Hearts administration: Battle for club continues

THE hard negotiating has begun to determine whether Heart of Midlothian Football Club can continue to exist in its current form.

All three offers for the Edinburgh club have been rejected and one bidder, HMFC Limited, is out of the running. Foundation of Hearts and Angelo Massone must now increase their offers or potentially see Hearts liquidated.

That is the warning from Valnetas UAB, administrators 
for Ukio Bankas, after they knocked back the tabled bids. Valnetas have instructed Hearts’ administrators BDO to re-negotiate with the Foundation and Massone’s company, Five Stars Football Limited, as the bargaining to see whether Hearts can emerge from 
administration enters a crucial phase.

The initial rebuffs are not entirely unexpected given rejecting a first offer is common practice during negotiations. Proposals from all three of Hearts’ suitors were submitted last week by administrators BDO, but have now been deemed insufficient by the Lithuanians.

Officials at Valnetas have privately indicated that a sum of £5m could be enough for a Creditors’ Voluntary Arrangement (CVA) – the only means by which Hearts can exit administration. That would also need approval from those in charge of the 
insolvency process at the club’s parent company, Ukio Bankas Investment Group (UBIG).

Massone’s offer remains around the £4m mark, whilst the Evening News has learned that the Foundation’s bid was significantly increased from the initial £2m (plus £3.75m working capital) they put to BDO. However, their cash offer to gain control remains less than Massone’s. The Foundation are also willing to take on £500,000 of “football debt” which Hearts currently have. Bob Jamieson’s HMFC Limited falling by the wayside leaves the other two to fight it out, with Valnetas intensifying an already delicate situation
by publicly threatening to liquidate Hearts.

The figures above indicate a realistic possibility of a deal being struck to avoid 
liquidation. The problem is Massone’s offer is closest to the £5m figure, but it is doubtful whether he could be considered “fit and proper” to run a football club following his role in Livingston’s financial collapse in 2009.

The Foundation’s bid remains the favoured choice, but Valnetas will have the final say and are eager to achieve as much cash as possible for Ukio’s creditors. Sources at BDO 
believe a deal could be done for just shy of the £5m Valnetas are said to want.

Valnetas have control of Tynecastle Stadium, plus 29.9 per cent of Hearts’ shares, and are due £15m as Ukio were the club’s biggest creditor before the onset of administration on June 19. They can choose to liquidate and try to sell Tynecastle to recoup money owed, but that would likely bring problems with planning permission for any prospective buyer. UBIG are owed £10m and own a 50 per cent shareholding, but are officially insolvent.

A statement from Valnetas UAB said: “Ukio Bankas – the main creditor of Scotland’s football club Hearts – obligated the club’s administrator BDO to continue negotiations with two potential investors with the aim to improve financial offers. If the negotiations fail, Ukio Bankas 
will initiate the process of 
liquidation of the football club.”

Gintaras Adomonis, general director of Valnetas, added: “I can repeat that we are doing everything we can to save the club functioning. However, I am obliged to protect solely the interests of Ukio Bankas and its creditors. If no feasible offer with terms and conditions acceptable to Ukio Bankas creditors is achieved, Ukio Bankas will remain with the only solution – liquidation of Heart of Midlothian Plc and enforcement of the standard security over Tynecastle Stadium. I sincerely hope this is the way of things we still can avoid.”

Bryan Jackson, a senior partner at BDO, said: “We are continuing to work with the administrator of Ukio Bankas and the bidders to enable the club to exit administration as a going concern.

“However, it should not be forgotten that it is the duty of the administrator of Ukio Bankas to achieve the best financial result for the bank’s creditors, and he will act to ensure that this happens.

“Liquidation is always a possibility when a business is in administration, but we are confident that we can work with the bidders to produce an outcome that saves the club and provides an acceptable return to the creditors of Ukio Bankas.

“I believe that we are making progress towards a constructive solution and hopefully all 
parties will recognise that the best value will be realised by selling the club as a going 
concern.”

A meeting is planned between Foundation of Hearts representatives and BDO tomorrow for talks on whether the fans’ consortium can increase their offer and, if so, by how much.

The Foundation’s bid is by far the most transparent of the remaining two and has backing from around 5500 Hearts fans, who have pledged money to run the club via a membership scheme if the Foundation gained 
control. Massone has not spoken publicly about his intentions for Hearts. Suspicion surrounds the Italian businessman following his tenure at Livingston, which ended in 2009 with the West Lothian club in administration. BDO may be unable to award him “preferred bidder” status if they cannot be certain he is “fit and proper”, according to Scottish Football Association rules.

Ian Murray, Foundation of Hearts chairman, stressed it is “business as usual” for the fans’ group. More pledges from fans, though, would be welcome to try and stave off both Massone and the liquidation threat.

“Our bid team, working on behalf of the Foundation of Hearts, continues to negotiate on the points of the bid submitted on our behalf to BDO,” said Murray. “Meetings are scheduled for this week, and have been since our revised bid and proof of funding was submitted last Wednesday, as requested. It’s very much business as usual. We remain hopeful that we can demonstrate to the club’s creditors that our proposal provides the strongest return and carries the lowest risk, in short by far the best solution.

“This announcement from Lithuania does again, however, demonstrate the need for supporters to set up direct debits via foundationofhearts.org, if they can do so.”

Taken from the Scotsman