Quote Slugger McBatt="Slugger McBatt"This is slightly different to that scenario though, because the Bulls were not a going concern in that sense (I assume).
I can only go off Wakefield's administration, but for example we were reckoned to need 500K to keep going. The other liabilities listed were, I assume, part of normal running liabilities but ended up as creditors because of the administration. So you have the liabilities against income, but the extra 500K was perhaps over and above that.
By waiting for administration, Glover gained, I presume, extra capital to spend on players, because he didn't have to pay as much for the business. If he had approached Ted Richardson in the autumn of 2010, he would have paid a lot more, because he would have had to pay all the liabilities.
So yes, it is better to buy a going concern. But if a club is in administration, it isn't arguably that, and the purchase price is cheaper, thus making more capital available for players.
I know that each case is different, but I presume the rules are there as a simplistic blunt instrument. For example, if the penalty wasn't there, Ted Richardson could have put the club into administration, come to the arrangements with creditors, come out of administration, and lo and behold, more cash to spend on players.'"
The going concern was almost certainly worth far LESS than what he would pay for the assets out of administration. BECAUSE of the liabilities. The old company was worthless - worse than worthless, in fact, since its liabilities exceeded its assets. It is likely he would have paid a notional £1 for it, and THAT wouyld have been a premium over its bok value, meaning a significant value would have had to be attributed to goodwill and other intangible assets like player contracts.
And, whilst it would not be him personally paying off creditors if he bought the going concern, he would have had to have put cash into the business to enable the creditors to all be paid. So the all-up cost to him would be quite a lot more than the £1 he paid for the shares.
In buying the assets only off the administrator, he would only buy certain assets anyway. Debtors stay with the administrator. In this scenario, there is unlikely to be much in the way of payment for goodwill, although the payment would reflect a value for intangible assets that he can obtain benefit from. He loses the book liabilities, but inherits the contingent employment liabilities. He also inherits a shedload of operation problems which take time and money to sort out. And of course, income streams like sponsors, season tickets and merchandise may well be gone depending on the time of year, and you have to start everything completely from scratch again. Cash is always very tight to start with.
Usually, on the face of it it appears that he is getting the assets cheaper than if he bought the going concern. And, on the face of it, that IS usually the case. But once you take account of the employment liabilities and contractual obligations TUPEd over, the likleihood that you will get little trade credit, and all the additional time and hassle and costs in rebuilding the business and re-establishing all the relationships with suppliers, partners, sponsors, staff, everybody really, that all gets reflected in the price. So, all things being equal, the price reflects what is involved in each scenario.
Both alternatives have their upsides and downsides. In my experience, any financial benefit you get out of buying a business out of administration rather than as a going concern is often more illusory than real. And its bloody hard work, especially when the business has to be kept running regardless
As for stopping e.g. Richardson putting the business into administration, buying the assets off the administrator through a phoenix company and just carrying on, having dumped the debt: whilst its not quite that simple, that sort of nonsense happens a lot across business generally. All too often. Most of us will know people who have done it. SOme are genuine, but all to many have simply scammed theoir creditors. There are various legal provisions to limit the scope for it, and to limit the more blatant abuses, but they are not as effective as they need to be. One reason for that is that the law has to strike a balance between not stifling genuine rescues and restarts, and not allowing phoenix company abuses owned by the same bandit.
But you'd not need to worry in RL. It seems pretty clear that the RFL would not admit a new company to membership of the RFL, nor grant it approval to take part in competition, if it was just a phoenix owned by the same crowd. Not least because this would almost certainly get it red-carded when it come to being eligible for public sector money (the RFL got into very deep water over Crusaders, I believe?) and also of course because the other clubs would not wear it. I believe - at least from observation - that we saw precisely this in the previous Bradford insolvency, where it seems pretty clear to me at least that the RFL had no intention of allowing any successor owned by former shareholders.
