Local club insolvent, want to help

[pompeygazza]

Good morning,

our local club has been crippled by the energy bills and is no longer viable in its current state.

A couple of us wish too loan the club £25K each to keep it afloat, interest free, payable whenever.

They lease a large plot of land (45 years to go) on which they have built a large clubhouse (insured for £400k, no mortgage). Other assets include tractor, tools furnishings etc.

Can we secure our loan against the building and how easy is it to do?

Also if it does fold in the future even after our loan is made, who is responsible for selling the building to get our monies back?

Thanks.

[Howard]

The solution you propose could involve major legal issues?

Would an easier solution be to widen the number of supporters and ask them all to give, say £5,000 or a smaller amount each? No legal strings attached. If you get ten or more volunteers this would raise the amount required and ensure a core of keen supporters. It could be structured in a way to keep things simple so all the energy of the supporters goes on backing the club's activities. And some recognition of the gifts would be appropriate.

Good luck in saving the club.

Howard

[DrFfybes]

I would say the building is worthless, certainly a flat with 45 years left would be difficult to sell or raise a mortgage on. Once the lease expires will it not revert to the freeholder? The other assets obviously have value, but will it cofer the debt?

The other issue is if the club is insolvent now, what makes you think it can recover? Is there a plan in place for this recovery?

I admire your generosity and optimism, but I do suspect your chances of getting the £25k back are not great unless a solution to the cause of the problem is found.

Paul

[didds]

The other issue is if the club is insolvent now, what makes you think it can recover? Is there a plan in place for this recovery?

This is the crux really. It comes down to why the club is insolvent - is it lack of footfall/interest? CF village pubs closing because the villagers on the whole only frequent it on birthdays and Christmas. Or is is some unfortunate unforseen issue that is a one off payment never to return?

the former sort of issue will mean the same issues will only ever arise again at some juncture.

the latter at least means the place is otherwise viable.

But IF the former sort of issue my gut feel is is its good money after bad as in reality, wonderful place that it may be, not enough people feel the same and its viability is questionable. In which case that 25K/50K may be better off spent on getting all and any interested parties round each other's houses and the booze and food provided from it.

[pompeygazza]

It's lack of footfall predominantly during the week and the committees refusal to close any nights of the week (some we have 1 person visit). Our new proposal is to open only for Friday evening, and over the weekend (20 hours instead of 44.) thus saving all the weeks electricity (huge amounts of wasted energy, lights left on, chiller running 24/7 even in this weather!)

The fact that we're skint has only come to light in a week (monthly meeting figures have always seemed good) and they've announced that we are to close on Jan 3rd. Lots of accusations being thrown at the treasurer as you can imagine.

We do have a large compound for working on approximately 10 boats and it is also proposed to double the monthly fees (currently £30) and charge a £100 retrieval and launch fee (currently free). We also have 10 trailered boats who also pay a monthly fee of £30 (I think). We also have approximately 60 dinghy's stored in the compound which are used to get out to the boats on the moorings.

We also employ (not on zero hours) 2 stewards on 28 hour contracts. These will be made redundant and paid off as they don't want to reduce or change their hours. We will then use either zero hours contracts or volunteers (there were a few keen).

Freeholder is the council.

I've been a member since I was 13, 40 years this year. Hence my willingness to try and save it.

[DrFfybes]

This does sound more like you have a business rescue plan, as effectively the club is a small business with premises, income, etc. Certainly a bit different to what I imagined you meant.

You could invest in Solar or wind generation to help lower on-costs, but it does need to become profitable again to pay you back. One thing I would avoid is volunteer barstaff, IME you tend to find they do favours for mates more if they're doing you a favour. You obviously know local storage charges and could make more whilst remaining competitive, and it does sound like there is an option to rent out more space.

Is it feasible to rent the clubhouse as a venue as well?

Paul

[Dod101]

Apart from the comments by Paul, which may well help, It sounds as if there has been almost no financial management and that is surely the first thing to tackle. Then get a proper business plan in place. It will be like starting again. You need a treasurer who will produce monthly accounts and a sub committee that is prepared to analyse these carefully

What is the £50,000 to be used for? Paying off current debts, working capital or what? Only you will know what the assets of the club would be worth if they were to be sold off in a fire sale but I am afraid I think that the chances of your seeing your money again would not be very high.

This might not be the time to get external help/grants but they might be possible if for instance you were prepared to take young kids for sailing or rowing lessons or otherwise were able to show a 'community good'.

Dod

[pompeygazza]

It's predominantly a Fishing club. it's a no to taking children out as every member would have to be crb checked and with the insurance that's just not possible (our junior section collapsed because of this).

We are available to hire for private functions and these take anywhere between 1000 and 2000 over the bar (December is fully booked, six functions!). So that's 500-1000 beer profit before wages, electric etc

The 50k (doesn't have to be that much) is to be used to pay off debts (about 6k to electric, lay off stewards 10k) and a bit of slush only to be touched in emergencies.

currently have about 6k in account, but will owe 8k in January for moorings (4k of this has been collected, 4k being chased). This is the only bill the club is going to pay as it's effectively members money being passed on to crown of states (and will give members a year to sort out their boats).

[Dod101]

It's predominantly a Fishing club. it's a no to taking children out as every member would have to be crb checked and with the insurance that's just not possible (our junior section collapsed because of this).

We are available to hire for private functions and these take anywhere between 1000 and 2000 over the bar (December is fully booked, six functions!). So that's 500-1000 beer profit before wages, electric etc

The 50k (doesn't have to be that much) is to be used to pay off debts (about 6k to electric, lay off stewards 10k) and a bit of slush only to be touched in emergencies.

currently have about 6k in account, but will owe 8k in January for moorings (4k of this has been collected, 4k being chased). This is the only bill the club is going to pay as it's effectively members money being passed on to crown of states (and will give members a year to sort out their boats).

The reason I mentioned 'community good' is because my son runs a rowing club and what you said sounded rather similar but I can see it may not be appropriate for your circumstances. Surely you have the makings of a perfectly viable set up but it sounds as if it needs a bit of financial management. Clubs are not very good at that sort of thing. I took over briefly at our local history association to sort out their accounts. No one had done anything about our finances for ages and they were a complete muddle so I appreciate the problem.

Not answering your original question though, but why not loan them a more modest sum and get it recorded legally so that if the whole thing folds at least you will be on the record? Does the Constitution of the club say anything on the matter of taking on a loan? Or indeed about what happens on a winding up? You might like to get yourself on the committee to keep an eye on things, if you are not on it already.

Dod

[Hallucigenia]

Heh, I've direct experience of most of these conundrums. I can say I've been in one situation where the club was forced by a change in circumstance to move from employing someone full-time to essentially all-volunteer on a much smaller scale for a few years, but was able to build things up (with a lot of good will) back to the stage where they could employ someone again and largely get "back to before" despite the unfavourable circumstances persisting. So sometimes it can just be a question of finding ways to absorb the shock and then fixing things more gradually.

I would say the building is worthless, certainly a flat with 45 years left would be difficult to sell or raise a mortgage on. Once the lease expires will it not revert to the freeholder?

It's not worth nothing - but it is effectively a depreciating asset, so it's not worth £400k either. But potentially somone could find value in having a building for 45 years. It's more risky than a freehold, but it's not worthless.

Can we secure our loan against the building and how easy is it to do?

Securing loans is the one thing I've not had experience of, but I'd assume it's a question of paying a solicitor to draw up paperwork for both sides to sign.

This is the only bill the club is going to pay as it's effectively members money being passed on to crown of states (and will give members a year to sort out their boats).

That sounds like your landlord is actually the Crown Estate, the bit of national government that runs the property portfolio attached to the monarchy, notionally on behalf of the King but in reality it just gets used for general government spending.

Also if it does fold in the future even after our loan is made, who is responsible for selling the building to get our monies back?

If a company folds then an administrator (usually a specialist accountant) is appointed to run the company on behalf of the creditors, and either sell it as a going concern or sell off the assets. An administrator is a bit like a corporate version of the executor of a will.

It depends a bit on the current structure of the club - is it a community amateur sports club (CASC), a limited company, a charity, a partnership or what?

Is it VAT registered?

Just as a general comment - assume any money you put in at this point is gone. Until you've a) worked out the current state of the finances and b)come up with a realistic business plan then you have to assume it's money down the drain. And make sure the committee know that there is no sugar daddy without those two things. Hopefully this will have been a wakeup call for their fantasies, but it never hurts to keep banging that drum.

Normally in this situation the accounts will be a mess. There may be fraud or theft on top of that, probably not, but until the accounts are straightened out then you'll never know. If you have accountants in the club who can help then great, otherwise don't be afraid to pay a bookkeeper to a) straighten things out in the first place and b)spend a bit of time each week/fortnight/month keeping things up to date. It may feel expensive but it's not as expensive as accounts that are in a mess. Hopefully they are using something more sophisticated than Excel to keep the accounts?

Get a cashflow forecast - when do the big lumps of money come in and out? If you have debts then you need to talk to the people concerned ahead of time, explain the situation, how you love them, you've no intention of leaving, you just need a bit of time to sort things out. Usually that kind of approach does buy some time - and if it doesn't, then at least you know where the problems are. HMRC and the rates are usually the difficult ones. IME the Crown Estate can be quite difficult until they get to know you and feel that they can trust you.

Depending on the status there may be grants available, there's all sorts particularly if you can demonstrate community benefit.

Running a bar is a lot more complicated than the average punter realises - if you don't have anyone experience then don't be afraid to ask for help.Make sure insurance is up to date, and your have the paperwork for things like the premise licence - when is it renewed? When's the next fire inspection? Are you OK with Environmental Health? Also you will need a designated premises supervisor with a personal licence to sell alcohol - it's a £100 1-day course.

Purchasing for a bar is a whole other question, there are probably significant savings to be had if you're smart about it but that's something for later, you've got enough on your plate at the moment.

You could invest in Solar or wind generation to help lower on-costs

The odds are that there's a whole load of quicker fixes, but it's certainly not a stupid idea if the capital is available, and one could structure it so that eg the solar panels are owned by a company owned by PG and friend, and just pay a groundrent to the club if that's allowed. For a typical pub that is using most of the electricity generated, the payback can be as little as ~2 years at current prices, but in this situation it would not be as good as you're just getting export rates for most of the week. On the flip side, if it's a big site, then it may be possible to have ground-mounted PV panels rather than roof-mounted, which saves the cost of scaffolding etc so reduces the payback period. And you could perhaps mount the panels on the roof if the space was needed and more funds were available. Only problem is that everyone wants solar, so I know some installers quoting a year waiting list, 6 months is pretty normal at the moment.

The other question is - what scope is there to increase usage? If you're not opening in the week then it's possible to hire out the room for lectures, pilates, yoga all those kinds of things. OK so it may not be worth opening the bar for the pilates class, but just room rental (net of electric etc) is still cash in the bank.

[pompeygazza]

Well things have moved on at a fair pace since myself and the other chap stood up to be counted. We've had other individuals also offer sums (not as much as ours, but every little helps), which is good and the feeling of impending doom is going away.

We have managed to get the minutes from all of the meetings going back to when we reopened from covid and the other chaps missus (who runs his books for his firm) has gone through the financials from each month and is saying that it's more than doable if we can square up the energy bill and make staff redundant (which we can).

The landlady of one of the locals has been very supportive (she cut her teeth at the club as a barmaid) and has given us advice on energy saving (or how she does it, turn off everything at night basically, which seems good advice). She thought having chillers on in the cold room in this weather was mental (as did we when we found out)

just to clarify, our landlord for the building is the local council, but our landlord for the mud moorings is the crown of state.

What we are planning to do is (today) give the staff notice (it won't be a shock as they are well in the picture).

Next tuesday (when we've had more time to sit down and firm up our plan) is to have a special general meeting inviting all members to set out our plans and see if anyone else is interested in loaning (we intend to try and pay people back, but we will make it clear that it is a risk and only do it if you can afford to) some cash to help clear the two main bills.

I'll keep you all posted.

[Dod101]

Well things have moved on at a fair pace since myself and the other chap stood up to be counted. We've had other individuals also offer sums (not as much as ours, but every little helps), which is good and the feeling of impending doom is going away.

We have managed to get the minutes from all of the meetings going back to when we reopened from covid and the other chaps missus (who runs his books for his firm) has gone through the financials from each month and is saying that it's more than doable if we can square up the energy bill and make staff redundant (which we can).

The landlady of one of the locals has been very supportive (she cut her teeth at the club as a barmaid) and has given us advice on energy saving (or how she does it, turn off everything at night basically, which seems good advice). She thought having chillers on in the cold room in this weather was mental (as did we when we found out)

just to clarify, our landlord for the building is the local council, but our landlord for the mud moorings is the crown of state.

What we are planning to do is (today) give the staff notice (it won't be a shock as they are well in the picture).

Next tuesday (when we've had more time to sit down and firm up our plan) is to have a special general meeting inviting all members to set out our plans and see if anyone else is interested in loaning (we intend to try and pay people back, but we will make it clear that it is a risk and only do it if you can afford to) some cash to help clear the two main bills.

I'll keep you all posted.

Well done. Sounds like a good community effort. Hope you may have got some inspiration from some of the ramblings on this thread.

Dod

[Clitheroekid]

A couple of us wish too loan the club £25K each to keep it afloat, interest free, payable whenever.

They lease a large plot of land (45 years to go) on which they have built a large clubhouse (insured for £400k, no mortgage). Other assets include tractor, tools furnishings etc.

Can we secure our loan against the building and how easy is it to do?

In principle, yes, it's possible. But in practice there are a lot of potential obstacles.

The first question is whether the lease has any value. If you're paying a market rent then it probably won't have any value, but if the rent is at a fixed sum, or is set at well below a market rent then the lease may have a substantial value.

To take an extreme and very simplistic example, if the rent was just a fixed ground rent of £500 p.a. but the building could be rented out for £20k p.a. the lease would have a value of £19,500 p.a. at present, and that value would increase as the market rent increased over the next 45 years. Such a lease could easily be worth several hundred thousand pounds.

If this is the case then it may be possible to raise a secured loan from a commercial lender, obviating the need for you to put your hand in your pocket.

But there may be restrictions in the lease that make it unmarketable - for example only to use the property for the purposes of a social club, or even completely forbidding its assignment. And if it's completely unmarketable then it has no value to anyone but yourselves.

Likewise, although you haven't said what form of organisation the club is it will presumably have some form of written constitution, and this may restrict or entirely preclude it from entering into any borrowing arrangements. Again, have the constitution checked by someone who can advise.

These are fundamental points you need to check, and until you know the answers the rest is just speculation. I would therefore recommend as a first step that you have the documents checked by a lawyer to find out what's feasible and what's not.

[pompeygazza]

the rent is fixed at 2850 pa (or has been for the last 2 years, all the accounts I have)

We have had loans before from the brewery for refurbishments, but don't wish to go down that route as there were a number of clauses which restricted what we could sell and we could only buy from them. At present a brewery does supply us with the barrelled beer (but we are not tied in), we are free to get everything else from wherever we like.

We're crunching figures at the moment and the main killer is the fact we are open every day, staff wages are £720 per week, bearing the fact we are only open 43 hours, we employ a cleaner EVERY day despite only a couple of people being in there the night before. We reckon we could more than halve this if we open at weekends only (6ish hours per day unless there is a function) and just get the cleaner in for an hour to hoover and do the toilets.

Lots of energy saving to be had, we reckon we could save 60% or more from just a few simple measures.

Numbers for the loan seem to be coming down, now looking at £25k between us. Other members have also offered funding, so our exposure is looking like being significantly less.

None of the staff appear to have ever seen a contract although the treasurer reckons there are some, but she cannot produce them. We have been told that we have no obligation to pay them any redundancy, but we have no wish to go down this route as I believe that a court would see favourably towards them as they could show regular payments and even pension contributions. We just want to be seen to be "doing the right thing".

We have a well advertised meeting next Tuesday 20th to set out our plans going forward and to invite any more loanees to come forward.

Thanks for your help and advice so far.

[Clitheroekid]

the rent is fixed at 2850 pa (or has been for the last 2 years, all the accounts I have)

That sounds extremely low, and would indicate that the property may have a significant value.

Are there any provisions for rent review, and if so what do they say?

None of the staff appear to have ever seen a contract although the treasurer reckons there are some, but she cannot produce them. We have been told that we have no obligation to pay them any redundancy, but we have no wish to go down this route as I believe that a court would see favourably towards them as they could show regular payments and even pension contributions. We just want to be seen to be "doing the right thing".

The employees are entitled by law to a written statement of their terms of employment, and the club's failure to provide such statements is itself grounds for compensation from an Employment Tribunal.

It's therefore the club's fault that there are no written contracts, but the employees nevertheless do have enforceable contracts, and they are accordingly entitled to statutory notice, payment during the notice period, and (if they've been there for over two years) redundancy payments calculated in accordance with the statutory formula etc.

If they have been there for over two years then whoever told you they have no right to redundancy payments is a dangerous idiot, and you should ignore any other `advice' from them.

If you're not careful you could find yourself facing unfair dismissal claims in the Employment Tribunal, and the consequent need to borrow rather more than you'd anticipated! Very many such claims arise out of incompetence / failure to take advice on the part of the employer rather than malice, and the people running the club sound to be prime candidates.

I'd strongly suggest that you - or whoever's dealing with it - should contact ACAS for free (and good) advice - https://www.acas.org.uk/advice

[pompeygazza]

we are paying the staff redundancy payments according to the government guidelines (they are all over 55) 1.5 weeks for every year they have served (based on average of last 12 weeks). Hence we are ignoring the dangerous idiots who are telling us we don't need to pay them, CAB included.

It's a bit of a mess on the contract front, the staff are all happy that the redundancy is being paid and are not about to go running off to solicitors to claim unfair dismissal as they are all club members and none of them wish to see the club go under.

The main point for the staff being made redundant is that we wish to over halve their hours and no-one will agree to that (understandably) as that will affect any redundancy in the future if our plans fail.

The building is probably worth something and we will look into extending the lease back up to 99 years. The club rule book does state that if the building is sold all profits must go to charity though.

[Hallucigenia]

We have had loans before from the brewery for refurbishments, but don't wish to go down that route as there were a number of clauses which restricted what we could sell and we could only buy from them. At present a brewery does supply us with the barrelled beer (but we are not tied in), we are free to get everything else from wherever we like.

Brewery support doesn't have to take the form of a loan, there's all sorts of deals to be done, and with a free-of-tie lease you're in a good position to negotiate. The multinationals really care about tying up keg lines, and quite like bottles, but aren't that bothered about eg cask lines, doing a deal with one of them doesn't mean tying everything, you're in control. And often it works quite well to tie some keg lines to get some kind of contribution, whether it's in the form of cash, new dispense hardware, lower prices or a "retro" (retrospective payment of maybe 1-2%, like cashback on a credit card) - with the agreement of the committee the retro could be paid direct to the lenders without going through the club's books as a way to get a bit of cash into your hands.

Buying beer is a volume game, you get *much* better prices if you are part of a bigger buying group. Your landlady friend may be able to advise, or it may be worth talking to other sports clubs in the area, or maybe Navy social clubs etc?

We're crunching figures at the moment and the main killer is the fact we are open every day, staff wages are £720 per week, bearing the fact we are only open 43 hours, we employ a cleaner EVERY day despite only a couple of people being in there the night before. We reckon we could more than halve this if we open at weekends only (6ish hours per day unless there is a function) and just get the cleaner in for an hour to hoover and do the toilets.

Decent staff should be able to do light cleaning as part of setting up for opening, if you did end up opening every day then perhaps they could do the weekdays, and then just get a "proper" cleaner at the weekend. Are there other places locally you could share a cleaner with perhaps?

Lots of energy saving to be had, we reckon we could save 60% or more from just a few simple measures.

Get a energy-measuring plug and plug different appliances into it, you'll be surprised at what eats electricity.

[pompeygazza]

Saturday we had a committee and trustees meeting. Lots of disagreement as to whether we pay redundancy or not until I read them CKs response verbatim.

They all agree that we have to now. Was quite amusing. Thanks CK.

Special members meeting tomorrow seeking funding. Lets hope it goes well.

Thanks to you all so far.

[pompeygazza]

Quick update.

Meeting last night was attended by approx 70 members (if only they'd turn up at other times!) and the committee outlined the problem and requested donations.

Lots of discussion was had (some of these people are on cuckoo land, some stated the obvious: rent the building during the day (we've been trying this for years with no interest) etc)

It was finally voted through that we should raise full membership fees to £150 (from £65) and social from £15 to £40 (imo they'll lose a lot of socials)

This plugs the gap a bit (if everyone coughs up) but there will still be a shortfall. A few other members have come forward with pledges of help though.

So we're going to close for January (traditionally a very quiet month) to sort out all the energy mods we want to do and reopen in February (or at least that's the plan)

Thanks for your help. I'll keep you all posted as to how it goes.

[pompeygazza]

Just thought I'd drop you helpful people a quick update.

Well we've been trading for 2 months now and are actually turning a profit of probably 500-1000 a month, so skinny but it's positive.

Just doing the energy modifications has saved hundreds and we've got our monthly bill down to £650 (we've left the DD at 1000 to build up some wriggle room). We've taken down our lighting wattage by over 75% by changing bulbs and being smart.

My final donation amount was £2,500 (3 of us did this) and with others the total was approx £11000. So about a tenth of what I was going to donate, happy days.

For my efforts I seem to have been voted in as Secretary which has been eye opening to say the least on the wages front. (time and a half paid at the end of a function for 2 hours waiting for band to pack up!).

Treasurer is being very difficult in handing stuff over, If there is anything dodgy we will take matters further.

Old staff have been paid off and re-employed on new contracts with no crazy agreements.

The other chap who was going to stump up the cash is going over the figures with a fine tooth comb every week as am I, his wife has stepped up to take over the treasurer position (she does his books). We've put a few noses out of joint as some members had "special agreements" where they would bring their own wine in (you couldn't make it up) and drink that, no more.

Meeting have moved to a Friday night which are attended by 40-50 members whereas on a Thursday you would struggle to get 10.

Easter Sunday we took £2500 over the bar!!!!!

Life is looking rosy so thanks for all your help.