Even the most uneducated business person knows the term liquidation isn’t a good sign, as Scottish Football Club Hearts found out this week. However how many of us, or fans as in Hearts case, actually understand what it means and how it will affect the future of such entities.
In layman’s terms, for Hearts Football Club, liquidation has arisen because of the inability of the club to pay off outstanding balances to creditors, which in this case is Her Majesty’s Revenue and Customs. Hearts have a tax debt of £450,000 that has to be settled by December 3rd and the clubs main shareholder Vladimir Romanov has made an appeal to fans for emergency financial help.
Many fans and other shareholders in the club have been left wondering why Hearts have been able to drop into such financial difficulty, which has resulted in an ultimatum stand-off with HMRC. Truth be told, it can be a very hard process for an owner or director of a company to admit of such difficulties because of the large amount of time, money and passion that has been placed into such business.
Although this may be the case there may have been many other tell-tale signs that the business was in financial difficulties such as, the owners and directors putting more and more of their own cash into the business to fund its debts and the business being constantly chased for non-payment of bills.
What are the next steps
Well, in Hearts case, it could go one of two ways and this is all dependent on Vladimir Romanov’s willingness to invest, the generosity of the fans and how lenient HMRC are willing to be. If all of these fail to bear fruit Hearts could find themselves going out of existence. The club and business doesn’t have a future unless it is able to restore the balance between its costs and its revenue, therefore wage bills have to be slashed and stricter financial rules must be put in place to stop this from reoccurring.
If Romanov, like many business owners, makes the difficult decision to cut his losses and cut investment to the business, the route of compulsory liquidation will proceed. For many business owners the process of liquidation is unchartered ground, as the last thing on a director’s mind when buying/setting up a company is it becoming insolvent. Due to this there are many business debt management organisations out there to help with the difficult process which is often filled with feelings of guilt, blame and grief.
Only time will tell us where Hearts Football Clubs state of limbo will end up, hopefully for all those involved a winding up order isn’t required and the club will rise from such difficult times.