West Ham's new owners face bankruptcy
• Bankruptcy proceedings could start in 72 hours
• Thursday deadline for six-month moratorium with creditors
West Ham United's new owners may be forced into bankruptcy proceedings within 72 hours, casting doubt on assurances that it has brought stability to Upton Park.
CB Holding, a special-purpose vehicle whose 70% shareholder is the stricken Icelandic investment bank Straumur, took control of the Premier League club on Monday. Straumur said the move, first revealed by this column in April, was necessary because a moratorium – a suspension of payments to creditors – granted to the club's former owner Bjorgolfur Gudmundsson's investment company, Hansa, was due to expire on Tuesday.
In the event that Hansa had, as expected, been declared bankrupt West Ham would have been liable to Premier League sanctions. However, Straumur, which is effectively bust, has a similar moratorium over its own liabilities and must apply on Thursday to the District Court of Reykjavik for a six-month extension to that agreement.
In a presentation made to creditors last Friday Straumur executives said: "The moratorium provides a 'standstill' period during which Straumur can pursue a restructuring of its financial position. Unless Straumur successfully petitions the court for an extension, the moratorium will end on 11 June 2009. As stated above, Straumur intends to apply for a six-month extension of its moratorium."
Even if the Reykjavik court is persuaded the moratorium should be extended, Straumur must convince creditors its plans for West Ham and its other managed assets are acceptable. The transformation of the collapsed investment bank into an asset-management company is said to be a fait accompli by Straumur's spin doctors in Iceland and London. But it depends on a "composition agreement" under which creditors accept a fixed sum.
A meeting at which creditors may present their claims against Straumur is set for 6 August. If agreement cannot be reached, the outlook for West Ham's new owner is stark – a winding-up committee, made up of three attorneys of Iceland's supreme court and independent of the Straumur executive, would be called into action.
"If composition proceedings are rejected, or the attempt to seek a composition is unsuccessful, the winding-up committee will request that the district court place Straumur's estate in bankruptcy proceedings," said the presentation to creditors. "A liquidator would then be appointed by the district court." Straumur's confidential statements to its creditors on Friday would seem to be at odds with claims it made in public yesterday.
"CB Holding fully supports the executive management of the club and acknowledges the considerable progress achieved this season both by Scott Duxbury, chief executive of West Ham, and the club's manager, Gianfranco Zola," said a statement. "CB Holding has no intention of changing the executive management or direction of the club."
If Straumur fails to reach agreement with creditors or to persuade the courts to extend the moratorium, it will present a severe test for the Premier League's rules governing fit and proper persons. Under those regulations directors and significant shareholders cannot have been made bankrupt. They are currently designed for individuals but, in the event that a club's controlling shareholder is a bankrupt company, the league's board would examine it.
The league confirmed it has asked West Ham to provide documentation. "We have asked West Ham to produce details of the change of ownership," said a spokesman. "Once we have that information we will assess it and, if needs be, act accordingly."
Even if Straumur's plans pass muster with the courts, creditors and league, there will be no return to the liberal spending of Gudmundsson. According to its presentation to creditors Straumur will now rely on "the establishment of a new and simplified business model appropriate to the reduced activities and scale of Straumur's operations as an asset management business".
