A Question for The Accountants (1 Viewer)

stupot07 · Mar 7, 2014

italiahorse said:
Anybody with an ounce of intelligence would know why they needed to do it.

The alternative is that SISU (not CCFC) would obtain control of the Ricoh (To do what they want, including knock it down) and CCC would loose millions on a project that if they had not rescued would have seen CCFC homeless.

I personally would want the safety and security of CCC than the loose cannon of SISU.

How would ACL going bust and sisu obtaining control of the Ricoh entitle sisu to knockdown it down? They would only the leasehold only in that scenario, and the ccc wouldn't be obliged to sell the freehold to sisu or anyone else for that matter and would in all likelihood still own the freehold in this scenario.

CCC would also have the option to selling the leasehold on the open market?

Sent from my iPhone using Tapatalk - so please excuse any spelling or grammar errors

lordsummerisle · Mar 7, 2014

Astute said:
How do you see a problem if they are linked?

I would think there would be more of a problem if they were not linked and CCC had provided funds to stop SISU from ripping off a private company and charity.

You could say that changing the remaining loan of 14.4 million over 15 years to loan of the same value over 40 years, ensuring that far,far more is repaid than would have been the case if the original loan had continued is ripping off a private company and charity.

If the councils loan(again no details as far as I'm aware on the terms of the loan) is on the same terms over 40 years then the local tax-payer would also be paying a huge amount for the privilege of doing so.

hill83 · Mar 7, 2014

Astute said:
I thought that was Grendels and your job After all it is what the original and following questions were about getting from people on here.

Fair point.

It's worked though. In it's internet forum sort of way.

Astute · Mar 7, 2014

Grendel said:
Many people on here have maintained that these two companies are independent. For example when the rejection of the CVA was made many posters differentiated between the two organisations and stated that ACL were independent and had a duty to their shareholders and not the council or the club.

At least we now acknowledge that this is hogwash. ACL is a council quango.

The loan deal if the terms are as suggested proved this. Why was it done? OSB’s health check on ACL’s accounts is very positive and the cash flow doesn’t appear to be an issue at all. The payback on the loan now is upwards of £32 million based on the assumed interest rate so the Yorkshire Bank loan would have had to have had an interest payment in excess of 13% to even match the capital outlay.

As a commercial loan the council will at the estimated rate profit by around £880,000 which means ACL must exist as a going concern for some 38.5 years to avoid a loss. As a return it is not an investment worth pursuing.

So a healthy company is given a revised loan from a public body that owns the company and clearly dictates strategy.

I am sure some people will be happy with this and I suspect some others may not.

Are you trying to tell us that you don't understand what independent but linked means?

They are run independently. They are independent of each other. But of course they are linked.

lordsummerisle · Mar 7, 2014

Astute said:
Are you trying to tell us that you don't understand what independent but linked means?

They are run independently. They are independent of each other. But of course they are linked.

Are you giving evidence for Sisu at the JR?

Sisu lover!

Grendel · Mar 7, 2014

Astute said:
Of course CCC and ACL are linked. Just like SISU/Otium/CCFC LTD/ARVO/whatever they call each section presently.

To me this is a good enough reason to look after their own interests. And it is what they have done.

How is it looking after their own interests to dump a long term loan on a company with sound financial health and for the provider to carry the risk on the loan if the loanee defaults within the next 38 years?

Astute · Mar 7, 2014

lordsummerisle said:
You could say that changing the remaining loan of 14.4 million over 15 years to loan of the same value over 40 years, ensuring that far,far more is repaid than would have been the case if the original loan had continued is ripping off a private company and charity.

If the councils loan(again no details as far as I'm aware on the terms of the loan) is on the same terms over 40 years then the local tax-payer would also be paying a huge amount for the privilege of doing so.

But making something affordable so it don't get taken from you by some hedge fund so you lose your investment would be worse?

fernandopartridge · Mar 7, 2014

Astute said:
But making something affordable so it don't get taken from you by some hedge fund so you lose your investment would be worse?

That's the logic behind companies like Bright House or catalogues

Astute · Mar 7, 2014

Grendel said:
How is it looking after their own interests to dump a long term loan on a company with sound financial health and for the provider to carry the risk on the loan if the loanee defaults within the next 38 years?

When I took my first mortgage on years ago I took it over 25 years. As my income grew I took out a new mortgage and reduced the term. It didn't take much extra in payments to do this. I became mortgage free after about 12 years.

If ACL do the same they will keep putting profits into repayments like they have so far. Nobody has taken dividends. The total owed has gone down.

Astute · Mar 7, 2014

fernandopartridge said:
That's the logic behind companies like Bright House or catalogues

So 5%APR and 50% APR are similar?

lordsummerisle · Mar 7, 2014

Astute said:
When I took my first mortgage on years ago I took it over 25 years. As my income grew I took out a new mortgage and reduced the term. It didn't take much extra in payments to do this. I became mortgage free after about 12 years.

If ACL do the same they will keep putting profits into repayments like they have so far. Nobody has taken dividends. The total owed has gone down.

ACL have done the opposite.

Grendel · Mar 7, 2014

Astute said:
When I took my first mortgage on years ago I took it over 25 years. As my income grew I took out a new mortgage and reduced the term. It didn't take much extra in payments to do this. I became mortgage free after about 12 years.

If ACL do the same they will keep putting profits into repayments like they have so far. Nobody has taken dividends. The total owed has gone down.

ACL have trebled the term. You think that is a bad idea then?

The Prefect · Mar 7, 2014

Grendel said:
I am interested in a hypothetical situation here. If you have a business and you have another business that we are told is totally independant from the first and they ask you to get a loan for them for £14 million over 40 years and you managed to source this at 4.8% per annum would you advise your client to do this business and charge the totally independant business 5.0% per annum?

I today ran this by my accountant and he laughed his head off and said we all know the answer to that.

Grendel, there are circumstances where this might be done - in a commercial environment rather than that of CCC and ACL. For that particular transaction CCC will need to explain their rationale in the Judicial Review later this year.

Although many companies are 'independent' they can be linked through shared ownership. If Company B wants to borrow £14m then it can be seen as prudent to move that finance through a different company - Company A.

In your scenario Company A borrows at 4.8% and lends to Company B at 5% is feasible. This protects the lenders if Company B goes bust - the debt remains between the lender and Company A.

You'll remember that Orange Ken said that Otium came on the scene to provide finance for the football club - and it is very similar in this case. Multi-tiered corporate funding structures are designed to protect the value of the loans should there be a failure somewhere in the structure.

Captain Dart · Mar 7, 2014

lordsummerisle said:
ACL have done the opposite.

In a sense not really, ACL income has reduced, not increased, so they have extended the term to make payments manageable.
It is the same logic, with more flexible thinking, besides if the term was changed before it can be changed again if circumstances allow.

fernandopartridge · Mar 7, 2014

Astute said:
So 5%APR and 50% APR are similar?

Can mean the same total repayment depending on the term!

magic82ball · Mar 7, 2014

Grendel said:
Many people on here have maintained that these two companies are independent. For example when the rejection of the CVA was made many posters differentiated between the two organisations and stated that ACL were independent and had a duty to their shareholders and not the council or the club.

At least we now acknowledge that this is hogwash. ACL is a council quango.

The loan deal if the terms are as suggested proved this. Why was it done? OSB’s health check on ACL’s accounts is very positive and the cash flow doesn’t appear to be an issue at all. The payback on the loan now is upwards of £32 million based on the assumed interest rate so the Yorkshire Bank loan would have had to have had an interest payment in excess of 13% to even match the capital outlay.

As a commercial loan the council will at the estimated rate profit by around £880,000 which means ACL must exist as a going concern for some 38.5 years to avoid a loss. As a return it is not an investment worth pursuing.

So a healthy company is given a revised loan from a public body that owns the company and clearly dictates strategy.

I am sure some people will be happy with this and I suspect some others may not.

Educate me here then if you would as I don't see an issue.

You have stated clearly the risk reward ratio for the loan is very skewed, would not normally make sense in business terms to expose yourself to so much risk for such low returns. With this I agree. But, as the council have shares in The Ricoh and it is a business that employs many Coventry citizens, surely it goes beyond just what the rewards are for the council in monetary terms as OSB alluded to. Surely a failure to support the business would have wider ramifications on the councils initial investment and see many people unemployed, having further impact on benefit payments that the council would be liable for.

It is also not illegal for this support so i'm struggling to see an issue here.

Astute · Mar 7, 2014

lordsummerisle said:
ACL have done the opposite.

And if my income would have dropped I would have extended the term so I could have afforded the repayments instead of losing my home.

lordsummerisle · Mar 7, 2014

Astute said:
And if my income would have dropped I would have extended the term so I could have afforded the repayments instead of losing my home.

According to the accounts, the income had increased.

Astute · Mar 7, 2014

fernandopartridge said:
Can mean the same total repayment depending on the term!

Yes 1 year at 50% APR against 9 years at 5% APR approx. But if you could afford to repay in 1 year you would take 5% APR unless you are absolutely thick.

magic82ball · Mar 7, 2014

Grendel said:
ACL have trebled the term. You think that is a bad idea then?

As with most mortgages, there may be an option to overpay.

With residential this is usually 10% of the remaining balance PA or as much as you like when on a variable.

If this is the case, and there is no evidence either way to suggest it is not, then the mortgage will be paid of much quicker than the original term. In most instances it is prudent to do it over as long a term as possible to reduce the monthly payments to as low as possible and then overpay as much as you can. That way you are not contractually obliged for the higher payment of say a 10 year term but can reduce it down to 10 years with overpayment. It just means you don't have to find the contractually obliged higher amount if its been a tough month/year.

Godiva · Mar 7, 2014

CCC is NOT a company - they cannot simply be compared to a private company.
They have to comply to a different set of rules - state aid is one such set of rules.
They cannot just issue a loan on commercially beneficial terms for a private company - linked or not, owned or not - if this can be seen as unfair competition by traditional loan providers.

Astute · Mar 7, 2014

lordsummerisle said:
According to the accounts, the income had increased.

But at the time SISU stopped paying the rent the income had dropped. Just because the income has gone up since it doesn't mean they were wrong to make sure the future was safer. And extra profit than expected at the time can be used to repay part of the loan which will reduce the term very quickly as there will be more of future repayments going to capital owed reduction other than interest.

dongonzalos · Mar 7, 2014

Is it me or is this completely pointless.
ACL are half owned by the council.
Please don't say well that's the point. As it is a well documented point.
We understand what the JR is about.
Suggesting what you would do in completely different circumstances is completely pointless.
Comparing the two circumstances is completely pointless.

The question is straight forward are the council in these circumstances allowed to do what they did or not.

The question is not in completely different circumstances would you do this.

The first judge said emphatically yes the council can
The second judge did not say the council can't just 'fair enough SISU you can ask the question'

Can I ask where it has been stated that ACL is a completely independent company to its half owner?

lordsummerisle · Mar 7, 2014

Astute said:
But at the time SISU stopped paying the rent the income had dropped. Just because the income has gone up since it doesn't mean they were wrong to make sure the future was safer. And extra profit than expected at the time can be used to repay part of the loan which will reduce the term very quickly as there will be more of future repayments going to capital owed reduction other than interest.

Think the accounts were during the rent-strike.

Astute · Mar 7, 2014

Godiva said:
CCC is NOT a company - they cannot simply be compared to a private company.
They have to comply to a different set of rules - state aid is one such set of rules.
They cannot just issue a loan on commercially beneficial terms for a private company - linked or not, owned or not - if this can be seen as unfair competition by traditional loan providers.

Who said that CCC is a private company? Or isn't that the point you are trying to make?

ACL is 50% owned by CCC. They must by law look after their assets on behalf of the tax payer. Unfair competition for looking after their own assets? What planet are you on?

Astute · Mar 7, 2014

lordsummerisle said:
Think the accounts were during the rent-strike.

Which is what I said. But in the last few years there has been more going on at the arena other than football......especially this season. The problem is that an arena built for a football club can't guarantee an income without a football club. So it is best to keep outgoings down as low as possible. The arena might be making more money each season but without bookings years ahead they can't say about future earnings although it is looking good so far for them.

Huckerby · Mar 7, 2014

Huckerby said:
Grendel you're the most boring person on this forum

Apologies for this Grendel. Just annoyed me how un-hypothetical and oversimplified you made the circumstances of your question and I bit. My bad.

lordsummerisle · Mar 7, 2014

Astute said:
The problem is that an arena built for a football club can't guarantee an income without a football club. .

So probably not best to have taxpayers on the hook for £14million then?

fernandopartridge · Mar 7, 2014

Astute said:
Who said that CCC is a private company? Or isn't that the point you are trying to make?

ACL is 50% owned by CCC. They must by law look after their assets on behalf of the tax payer. Unfair competition for looking after their own assets? What planet are you on?

If they want to look after their assets 'by law' on behalf of the taxpayer, they shouldn't lease them to a private company!

edit - then again, is their asset really at risk? They own the freehold to it and if ACL goes belly up the leasehold returns to the council.

James Smith · Mar 7, 2014

Grendel said:
Many posters such as James Smith and MMM disagree with you. I would think that sisu in the JR will be trying to prove they are not independent hence the decision to approve a commercially undesirable loan.

I'd never say that they were totally independent as the council are owners of a company that owns shares in ACL. However as shareholders they can only (as I understsnd it) vote for who they want to sit on the board and they don't have a say in the day to day running of ACL. It is the hired help (as someone once described directors to me) who have been elected to do this. In the case of ACL both shareholders have voted two directors on to the board each and there is one or two independent director(s) in case of deadlock. You could argue I suppose that the council are only shareholders through owning the other company and not direct owners. I'm not sure that would add enough separation legally to say that the council weren't shareholders in ACL.

Now something that confuses Mr Labovitch is where someone is a director of one firm but acting as a director of another firm where both are represented at a meeting. I don't know why he finds this difficult to understand.

Hobo · Mar 7, 2014

So there is CCC and a company called Whitefriars is set up to manage housing stock. They are given funds to do that by CCC. They also do deals with building firms and hand over Council houses that are knocked down and rebuilt. Some of the new stock end up with Whitefriars and some with the builder.

Happens all over the country with the approval of the Government and the EU.
And the point is Grendel?

Godiva · Mar 7, 2014

Hobo said:
So there is CCC and a company called Whitefriars is set up to manage housing stock. They are given funds to do that by CCC. They also do deals with building firms and hand over Council houses that are knocked down and rebuilt. Some of the new stock end up with Whitefriars and some with the builder.

Happens all over the country with the approval of the Government and the EU.
And the point is Grendel?

Is the CCC loan to ACL approved by EU?
Does it have to be?

fernandopartridge · Mar 7, 2014

Hobo said:
So there is CCC and a company called Whitefriars is set up to manage housing stock. They are given funds to do that by CCC. They also do deals with building firms and hand over Council houses that are knocked down and rebuilt. Some of the new stock end up with Whitefriars and some with the builder.

Happens all over the country with the approval of the Government and the EU.
And the point is Grendel?

Sorry mate - that is a specific government policy - councils were made to transfer their housing stock to a 3rd party as the government wasn't prepared to maintain them on the state's books. Whitefriars is a registered social landlord and is not for profit. It isn't competing in the open market as such, the comparison with ACL is false.

Astute · Mar 7, 2014

lordsummerisle said:
So probably not best to have taxpayers on the hook for £14million then?

It depends on how much something is worth and what the outlook is. And what is there to say that the taxpayer is at risk?

lordsummerisle · Mar 7, 2014

Astute said:
It depends on how much something is worth and what the outlook is. And what is there to say that the taxpayer is at risk?

If ACL can't repay the loan, then the council will have to.

A Question for The Accountants (1 Viewer)

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