Club news

ADMINISTRATION: THE CREDITORS MEETING

05 Dec 2013
A key day in the calendar is January 10; on that day the creditors of Deportivo will decide how the club must face the debt. It’s the most important day in the administration process of any organisation. RCDLC.com explains the situation.

The keystone in the administration process of any company is to reach an agreement with the creditors in order to pay the debts. The process itself reaches the final moment as soon as the deal is sealed, the organization can still disappear if the agreed conditions aren’t fulfilled, but to sign an agreement is considered to be a giant step towards the normalization of the company.

It’s so important that the judge that’s managing the case always fix the calendar of the events. In the case of Deportivo La Coruña judge Rafael García –who is now replaced by judge Rafael Niño- fixed the meeting for January 10.  On that day the creditors will decide what the club must do with the debt, but it isn’t an open discussion, because they will just vote on what proposal should be accepted.

The creditors, the club and anyone interested is open to present a plan for that meeting, all the propositions must be presented and approved by the judge with a deadline of forty days before the meeting. In the end only two plans were presented, one was prepared by the Tax Agency (AEAT) and the other by the club. The following is an explanation of both plans:

1- Depor’s plan: To forgive the 33% of the not privileged debt (€60 million), to fix a deadline of seventeen years to make the payment of the debt (shortage of two years), plus fixing the 20% of the yearly incomes to pay the debt. Of this percentage the 25% will be used to pay the not privileged debt, the rest it’s to pay the privileged debt. Finally, the plan proposes that no interests will be charged in yearly payments.

2- AEAT´s plan: To forgive the 45% of the not privileged debt (€60 million), to fix a deadline of ten years to make the payment of the debt, there’s no shortage and the payments are fixed, which means that Depor would have to pay a fixed amount for each year no matter the league where it plays and it’s incomes. The yearly interest is 2%.

Analysis: Both plans have positive and negative things. The big disadvantage of Depor’s plan is that it hasn’t been negotiated with the AEAT, which could cause further problems that are later explained, the other is that the percentage of the forgiven debt is lower. Many people accused Lendoiro of been trying to save him before trying to save the club, and it’s that to excel the 33% in the forgiven debt could lead him to be investigated and punished for the bankruptcy. The club defended itself saying that it is the percentage accepted by the players, one of the main creditors, besides to be supported by the LFP.

Bigger are the problems with the AEAT’s plan. The percentage of the debt to forgive could be bigger, but since the no privileged debt is low the difference with the club plan is only of €2.31 million, and taking in mind that this plans contemplated the payment of interests (€9.95 million), it turns out that Depor end paying more money (€5.26 million) if the plan of the Spanish Treasury is accepted.

But the biggest problem with the AEAT’s plan is that the yearly payments are fixed, and this could be very dangerous because the incomes of the club won’t necessary cover the needed of cash for a particular year. As example the year 2017; according to the AEAT’s plan Depor would have to pay €13.33 million on that year, but the only way to afford it is to compete at Primera having a TV income of at least €20 million, and no one can certify that Depor will be playing at Liga BBVA during that year.

Still, the plan of Deportivo also has it’s weakness on this regard, because Lendoiro’s plans calculates that Depor will spend four years at Segunda and the remaining thirteen at Primera, which can also be interpreted as a too positive expectation, aka it’s too dangerous.

The administrators’ opinion: The judge ordered to the Bankruptcy Administration (BA) to study both petitions and make a report with their valorizations. The administrators, Francisco Prada & Julio Fernández Maestre, sent the report to the judge hammering both propositions. In the first place they criticized the plan of the club, because they consider that’s “reckless” as it was made without the agreement of the AEAT.

Another critic is that it leaves all the sacrifice in the shoulders of the creditors, the administrators believe that the shareholders should also pay a price in the form of an increase of capital that could be used to pay part of the debt. They also criticized the low percentage of the forgiven debt, which they considered inadequate as it leaves the club at the edge of liquidation. The plan of the AEAT was also criticized as the BA understands that it was made considering that Depor will spend the next decade competing at Primera, something they think it’s an “unreal forecast.”

THE CREDITORS MEETING
It’s important to understand what happens during a creditors meeting within an administration process. First to all the ones that will vote are the creditors with the not privileged debt. It’s something established in the Spanish law, this means that the AEAT has nothing to do in the meeting and it reduces the participation of the banks, that’s why the figure of the players and the LFP turns to be crucial, because they are the main voters in the meeting.

Without considering the money owed to the three biggest creditors (the AEAT and the two banks), the main amount owed by the club corresponds to debt had with the players: €11.28 million (7.05% of the global debt). Then the fifth biggest creditor of the club is the LFP (€3 million).

In the voting process the plan of Deportivo will be presented first, simply because it was the first one to be approved by the judge. If this plan is the one selected by the major part of the voters then the process ends there and then the club is forced to fulfill all the proposed conditions. If the proposition of the club isn’t selected, then the creditors will vote on the second plan, the one of the AEAT.  If both plans fail then the judge can liquidate the society or instead arrange a new meeting and call the creditors to negotiate and present new proposals.

FORECAST
It is rumoured that the Players’ association (AFE) and the LFP will vote in favour of the club’s plans, coincidentally on last week it was informed that the players already started to receive their wages corresponding to the present season. The BA suspects this is some kind of bribery that can affect the process as it’s affecting the interests of the other creditors and urged the judge to investigate, but their petition hasn’t been answered. In the end the forecast is that the plan presented by the club is the one to be accepted during January’s meeting.

MEETING WITH THE SPANISH TREASURY
The AEAT isn’t content with the club’s proposition, but there’s nothing they can do in order to influence in January’s meeting. It’s a very similar situation to the one lived by Rayo Vallecano, an administration process that ended two weeks ago with the creditors choosing multiple alternatives that were never accepted by the Spanish Treasury.

Many analysts warn that this is dangerous, because the AEAT can order new embargos that will complicate the situation after the agreement is sealed –in the case of Rayo Vallecano nothing has occurred- In this sense the analysts suggest that the best thing is to reach some kind of agreement with the government.

On Monday president Lendoiro had the first meeting in years with the AEAT, it lasted one and a half hour, but nothing happened. It was informed that the AEAT is only accepting their plan and won’t negotiate anything different. After the meeting Depor’s president commented that, “There are no novelties in this regard. We can only keep on working, which is our job.” It isn’t expected that both sides can reach any understanding before January’s meeting.

ARCHIVE NEWS DEC/13

ZAPPING


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