Jumat, 15 Oktober 2010

How did it get this bad for Liverpool?

Whatever judgment Mr Justice Floyd delivers this morning, Liverpool's day in the High Court yesterday exposed in painstaking detail the complete breakdown in trust between the club's owners, their bankers and the men brought in to try to rescue the sorry mess.
After almost five hours of submissions by a series of lawyers whose weekly wage packets might make Fernando Torres blush, many questions were left unanswered.

But as barrister after barrister took it in turns to debate the finer points of corporate governance side letters, mandatory interlocutory injunctions and holdings company board sub-committees, there was one question above all others which kept nagging away at the back of the mind. How was it allowed to get so bad?

This particular case concerns the specific point of whether Tom Hicks and George Gillett, Liverpool's deeply unpopular American owners, breached the terms of a loan extension with the Royal Bank of Scotland in April when they blocked the sale of the club for £300m to Boston Red Sox owner John W Henry last week.
Amazingly, in a witness statement submitted to the court, Hicks admits they did breach the RBS agreement when they sacked Liverpool directors Ian Ayre and Christian Purslow. So that's an open and shut case, right?
Liverpool fans protest outside the High Court
The fight for Liverpool's future will be decided in the courts. Picture: Getty Images
If only. What Hicks and Gillett's lawyer Paul Girolami instead attempted to argue was that Hicks and Gillett only did this because Liverpool chairman Martin Broughton and RBS had already breached that agreement by keeping them in the dark during the sale process.
The owners say Broughton and the board should have given more serious consideration to alternative bids for the club and that they only found about Red Sox owners New England Sports Ventures (NESV) when negotiations were well advanced.
In his remarkable statement, seen by the BBC, Hicks even goes so far as to claim the so-called English directors on Liverpool's club and holdings company boards (Broughton, Purslow and Ayre) had their own secretive "home team" phone line for key takeover discussions - a phone line Hicks and Gillett say they were not invited to use.
By being shut out, Hicks says he had no choice but to reconstitute the board - appointing Hicks Holdings colleague Lori McCutcheon and son Mack Hicks - even though he knew it would breach the terms of the RBS loan extension.
Hicks states: "It was necessary in order to ensure the matter was properly dealt with for us to reconstitute the board... In having done so we acknowledge that that was contrary to the corporate governance side letter."
This side letter drawn up by RBS is the crucial document and sets out the conditions for extending the loan - including allowing Martin Broughton to decide the make-up of the board of Liverpool Football Club (LAFC - The Liverpool Football Club & Athletics Grounds Limited) and the club's holding companies.
Whatever Hicks and Gillett now say about their reasons for the breach, that is the apparent crux of the case. And the admission should render all the other interesting new details offered up yesterday as fascinating but ultimately irrelevant.
These included:
- The labyrinthine company structure created by Hicks and Gillett, consisting firstly of the club, Liverpool (LAFC). It was revealed that RBS is owed £97m by this company which breaks down as a £25m general facility, £52m for players and stadium investment and a £20m revolving facility. Above the club there is Kop Holdings Ltd which owes RBS the £200m main facility. Then there is Kop Football Holdings Ltd. This has security over the assets of Kop Holdings and LAFC. Above that is Kop Football Cayman Ltd and then Kop Football LLP, an American company registered in Delaware. It is this company Hicks and Gillett own 50/50.
- A threat from John Henry's NESV that if the sale to them does not go ahead they will seek damages from Hicks and Gillett worth "tens of millions of pounds". It also emerged that while the deadline for repayment of RBS's loan is this Friday, 15 October, there is a long stop date of 1 November for the deal to be finalised.
- The emergence of a new increased offer from Peter Lim valuing the club at £320m with £40m for new players.
- Claims from Hicks that Mill Financial - a US hedge fund - was prepared to pay somewhere between £375m and £400m to buy the club but was shut out of negotiations.
Now, both offers may well be real alternatives - but that is not really the point. The issue is whether Martin Broughton has the right to sell the club or not. If he has - and this will in essence be addressed by today's RBS ruling - then he has done a binding deal with NESV.
For those Liverpool fans who wore their colours to court, yesterday may have offered more entertainment than their team has of late. At one stage it hardly seemed a fair contest as Girolami, for Hicks and Gillett, found himself seriously outnumbered by lawyers for RBS, Broughton, Liverpool and NESV.
But he gave as good as he got, even if his more outlandish claims caused his rivals to shake their heads in disbelief.
In the end it was Lord Grabiner QC, one of the most eminent barristers on the commercial circuit, who stole the show with his mispronounciation of Gillett's name (Jillett) - a mistake he dismissively corrected later on - and his withering reference to Tom Hicks Jr as "Hicks minor".
These drew laughs from an audience in need of some light relief but he also delivered some killer lines, including the accusation that Hicks's delaying tactics were "slippery behaviour to say the very least".
It was left to Richard Snowden QC, for RBS, to remind us why we were all utlimately in court. RBS, a bank partly owned by us, remember, is owed a lot of money and would like it back - preferably by this Friday.
If Mr Justice Floyd rules in favour of RBS this morning, that would not only bring them (and us) closer to being reunited with that money it would also effectively provide the so-called declaratory judgment Broughton needs to complete the sale to NESV.
That will give Liverpool supporters hope that an end to this tortuous battle for control of Liverpool is in sight.
But if they lose today, Hicks and Gillett are almost certain to appeal. And as anyone who has followed this story closely knows - a simple, clean ending was never likely.

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