There was something that was puzzling me about all of this Sports Direct loan business.
I realised that I had to speak with someone who knew much more about it than I did.
After an interesting chat with my Square Mile chap, I asked him to look again at the recent accounts of Rangers International Football Club (RIFC).
Here is what he had for me:
“As you requested, I have reread the accounts playing very close attention to all matters relating to the £5m loan.
THE FOLLOWING POINTS ARE HIGHLIGHTED IN THE ACCOUNTS.
- The £5m is classified as a non-current liability, this means that the repayment is not due to be repaid within 12 months
- The £5m is noted as being interest-free
- The £5m has “no specified repayment for the first tranche of the facility.
All of the going concern issues relate to the ability of the company to trade for the next twelve months. Therefore, the critical question is very clear.
In preparing the accounts and providing documentation to the auditors, what assurance has been given the SD would not request repayment within twelve months.”
He then pointed out to me the relevant section in the recent RIFC Accounts:
The Board of Directors (“the Board”) are required to prepare the statutory financial statements on the going concern basis unless it is inappropriate to presume that the Group and Parent Company will continue in business. In satisfaction of this responsibility, the Board have considered the Group’s ability to meet its liabilities as they fall due. The Group’s business activities, together with the factors likely to affect its future development and performance are set out in the Strategic Report. The Strategic Report also describes how the Group manages its capital, its liquidity risk and its exposure to credit risk. The Group meets its day to day working capital requirements through existing cash facilities, shareholder loans and finance leases. Management information tools including budgets and cash flow forecasts are used to monitor and manage current and future liquidity. The Board acknowledges that there is a level of uncertainty in the general economic environment which may impact the trading position of its customers and suppliers. The Board has undertaken a recent and thorough review of the Group’s forecasts and the associated risks. These forecasts extend for a period beyond one year from the date of approval of these financial statements. The extent of this review reflected the current economic environment, the Club’s current and projected trading and position in Scottish football.”
The emphasis in bold comes from my guy. He stated to me that this was the crucial point that I had to grasp. He was very clear that the £2.5m requirement, in which that an initial tranche will be required in December, does not take into consideration any repayment of the £5m Sports Direct loan.
My guy was sure that a duly diligent outfit like Campbell Dallas must have seen some paperwork from the RIFC directors which allows this debt to be classified as ‘non -current’ (i.e. not payable within the twelve months from the date of the accounts).
This means that the £5m is not due until July 1st, 2016 at the earliest.
However, if that is true, then it does not explain the recent confusing scramble to raise the initial £5m.
This doesn’t, of course, address the issue about the possible existence of penalty clauses for non-payment of the £5m should Sports Direct consider the loan to be in default.
Now, my City Chap is not a soccer fan.
Harlequin FC are his first love.
However, he does know this accountancy stuff, and I am grateful to him for explaining it to me.
Somewhere in a parallel universe journalists in Glasgow would be all over this story and you, dear reader, would not be relying on someone in a foreign country.