better.”

The council is now under increasing pressure to “come clean” on what it knew about Hereford United's finances ahead of the leases relating to development at Edgar Street being re-assigned five years ago.

 But the council has ruled out an immediate scrutiny inquiry into the handling of the re-assignment.

 

Comments (2)

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11:43am Thu 24 Jul 14

littlewhitebull says...

Keep up the good work Bill Tanner. Keep digging!
I must say that I am not an admirer of 'closed meetings' at the council. I thought we lived in a world of open democracy? Obviously, I am just old fuddy-duddy type of person, not in tune with modern methods.
Keep up the good work Bill Tanner. Keep digging! I must say that I am not an admirer of 'closed meetings' at the council. I thought we lived in a world of open democracy? Obviously, I am just old fuddy-duddy type of person, not in tune with modern methods. littlewhitebull
  • Score: 8

12:52pm Fri 25 Jul 14

Herefordian07 says...

Littlewhitebull you are not an old fuddy-duddy and not alone with your thoughts, they have these clandestine meetings to get their stories straight to avoid getting caught out later!
Littlewhitebull you are not an old fuddy-duddy and not alone with your thoughts, they have these clandestine meetings to get their stories straight to avoid getting caught out later! Herefordian07
  • Score: 3

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