Southend United have secured an urgent court order allowing the payment of players and accountants before deadlines that threaten the club’s survival.
A lawyer for the National League side told a specialist judge they would “simply cease to exist” if payments to playing staff and for the filing of overdue accounts were not made on Wednesday.
Judge Sebastian Prentis heard at an online hearing that players could “walk away” if they did not receive their salaries due at the end of this month, while the National League had said it would withdraw the club’s membership if accounts were not filed “by close of business”.
The insolvency and companies court hearing comes after HM Revenue & Customs (HMRC) issued a winding-up petition against the non-league club over a £275,000 tax debt.
The salaries of the footballers and the footballing staff need to be paid today... and if they are not paid they can walk away— Barrister Hilary Stonefrost, for Southend
Earlier this month, Southend – who dropped out of the Football League at the end of the 2020/21 season – were given more time to clear the debt as the owners look into the sale of the club.
Barrister Hilary Stonefrost, representing the loss-making side, told Wednesday’s hearing it needed a “validation order” to unfreeze a bank account and make payments.
She said this was “to ensure the business of the company can survive under its present ownership long enough for a sale of the company’s shares to new owners”.
“The salaries of the footballers and the footballing staff need to be paid today… and if they are not paid they can walk away,” she said, describing them as the company’s “only really valuable asset”.
Ms Stonefrost said: “The National League has said that if they did not file accounts before close of business today then they will withdraw their membership of the league.”
Ms Stonefrost apologised for the lateness of the club’s court application, saying management was “very occupied with putting the sale together”, including it being “marketed in America”.
In March, it was reported that the club’s parent company had appointed General Sports Worldwide, an American agency, to explore the market for potential buyers or fresh investment.
Ms Stonefrost told the hearing that agents were instructed to produce an “investment prospectus”, saying negotiations were being conducted with prospective buyers who had passed “the financial requirement test”.
She said club chairman Ron Martin, who observed the online hearing, had given an “undertaking” that sale proceeds would be used to pay HMRC and creditors.
Southend’s parent companies, South Eastern Leisure UK Limited and Martin Dawn Plc – both Mr Martin’s family companies – have “always funded this club”, Ms Stonefrost said.
She said it was “not necessarily in a timely manner” but money has been raised to pay debts.
The club came close to going out of business earlier this year before settling an outstanding bill of £1.4million with HMRC, which has issued a number of winding-up petitions against Southend in recent years.
Ms Stonefrost told the court there was a “short-term liquidity” problem with the parent companies in relation to a “huge development in Southend”.
Judge Prentis said £25,000 of the club’s current HMRC debt had been paid – with the petition due to be reconsidered on July 12.
The National League has said that if they did not file accounts before close of business today then they will withdraw their membership of the league— Barrister Hilary Stonefrost, for Southend
He said the “manifestly insolvent” club had to provide to the National League accounts for 2020 and 2021, having not filed any to Companies House since July 31 2019.
The judge said that unless players were paid they had the right to leave within 14 days “without providing any value to the company through transfer fees”.
He granted part of the requested order to cover payments to accountants, footballing staff and lawyers, but said he was “concerned” over “weak” evidence that the club could meet a second National League deadline of June 2 to pay HMRC in full as well as all football creditors.
The case will return to court on Monday, when Ms Stonefrost said the judge will receive a National League letter saying it has changed the June deadline.
She also committed to providing confidential information on the sale process and detail on how money from a sale would be handled.
