EY manages day to day finances of Birmingham City

20 February 2015 Consultancy.uk

Birmingham City's parent company has gone into voluntary receivership, with its day-to-day operations taken care of by accounting and consultancy giant EY. While the reasons for the receivership are not clear, recent shareholder activism from its jailed former owner attempting to take control of its board may be behind the move.

Birmingham City and its parent Birmingham International Holdings Limited (BIHL) have had a troubled few years. In 2011 the football club relegated from the Premier League and has since only managed to secure a meagre 13th place in the 24-team Championship League. One of its largest shareholders, Carson Yeung, who led the takeover of the club in 2007, now owning 27.9% of the holding company, was convicted to six years in prison for laundering £55 million in March 2014. Further, in November 2014 it was revealed that the FC’s boss was to be paid, on top of his other remunerations, £2 million for “consultancy fees” by BIHL. In addition, it was recently disclosed that BIHL has contacted Hong Kong police after discovering that a former employee may have "misappropriated" £2.5 million.

Birmingham City FC

In a recent statement, the board of directors of BIHL disclosed that it has sought voluntary receivership and that its day-to-day running would be delivered over to the EY. The press release makes it clear however that the receivership is not a forced liquidation and that for the moment at least, fans will not be affected by the boards decision. “First and foremost, the Club wishes to reassure its supporters and staff most emphatically that no winding up petition has been filed against the Company (BIHL) and that it is therefore not in liquidation,” says the statement by Birmingham City Football Club. “Without any obstruction or distraction, the Receivers will be able to manage the day to day activities of BIHL, take control of its finances, carry on the business of the Company and take such steps as may be necessary for the purpose of preserving the future of the subsidiary BCFC.”

While the exact reasons for the decision have not yet been disclosed, recent press surrounding the issue has identified the continued influence of Yeung from behind bars and the disruptive effect this has had on the BIHL board as the likely culprit. Yeung is purported to be engaging in an act of shareholder activism, whereby he is attempting to force BIHL’s board to oust three of its directors so that he may install three of his own associates, apparently including his partner and his driver.

Birmingham FC - Boardroom

To enact this form of shareholder activism requires that Yeung needs to control a sufficient number of shares. However, since he has been convicted of a dishonesty crime, he is not allowed to own more than 30% of the company’s shares and thus not be a ‘relevant person’. However, according to BIHL’s board he is acting in alliance with a British Virgin Islands company, U-Continent Holdings, which owns 15.5%. Giving a combined force of 43.4% of the vote. The independence of this alliance has worried the board, with a concern that Yeung, against the rules of his not being permitted to wield director level influence, is controlling U-Continent Holdings’ votes. “The Football League has written to Birmingham City today to ask for clarification as to whether this statement demonstrates that Carson Yeung should be defined as a ‘relevant person’ under the Owners and Directors test [meaning that he owns more than 30% of a club or has influence over the running of it] while being subject to a disqualifying condition.”

Since the battle over control of the company at the board level continued to be waged, in a possibly strategic move, the current board decided to opt for receivership, according to a statement by Birmingham City. "With no apparent resolution to the fractious and inharmonious relations within the management, the majority on the BIHL board decided it had no other option but to openly and voluntarily request reputable receivers to take over management on its behalf.”