WITH Hereford United having at least another three weeks of life, more pressure is being put on Herefordshire Council to “come clean” on what it knew about the club’s finances ahead of the ground leases being re-assigned.
The council, as landlord to the ground has ruled out an immediate scrutiny inquiry into the way the leases were re-assigned five years ago.
Cllr Sebastian Bowen, chairman of overview and scrutiny, has said that though such an inquiry is not on the committee’s agenda over the foreseeable future, there was scope a hearing “when the dust has settled.”
But frustration is festering on the council’s “backbenches” as to what the authority – or was told – about the club’s finances when it went into negotiation over the leases.
Today, Cllr Jim Knipe, who raised the issue last year, backed a call from Cllr Jim Kenyon, to set up a scrutiny inquiry as soon as possible with the club’s fate now effectively lying with the High Court.
“It is important to establish whether a due diligence report was prepared on Hereford United before the leases were amended. If it is proved that no such report was prepared to establish the financial position of the club, then the Council could be negligent in its fiduciary duty to the residents of Herefordshire,” said Cllr Knipe.
More needed to be made public about payment plans that were the basis of assurances made to the council by the clubs new owners, he said.
This morning, the High Court gave the club another three weeks of life to arrange a voluntary agreement with its creditors.
Calls for an inquiry into the lease negotiations came in tandem with pressure on the council to release a report into due diligence it carried out on Hereford United ahead of leases being re-assigned five years ago.
The council’s Independent group, to which Cllr Knipe belongs, is pushing for the report to be made public amid doubt that it actually exists.
Independent leader Cllr Bob Matthews raised the issue of due diligence when group leaders were given an update on the council and the club last month.
At the time, Cllr Knipe said he was “disappointed and alarmed” that, on the evidence so far, the council failed to carry out carry out a due diligence examination to establish the club’s financial position before negotiations over the leases began.
In a statement the council said it carried out the “appropriate level” of due diligence when restructuring the leases - as it would with any existing long term tenant who was not a new entity.
The statement said the council was aware of the situation the club faced as was “endeavouring to help them where possible.”
While the council is the landlord of the Edgar Street ground, it does not have any direct control or involvement in the club and its decisions.
Two leases refer to redevelopment of the Meadow End and Blackfriars End and stipulate that any proceeds be re-invested in the ground and its facilities.
The council is considering a request by the new owners for a transfer of those leases to a holding company within their ownership.
Around £65k in rent arrears, business rates and legal fees is owed to the council by the club.
The council has accepted assurances from the new owners that all outstanding monies will be fully re-paid – with an agreement to a written undertaking.
As renegotiated, the leases on the ground continue to be held by the club. If the club folds the leases would revert back to the council.
Assigning the Edgar Street leases – one for 75 years on the ground and terracing to the west, the other for 33 years for the stand and parking area to the east and both dating from 1982 - was one of the last big deals done by the former Hereford City Council.
During the late 1990s, with United facing severe financial problems, the leases were reassigned to property developers in return for a £1m capital injection into the club.
The money was made available through two companies, the BS (Bristol Stadium) Group and Chelverton.
BS and Chelverton took equal ownership of a special purpose company called Formsole Ltd which made the investment and held the leases – as the tenant under both – with the club holding sub-leases.
By August 2001, BS had sold its “loan” to Chelverton which ran into trouble little over a year later when control of the leases passed to Carillion Richardson.
United still owed £1m plus interest to Formsole which stayed solvent when Chelverton went into liquidation.
The reassignment of the leases was supported by Herefordshire Council when it took control of the former city council’s affairs.
Getting the leases back was pitched as a political priority when the news broke in April 2010 that then United chairman Graham Turner and vice chairman Joan Fennessy were ready to sell their majority shareholding in the club.
The club began negotiations with Carillion Richardson for the return of the leases almost as soon as the Keyte-Russon takeover was completed in June that year.
That deal was done by December with the club paying £452,000 to secure the return of the leases and settle a £1,069,500 debt to Richardsons Developments, clearing the way for a new single lease and the development opportunities that could bring.
The deal was intended to offer the club security for the next 30 years and ensure future re-entry to the Football League - which requires a 25-year secured tenancy.
It also opened up opportunities for grant funding for any future development - £400,000 in the Conference and £750,000 in the Football League.
The council was ready to allow an extension to the new stadium lease of 250 years once development at either end was underway, with proceeds from the sale of development areas held in a joint escrow account.
That money was intended for the construction of two new stands - one at each end of the ground - and modernisation work on the existing stadium.