League One side Coventry City have tonight confirmed that one of their Group companies has entered administration. The action has been taken by the their parent company Coventry City Football Club Holdings on the evening before a High Court case that has been called to resolve their non-payment of rent on their Ricoh Arena stadium.
Stadium owners Arena Coventry Limited (ACL) have taken their tenants to court over failure to pay £1.3 million of rent owed to them since April 2012, when the Sky Blues stopped all payments as a result of a dispute over the size of money they have to pay to use the stadium. An August 2012 Court hearing has already come down on the side of ACL, with a Third Party Debt Order last month freezing Coventry's bank accounts and associated income.
Tonight, their parent company have issued a statement indicating that a "property subsidiary" has been placed in administration ahead of the case. They claim the Football Club itself will be unaffected by the action, with their statement reading:
Coventry City Football Club Holdings can confirm that a non-operating subsidiary of the Club has today been placed into administration.
It is important to stress that the Football Club itself is not under threat. This is merely a property subsidiary which owns no material assets and has no employees, on or off the pitch. The Club can confirm that all staff wages, PAYE and all other creditor commitments will continue to be met as before by Coventry City Football Club Holdings. Unlike other instances of clubs being taken either wholly or partially into administration, there are no HMRC or VAT implications and the Football Club will continue to trade as normal without interruption.
Football clubs entering administration face an automatic 10 point penalty as part of the Football League's rules on insolvency events. Coventry's separation of the issues they have concerning their stadium from their footballing business is no doubt an attempt to avoid that points deduction.
However, in April 2009, the Football League set its own precedence when they ruled that Southampton Football Club should be deducted points after their Holdings Company collapsed. The League's logic at the time was that "the company (in administration) and the football club are inextricably linked as one economic entity". In a statement the League said of the Saints' financial position:
"The holding company has no income of its own; all revenue and expenditure is derived from the operation of Southampton Football Club and the associated stadium company. The holding company is solvent in its own right. It only becomes insolvent when account is taken of the position of Southampton football club and the other group companies."
On that occasion, it took the Football League a total of 23 days to reach a decision on Southampton's finances, sending in a team of forensic accountants to determine whether they should be deducted points, with Southampton claiming the two companies were operationally independent. The League ruled otherwise, and invoked the 10 point penalty. It would not be a great surprise if they have to tread down the same path again with the Sky Blues.
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