Bleeding Hearts

Richard Wilson
Sports writer
Sunday 16 June 2013

Hearts are on the brink, both of crisis and salvation.

The situation at the Tynecastle club grows graver by the day, and it seems unlikely that Heart of Midlothian plc will avoid falling into administration. Yet that turn of events may be necessary for a rescue bid to succeed. That dilemma is being faced by all of the potential buyers of the company that owns the club, and it appears certain that further distress must be suffered before Hearts can be saved.

Half of the £104,000 bill owed to Her Majesty's Revenue and Customs has been paid, but a winding-up order will be served if the remaining balance is not met. The salary bill was not paid in full on Friday, leading to a registration embargo automatically being implemented by the Scottish Premier League. That in itself would be a minor consideration, since a club in financial difficulties will not be on a recruitment drive, but the board have effectively invited offers for all of their players and the squad could be stripped of its best talent. With season ticket sales having fallen, Hearts need £500,000 just to survive until the beginning of the season.

These are the details, but it is the bigger picture that is so debilitating. A VAT bill from the season tickets already sold will need to be paid before the end of the month and could be more than £1m, while a further PAYE bill will be due at the same time. With all of the season ticket revenue already committed, Hearts face critical cash flow problems. However, a controlling stake cannot be purchased at this time. BBC Scotland reported yesterday that there are six potential buyers monitoring events, although those close to the situation believe that the Foundation of Hearts – a coalition of supporters groups – is best placed to make an offer to save the club. Members of the FoH board addressed fans on Friday night, and afterwards Ian Murray, the independent chair and Edinburgh South Labour MP, admitted that administration might be necessary to solve Hearts' problems.

FoH have generated more than 4000 pledges to their website, which crashed at one stage last week due to the sheer volume of visitors, and they are now beginning the process of turning those pledges into cash, as well as seeking new backers amongst the fans. Members of the Edinburgh business community, including Ann Budge, the multi-millionaire who earned her fortune in IT, will also provide financial support, and the intention is to lodge a bid by July 4. Of the remaining parties reportedly interested in buying the club, three are from North America, one is based in London and the other has already been revealed as a consortium of Scandinavia-based businessmen. The latter have spoken with FoH about a joint bid, and further talks will clarify their intentions.

Although Hearts need a quick solution, nobody can move any more swiftly. Ukio Bankas hold 29.9% of the club, as well as ownership of Tynecastle Stadium as security against a £15m debt. The bank is now insolvent, and the administrator stressed last week that the intention is to sell the shares as part of maintaining Hearts as a going concern. A further 50% of shares is held by UBIG, the investment group which has yet to be formally placed into administration by the Lithuanian court. Although essentially now just a shell company, its assets have been frozen and the 50% shareholding cannot yet be sold.

Once UBIG, who are owed £10m by Hearts, are formally declared insolvent, it is likely the Scottish Premier League will rule that the Tynecastle club are technically in administration. This would cause the team to begin next season with a 15-point deficit, while the new Scottish Professional Football League rulebook will contain several scenarios if HFC plc were to eventually be liquidated.

"We have a rulebook, and it covers all eventualities," said Neil Doncaster, the SPL chief executive. "In the event that anything happens to any member clubs of that new league after June 27, it will be up to the new board and the new rulebook to determine what happens."

Administration would at least clarify the situation for potential new owners, and the insolvency process would strip Hearts of their debt. The intention of FoH is to buy 51% of the club to enable fan ownership and they are willing to work alongside other potential investors. Ian Murray's role is crucial, since his status as an independent figure has helped align fan groups, while he is also widely respected by key individuals in Lithuania.

The administrators of Ukio Bankas want Hearts to remain as a solvent business, having agreed terms on interest payments on the £15m loan until 2015, but they are also likely to work in conjunction with any administrators appointed to UBIG to sell the Hearts shares as a single package. The situation is complicated, but a rescue plan is possible. It will require significant funds, although the cash flow problems can be addressed within 12 to 18 months, but more setbacks will also have to be overcome.

Taken from the Herald