Fears grow over Coventry City going bust as Cayman Islands link revealed
23 May 2012 00:00
FEARS that Coventry City could be close to going bust are growing – following a Telegraph investigation into owner Sisu’s offshore business dealings in the Cayman Islands.
Share on printShare on email
Cayman Islands
FEARS that Coventry City could be close to going bust are growing – following a Telegraph investigation into owner Sisu’s offshore business dealings in the Cayman Islands.
Our investigation has prompted Coventry City Council leader John Mutton to call on the football club’s hedge fund owners to be fully “open and transparent” if it wants to lodge any serious bid for a half share of the Ricoh stadium and surrounding development land.
We investigated a business arrangement set up by Sisu in March, which appears to give first call on any of the football club’s existing or future assets to a Cayman Islands operation – called Arvo Master Fund Ltd.
READ LES REID'S COLUMN ON WHY THE RICOH ARENA DEAL SEEMS AS FAR AWAY AS THE CAYMANS. CLICK HERE...
In response to our questioning, Sky Blues chief executive Tim Fisher said Arvo was now the investor in Coventry City Football Club which is propping up its finances.
The Arvo “debenture” examined by the Telegraph – effectively a mortgage arrangement – was lodged with Companies House in March 19 and lists assets as security against lending by Arvo – down to the last grass mower and gym equipment at the club’s Ryton training ground.
Crucially, it also lists as “fixed security” any property the Sky Blues acquires in future.
Coun Mutton said our findings added to his concerns that, if Sisu was to acquire half of the Ricoh stadium company, it could be used to pay off Sisu and its investors – rather than supporting the struggling football club’s finances.
Brendan Guilfoyle, a leading UK expert in football finance and an insolvency practitioner, claimed our findings alongside other recent developments all suggested Coventry City could soon be heading for administration – unless a Ricoh rescue deal is struck quickly.
But Coun Mutton has re-iterated the council is in no hurry, and would want to go through Sisu’s business dealings, and any future business case, with “a fine-toothed comb”.
Ricoh Arena Mr Guilfoyle, who has previously been appointed administrator for Leeds Utd, Crystal Palace, Luton Town and Plymouth Argyle, added: “Hedge funds are routinely domiciled in the Cayman Islands for the purposes of tax minimisation and to retain a higher level of confidentiality.”
Coun Mutton said such concerns would be fully examined by the city council and its lawyers, in taxpayers’ interests, “if Sisu were to put forward what looks like a viable business case”.
On March 19, a company called Arvo Master Fund Ltd, based in Grand Cayman, Cayman Islands, registered debentures against the Sky Blues operating company and its holding company to secure amounts owed to it by the Sky Blues.
In response to our questions, Mr Fisher said Arvo Master Fund Ltd is part of Mayfair-based Sisu, and is “Sisu’s hedge fund” investing £500,000 a month to meet the club’s “funding gap”.
It has prompted further speculation about whether UK-based private equity funds set up by Sisu to fund the football club still have investors putting money into them.
Mr Fisher last week played down the debenture with Arvo – concern over which had been raised by some Coventry City fans on fans’ websites – telling us: “It’s normal business practice and just means that one Sisu company has call on assets of another Sisu company. If you didn’t do that you’d need your head looking at.”
READ LES REID'S COLUMN ON WHY THE RICOH ARENA DEAL SEEMS AS FAR AWAY AS THE CAYMANS. CLICK HERE...
While no further evidence is available of Arvo’s business dealings or relationship with Sisu or the Sky Blues, Mr Guilfoyle questioned Mr Fisher’s explanation – in particular the timing of the debenture, with the Sky Blues in deep financial trouble.
Mr Guilfoyle, of The P&A Partnership, said no such arrangements had previously appeared to be in place, and asked: “What assets does the football club have and why take security now?”
He said: “A debenture is like the mortgage on my house, I have borrowed money to buy my house and my mortgage lender has a charge on my house to secure my borrowings in case I don’t repay my mortgage.
“The Sky Blues have undoubtedly borrowed money from Sisu, and they are now seeking to secure the loans on the assets of the club.
“The problem with that is there doesn’t appear to be any significant assets in Coventry City Football Club.”
Brendan Guilfoyle Mr Guilfoyle went on to speculate that the debenture has been put there to enable Sisu to retain control in the event that the club is forced into administration.
He said “I think it may be a precautionary step to enable them to retain control in the event of the club going into administration.”
This development together with the Sky Blues witholding rent on the Ricoh stadium for more than two months, and the club’s failure to sign off and lodge its accounts – leading to a transfer embargo; has intensified speculation that administration may be inevitable.
There are increasing fears about the ability of Sisu to continue funding the football club.
Mr Guilfoyle said: “I hear anecdotally that the immediate funding requirement over the close season is nearly £3million.”
It comes amid ongoing talks between Sisu and the Ricoh Arena company’s owners – Coventry City Council and the Alan Edward Higgs Charity – about Sisu obtaining the Higgs charity’s half-share in Arena Coventry Ltd to gain revenue for the deficit-hit club.
What Coventry City says: Sisu plough money into this club every month
Questioned about the debenture and Arvo, Coventry City Football Club chief executive Tim Fisher said: “Every month, money is going into the football club.
"The money is put in from the Sisu hedge fund which is Arvo. Arvo put it in as debt.
“As a consequence it uses the assets of the company as security.
“It does not put in the money as equity. Why would you?”
Tim Fisher, left, and Steve Waggott talk to CCFC fans at the Herbert Gallery He said questions about whether wealthy investors were still putting money into the four UK-based private equity funds first set up by Sisu for Coventry City would have to be addressed by Sisu.
Mr Fisher continued: “There is nothing dark or sinister about this.
“There is a funding gap every month. That funding gap is bridged every month by Sisu.
"The funding gap last month was north of £0.5million. They’ ve put in £40million.”
He said he or the football club as borrower could not speak for the lender, which is Sisu/Arvo.
READ LES REID'S COLUMN ON WHY THE RICOH ARENA DEAL SEEMS AS FAR AWAY AS THE CAYMANS. CLICK HERE...
Asked about concerns over transparency and a Cayman Islands hedge fund, he said: “On behalf of the football club, we’re trying to be very open and transparent for all stakeholders.”
Asked about the timescale for any stadium deal with the council and Higgs charity, seen as crucial to the football club’s immediate financial future, he said: “We are entirely focused on the transaction.
"We want to give the owners the requisite comfort to support us moving out of a transfer embargo.
“We have business to do this summer and we want to do it right now.”
What Coventry City Council says: We have concerns over SISU's levels of transparency over the last five years
Sisu’S off-shore activities would be fully investigated by Coventry City Council as part of any advanced stadium talks, pledged leader John Mutton.
Of the debenture with Arvo, Coun Mutton said: “I don’t know anything about it.
"But I’ve already said if – and I’ve made it clear it’s a big if – we don’t stand in the way of the Higgs charity shares being sold to Sisu, there would have to be a legal agreement so they that they couldn’t use the Ricoh as collateral to get a loan.
John Mutton “I would have to make certain that legal agreements were in place so that Arvo wouldn’t get first call.
“The assets of the football club and Sisu are negligible – they don’t own the ground, and the players’ contracts would revert to the Football League if they go into liquidation.
“There is no way Arvo will get half the Ricoh Arena under these circumstances – if they go into liquidation.”
Asked about transparency and Arvo’s Cayman Islands location, Coun Mutton said: “We’ve got concerns anyway about Sisu’s level of transparency over the last five years.
“I’ve said to them I expect them to be open and transparent with the fans, except for areas of commercial confidentiality.”
He continued: “I am more concerned about what business case Sisu are going to put forward.
"If I see what looks like a viable business case, that’s when we would go through it with a fine-toothed comb and go through Sisu’s off-shore activities.
"The Higgs charity would first have to come to an agreement with Sisu. That’s not a done deal.
