Directors' Loans: The Good, the Bad and ???

Couch Potato continues his mini-series of articles on the club's finances.

Having asked how much cash we were supposed to have received from our one season in the Premier League, he now continues his search for the Holy Dosh by looking at Directors loans and share purchase.

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Okay team! We've made some decent headway in determing what Bfc's income has been since the wonderful win at Wem-ber-ley.

This article is going to look at a different source of cash: principally directors' loans, but with a nod in the direction of sales of shares, and a note that loans can be loaned out as well as loaned in.

I hope it's going to work out as helpful if I divide these comments, which as ever are designed to encourage anyone to share not only what they think but also what they know, into sections: some theory and general principles; the history of such loans at Bfc since about a bit before ur PL dream began; and the special case of Brendan Flood.

THEORY AND GENERAL PRINCIPLES

Can anyone categorically confirm that Bfc is a private, rather than public limited company? I more or less understand private limited companies, as I run one, and have negotiated and accounted for shareholdings and directors' loans in it. (All on a medium-small scale, I should add. It's fun and fascinating rather than wildly profitable. So you're wasting your time badly if you think I'm going to bail out Bfc, let alone buy the drinks next time we meet.)

Very roughy speaking if a director wants to put money into a club, they can give it money, lend it money, or buy new shares in it that aren't already owned by anyone else. (If they buy shares from someone else, that someone else gets the money, not the club.) If you give it, you lose any control over what happens, so it's not likely anyone's going to do that, except maybe when they die.

To buy new shares is a bit complex. All - ALL - the other shareholders have to asked if they agree to the new shares being issued, and a majority (1/2? 2/3? I forget exactly.) have to approve it. Then ALL existing shareholders have to be given the right to buy the shares in proportion to their existing shareholding. It's unlikely to be a swift process. And some existing shareholders won't want their stake and their degree of control watered down. So, for example, when there was the recent LT story about Barry maybe selling shares to Brendan, the two of them cannot just arrange the deal and tell everyone else about it later.

For reference, the same anxieties about ending up with a smaller stake are unlikley to have occurred when some season ticket holders traded in their PL Pledge refund for shares, as the stake any one of them wold have got would not have been big enough to make a difference in who had what power. (It's also possible that they were non-voting shares, as a lot of shares are in Murdoch's family-dominated empire. But that's a whole new can of worms and probably best ignored.)

So, if money is needed quickly, or if other shareholders want to see how a new investor behaves as a director before giving him the power brought about by his new money getting votes in proporiton to thier shareholding, directors' loans come into play. They can also be useful for someone who wants to put money in, but also wants an easy way of getting it back, either after a fixed period of time, or after something like a big cash inflow happens.

Anyone still awake?

Well. sorry, you need to be able to understand this sort of stuff, and probably better than I do, if you're going to earn the right to have people listen to you when you sound off about directors' loans! :-)

Oh and stand by for CrossC or someone else telling me I'm 10 years out of date, or am confused for some other reason... It could well be true!

A SHORT RECENT HISTORY OF BFC DIRECTORS' LOANS

I have no clue as to which directors had loaned how much to Bfc before the famous Board meeting written about in Brendan Flood's book (and which therefore tells his side of the story, but I have not head anyone contest it). But at that meeting, broadly speaking it was agreed that they'd all take a bigger gamble than they were used to, on the understanding that if Bfc got promoted they could have their money back; and if they didn't they could sell players to get their money back... in both cases if that's what they wanted to do at the time.

Dave Thomas tells the story that in the weeks before Wembley they had to put thier hands into their pockets again, to pay the Bfc bills. So at this stage we had a bunch of directors digging into thier personal savings for more than they instinctively felt comfortable with (and directors all have things like families and mortgages and kids going to college etc)... and they won the jackpot. Woohoo. Big time.

Who is any of us to criticise them for standing by the deal they'd agreed to and asking for their money back?

Then one of them died. Mr Griffiths, I think, or am I having a senior moment about his family name as well as his given name? He'd made his money in the package delivery business I think. I think he'd loaned Bfc quite a lot. And when he died do any of us know exactly what was said in his will, or wasn't said in his will, about what should happen to those loans?

If there was nothing in his will, his executors would have had no choice but to ask for it back.

That might well have made the other, probably smaller loaning directors decide they'd have thier money back too please as, remember, the economy was in a serious nosedive at the time, from which it has nt yet recovered, and seeing Mr Griffiths's loans get called back would have made them uneasy.

Are we saying they should have put your fanaticism and mine about a football club ahead of looking after their families? Or are we imaging they all have loadsamoneytoburn? What's your evidence of that?

Then there's...

THE SPECIAL CASE OF BRENDAN FLOOD

Again much of it is set out in his book....

Even in the week of Wembley, the part of his savings that were in the company Modus that he had set up and led was getting caught up in the mega banking crisis that had kicked off the previous September. He was also having to deal with a number of bereavements in his family at the same time. Not easy.

The tricky part for Bfc was that a chunk of his loans, we learned later, had been made through Modus, rather than by Brendan personally. There could have been any number of reasons for this, for example that Modus had the cash ready to loan, and Brendan couldn't do that personally as quickly as Bfc needed it. Who knows? I don't. I do have it on good authority that he does have money that is not involved in Modus. But the rest is educated guesswork.

Then the economy got worse, and Allied Irish Bank called in a loan they had made to Modus, which pushed Modus into administration. Brendan and AIB are still in dispute about that, as was recently reported in an LT story; and it sounds completely unclear as to who is going to end up winning and who losing. The stakes are very high. The court case kicks off in June 2012.

Back in something like autumn 2009, the Modus administrator was doing what administrators have to do, and getting their hands on all the Modus cash they could, which meant calling the Moduis loan to Bfc back to Modus. For all I know, this might well have been going on right at the time *oyley was asking for more cash and threatening to flit off if he couldn't spend it on his latest Guerrero fantasy when just about everyone on VB was saying we need defenders and tackling midfielders. Not good timing.

I have seen it written on a message board that the loan was paid back with substantial interest. What I have not seen anyone claim to know is whether that interest rate was part of the initial loan agreement made between Brenadn/Modus and Bfc, or something that came into play with the force of some law or other relating to adminstration of companies after AIB pushed Modus into a mess.

CAN WE REACH ANY CONCLUSIONS?

It's not easy when you have so few of the facts.

But it seems inescapable that fate was dealing Bfc some nasty blows almost exactly at the same time as it was also smiling on us so kindly on the Wembley turf, and in those glorious first few PL weeks when we got spanked (badly) on the road, but won enough at home to keep the dream alive.

Was anyone to blame? Well, we all want to be able to blame someone, and if there's no clear culprit we all do tend to lash out at the biggest easiest targets we see. It's human nature.

Standing back from that impulse in this article, there's one conclusion I am prepared to offer..

That it's much better to operate a club on solid investments than on loans if at all possible, because, as we've seen in this story, funny things can happen to loans.

And I'll stick my neck out and make another conclusion...

That every single Claret fan is deeply indebted to those directors - and Modus - for the loans that made the PL year possible. And maybe each of us needs to remember that even as we have to deal with the aching disappointment of working out why the dream didn't go exactly the way we all wanted.

I'd better stop now, or I might say something rude. So that's it. I'm finsihed.

What do you think of this article? What info can you add? Do you need to rewrite this, my version of this part of our shared history?

Rememebr - there's already a thread on the VB home page called '£60million plus?' about how much money the PL dream earned us. Others will follow about how the money got spent, and on what an possibly fantasy identikit new Bfc investor/director might look alike.

Right now I need to send this article to tmp, and get some rest before making the journey to Plainmoor tomorrow to cheer on the lads against The Gulls.

THE END (bot not yet closure)

Couch Potato