Hearts Admin Part 3: HMRC owed £1.75m for Kaunas Loans for Unpaid PAYE/NIC, Shonky Share Offer, Un-issued Shares

What would the ‘Sporting Integrity’ mob say about a football team using foreign loan players, evading PAYE/NIC to the HMRC then getting out of paying that bill:

1. Between 2005 – 2010, Hearts used loan players from Lithuanian club, FBK Kaunas to play in the Scottish division. 
2. In 2012, HMRC warned Hearts it wanted £1.75m for the non payment of PAYE/NIC for those Kaunas players in addition to another for £450,000 for non-payment for the same during that season.
3. Hearts issued a Share Offer in October 2012 to pay the Kaunas loans tax owed.
4. Nov/Dec Hearts received £1m funds for the Share Offer but did NOT issue share certificates.
5. Hearts went into Administration June 2013. HMRC did not get paid, since they are an Unsecured Creditor for the £1.75m owed for the Kaunas loan players.
6. BDO the Administrator and BIDCO (1878) Ltd, Dr Budge’s takeover vehicle, after buying Ukio/UBIG shares was forced under the Takeover Code to make an offer for all remaining shares BUT misses out the October 2012 shareholders who never got their shares till later.

HMRC Winding Up Notice 1st November 2012

HMRC issues Hearts with a petition in the Court of Sessions to wind them up for £450,000, unpaid Pay As You Earn (PAYE) tax and National Insurance Contributions (NIC). Note: There were four wind up orders raised against Hearts since December the previous year. The SPL had disciplined Hearts for late payments to players with a signing embargo.

However HMRC were also chasing Heart of Midlothian for a larger amount for £1.75m. for guess what? Again PAYE tax, NIC for all Hearts Kaunas ‘loan’ players from years 2005 to 2010. From Herald 28th October 2012:

After the Tax Tribunal in November 2012, in early in December 2012, Hearts came to an agreement to pay a £1.5m tax and National Insurance bill for the Kaunas players to HMRC over the next three years.

Yet this never got paid because they went into Administration.

SFA Oversight on Kaunas Loan Players Contracts

With HMRC coming to the conclusion that Hearts owed £1.75m in PAYE/NIC from Kaunas loan players between 2005 and 2010, due to the Kaunas players being paid via Lithuania the questions needs to be asked:

1. What did the SFA hold by way of contracts for those players? Were they a false representation? 
2. Did SFA know the players weren’t being paid in the UK, and that they were evading paying PAYE/NIC obligations and ignored that fact?
3. Or did the SFA never hold anything contractual on those players – that would mean it is a situation worse than ‘side letters’?

Share Offer 26 October 2012

Hearts were told by the HMRC tax bill was coming and issued a share offer on 26 October 2012 for the precise purpose of paying the Kaunas loan players PAYE/NIC evaded from 2005-2010.

Over a £1m was raised.

They took the cash but did not issue any shares? How do we know this?

Under Note: 23 ‘Post balance sheet events’ in Hearts 2014 accounts, they admit to the almighty FUBAR, relating to the 2012 share offer that they only admit to after the 2014 accounts sign off date of 30 June 2014:

No copy of the share offer can be found on Hearts website, it’s been deleted, however normally an offer document would set out risks involved in such an investment.

Did the Hearts share offer document have,

Risk 1: After investment the company will likely go into Administration in 6 months time, and

Risk 2: For your investment we will not issue a share certificate.

The share offer £1m was for payment of the £1.75m owed to the HMRC but it was used to keep Hearts going until the end of season 2012-2013 then they went into Admin with the result that the £1.75m plus interest (the £1.88m below) was not paid.

Questions on the non-issued shares:

1. Is it fraud when a company stands in the market & offers up shares, takes the funds but does not issue the shares? Yes
2. Should BDO the Administrator have known, they were operating Hearts Plc. They fully examined their books for income, liabilities, debts. They would have seen that £1m funds had come into Hearts from the share offer but they did not realise the shares had not been issued. Did BDO use that £1m during the admin period?
3. Are BDO/BIDCO at fault for not offering rest of the shareholders the same offer BIDCO/Budge made to Ukio/UBIG for their shares? Should they be reported to Financial Conduct Authority/Takeover Panel?

The whole Hearts Administration with SPL ignoring UBIG’s insolvency, SFA ignoring the Kaunas players ‘contractual situation’, the share offer fraud then Admin six months later resulting in HMRC not being paid the £1.88m stinks to high heaven.

Here’s Hearts in 2015 saying the 2012 share offer shareholders now all have their share certificates. Two and a half years later!! What an achievement.

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