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Open Letter to the shareholders of KHFC

19th April 2015

A PDF version of this letter can be found here

John Davies

Hire-It

Worcester Road

Kidderminster

Worcs

DY10 1HS

19th April 19, 2015

An open letter to the shareholders of Kidderminster Harriers FC

Having had time to read and digest the story in last week’s Shuttle which is very derogatory towards me and the role I undertook as Director at Kidderminster Harriers I feel the need to respond with the facts that have actually led to the club being in the position it is in.

Anyone who read the article would assume I have no experience or ability to run a business however, for the last thirty years I have successfully run Hire It, employing twenty local staff through two recessions. I took this experience to the Harriers and with directors Ken Rae and Gino Ruffinato helped the club through a period where we inherited a number of large financial commitments brought about by sacking of two previous managers. We all worked diligently, within our means and were assisted by the generous contributions of supporters, KHIST and Ernie and Kath Lane.

The club is actually in a much better financial position than it was in nine months ago but the situation where players and staff were not paid was a huge embarrassment. 

I feel that Ken, Gino and myself have been made to look responsible for problems at KHFC and would like to share the events with you so you can make your own minds up and perhaps avoid such situations in the future.

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Over the last three years the Club have had a playing budget in excess of what could be afforded based on its self-generated income and have relied upon the support of its principal benefactors, Kath and Ernie Lane.

The playing budget the club could afford for 2012/13 was around £300-£350,000. The directors allowed the manager to utilise a budget of £600,000-£650,000 based upon a verbal undertaking given by Kath and Ernie Lane that they would fund any shortfall if one arose since the budget as set ignored cup winnings and transfer fees received. In January 2013 Jamille Matt was sold, the net amount received by the club was £240,000. Since this sum was received immediately it removed the need for Kath and Ernie Lane to put in any substantial funds, but financially the Club were no better off. The transfer monies received contributed significantly in reducing the forecast loss for 2012/13 and indeed the monies from the Stockport and Wrexham games covered the remaining deficit such that the accounts for the year ended 31 May 2013 recorded a surplus of £82,046 taking into account the monies injected by a number of shareholders prior to Jamille Matt being sold.

The directors were concerned at the exposure to the Club based on setting a playing budget in excess of what could be afforded based on a verbal undertaking. Therefore in January 2013, within the transfer window, due consideration was given to consider what expenditure could be committed to on the playing budget, not only for the remainder of the 2012/13 season, but also for the 2013/14 season since players signed in January 2013 would want security of a contract through to May 2014. A meeting took place on 23 January 2013 between Mark and Ruth Serrell, Kath and Ernie Lane and Steve Burr. Various options were presented based on the playing budgets to be set and after much discussion the following conclusion was minuted:

“Following an in-depth conversation about the above presentation from MS, EL & KL agreed to continue support to KHFC and in particular SB to ensure KHFC has the best possible opportunity to gain promotion to the Football League.

EL & KL agreed to fund a worst case scenario cash deficit of up to £319,000 in the 2013-14 season as predicted in the Cash Flow recently produced. It was also agreed that if the income received exceeded the estimates or the expenses estimated are less than anticipated and the deficit is less, then their financial support will match the lesser deficit.

Furthermore EL & KL have agreed that SB can pursue transfer targets and they are willing to fund any transfer fees paid.”

The minutes of this meeting were signed by all five people present, and the signed minutes and decisions were ratified at the board meeting on 31 January 2013 when the directors thanks to Kath and Ernie Lane were recorded.

Matters within the Club worsened when Steve Burr was approached and interviewed by Forest Green Rovers for their vacant manager’s job. A meeting took place at the Gainsborough House Hotel between most of the directors, including Kath and Ernie Lane, and Steve Burr, where it was agreed Steve Burr would stay on as the manager of KHFC, although it was subsequently unanimously agreed by the directors at a board meeting that he should leave.  Mark Serrell provided details of Andy Thorn who he proposed be appointed as the new manager, this decision was unanimously agreed by all of those present, including Kath and Ernie Lane. As is subsequently well recorded Andy Thorns tenure was terminated, together with his assistant. The Club therefore had to enter into financial settlements not only with Steve Burr but also with Andy Thorn and his assistant.

The FA cup run in 2013/14 and the sale of Joe Lolley (some of those transfer fees being deferred) produced income in excess of those budgeted, but clearly expenditure was in excess of that included in the budgets set in January 2013. Ernie and Kath Lane were asked to introduce funds in accordance with the agreement they signed on 23 January 2013 but they refused and resigned on 4 June 2014.

In the meantime in May 2014 two recognised players were signed on two year contracts and the decision was taken to renew the playing surface of the pitch, some of which was grant aided.

Various allegations have been made by Kath and Ernie Lane regarding monies being unaccounted for, a figure of £400,000 has been mentioned. To the best of my knowledge all monies are correctly reflected in the clubs financial records, including the monies from the FA Cup run including associated monies from radio and TV stations and The Sun newspaper.  For all FA cup games a return has to be made to the FA of all ticket sales, on which vat has to be paid over, these returns detail all police and security costs and are signed by both clubs. The amount of profit generated from the FA Cup run turned out to be disappointing. For the Sunderland game the police charges together with those of gatemen/security/medical staff amounted to £46,650 of which KHFC suffered half. Out of the net gate receipts 10% has to be paid to the FA Pool. KHFC received £59,056 from the gate receipts of the Sunderland game and bonuses had to be paid to the players for the FA Cup run.

Various discussions took place and e-mails and letters were sent to Kath and Ernie Lane in June 2014, including draft accounts for the year ended 31 May 2014 confirming the various income streams. An offer was made to Kath and Ernie Lane for myself together with Joe Hancox and Ken Rae to go through all of the figures, with Kath and Ernie Lane’s own accountant present. This offer was not taken up.  As a result of an unwillingness to discuss the financial position and financial contribution required (subsequently calculated by the club as £120,000 although the directors, through solicitors, said on 10 July 2014 that £100,000 would be accepted on deferred terms in full and final settlement to avoid further unpleasantness) the directors regrettably had to seek legal advice in June 2014 which resulted in Kath and Ernie Lane threatening to call in the Fraud Squad, a proposal welcomed by myself and my fellow directors since we had nothing to hide.

The directors met with the major shareholders, Barry Norgrove, Neil Savery and Jane Murrant during this period to acquaint them of the facts but nothing of any great significance was achieved.

Paying the wages in June/July/August/September was very difficult as well as settling the monthly PAYE cheque and quarterly Vat payment, as well as ordinary suppliers to the Club. Because the VAT was not paid on time at the beginning of July 2014 the Football Conference imposed an embargo on the Club for a time which delayed the registration of two players.

A statement about the lack of monies was put on the Clubs website on 16 July 2014 stating that as a result of legal action being taken no public comment would be made by the Board.

Whilst the legal action was being threatened Joe Hancox, the clubs financial director wrote directly to Kath and Ernie Lane on 21 July 2014 setting out all of the financial figures included in the 2013/14 accounts and suggesting a meeting to no avail. At the same time the directors took advice from an insolvency practioner.

On 17 August 2014 a letter was sent by Joe Hancox to the shareholders with a holding of more than 5%, namely Neil Savery, Jane Murrant, Barry Norgrove, Mark and Ruth Serrell, Ernie and Kath Lane, Wayne Allen and Dave Reynolds plus KHIST. At that date those shareholders accounted for 82% of the Clubs shares. Part of that letter was to inform shareholders that expressions of interest had been received from potential new investors, but it would likely mean that the existing shareholders would be prepared to relinquish their shares and offering a meeting. The only shareholder to respond was Mark Serrell and no meeting was held. 

In the last week of August I met with Kath and Ernie Lane to try to achieve some form of agreement with them since the Club would not be able to pay the wages due to the end of August and Joe Hancox spoke to Barry Norgrove who subsequently went to visit or spoke to Kath and Ernie Lane with Neil Savery. On 26 August 2014 the principal shareholders were told by Joe Hancox that the Club would not be able to meet the wages due at the end of August in full. At a board meeting held on 28 August a statement was agreed stating that the directors were looking for fresh investment which was released on 30 August 2014.

Meanwhile Ernie Lane had turned up at the Club on Wednesday 27 August and discussed the cashflow with the Clubs accountant, I received a phone call from the club to say Ernie was going and I joined the meeting. Ernie said he was holding a meeting that evening to discuss raising funds to invest in KHFC and if successful he would be joining them. I asked him what would happen if nothing materialised from that meeting. He said he had a friend that would back him and he would be at the club with a cheque the following morning to cover the shortfall. He promised myself and the club accountant that he would phone no later than 9am on the Thursday morning.

Ernie also attended the England v Czech Republic game that Wednesday evening and independently told me, Ken Rae, Gino Ruffinato, Gary Whild and the club accountant that he would pay the August wages and would transfer the funds into the KHFC bank account the next day on 28 August 2014. Those funds didn’t arrive and mid-morning on the 28th Ernie said he had changed his mind. Joe Hancox was working at the Club on the 28th and sat down with the Club’s general manager and accountant and agreed to pay all players and staff as much as the club could afford out of available cashflow which was 30% of their net wages. Joe Hancox in the company of the general manager went into the changing rooms and told the players on their return from training on the 28th of the position.

On 2 September Joe Hancox e-mailed the three major shareholders to arrange a meeting but only one of the three responded but couldn’t make a meeting for the next two weeks. As a result of the broken promises and the apathy from the shareholders Joe Hancox resigned as a director of the club on 2 September 2014.

From that date until 31 December Ernie and Kath Lane put just over £110,000 into the Club. Since 1 January 2015 they have injected a further £30,000 and had agreed with Ken Rae, as Chairman of the club that they would finance the cashflow needed to the end of the current season. Ernie had also told the players he would be doing so. However last week he again changed his mind and I arranged a meeting between Ernie and the players so that they knew exactly what was going on. That meeting scheduled for Thursday 9 April never occurred and as a result my position was compromised and I resigned as a director of the Club.  Contrary to media reports, I informed everyone by text message of my intentions ahead of the majority shareholders so-called intervention.

(Screenshot of text message)

I would however confirm that two weeks ago I paid the Club for my Company’s sponsorship of the players’ shirts for 2015/16 in order to help with paying wages and creditors of the Club.

- - - -

So there you have it. Whilst we’d all like to have people giving over money and bank rolling our football clubs, you can see the instability it can cause. We, the directors budgeted on the promises made by the Lanes, promises made in front of fans at a fans forum and directly to the playing staff. When the money didn’t materialise we had no way of paying the staff. The reason why the players were calling for a meeting with the Lanes is because the people who told them they would pay their wages, were in fact withholding the money. This is probably why the Lanes didn’t turn up to the meeting and ultimately why I resigned.

I am a life long fan of Kidderminster Harriers and throughout my time as Director the club’s interests were my sole intention. I and my fellow directors have been subject to criticism which I feel is wholly inappropriate and unjust from the majority shareholders. If they felt, as has been said, that they needed to intervene in April 2015, you must wonder where they were twelve months ago when the situation was considerably worse.

Yours sincerely,

 

John Davies

18 April 2015

A PDF version of this letter can be found here

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