The former owners of Cardiff Rugby, which was acquired out of administration by the WRU earlier this month, failed to fund a £2m trading shortfall despite being legally obliged to do so as the club’s regional principal investors.
It has also emerged that unsecured creditors of the collapsed business are estimated to be collectively owed £2.4m, with little prospect for any returns. HMRC, which is a secondary preferential creditor, is owed an estimated £1.4m relating to non VAT and PAYE payments.
According to a proposals report from joint administrators with PwC, Rob Lewis and Ross Connock, unsecured creditors include the company’s previous legal partners in Hugh James who are owed £95,431 and whose managing partner, Alun Jones, was chair of Cardiff Rugby.
The corporate team of the Cardiff headquartered law firm had acted for the club on its takeover by Helford.
Other unsecured creditors include Barclays Bank, £399,000, Octopus Energy, £470,291, the United Rugby Championship (via Dublin-based Pro Rugby Championship LP) with nearly £190,000 relating to the funding of LED advertising, its landlord in Cardiff Athletic Club, £16,000, and Talbot Green-based Floodlighting and Electrical Services, £57,258.
In total there are well over 100 unsecured creditors with some of the smaller ones including Ebbw Vale-based magician Adam Reeves, who is owed £400 (linked to corporate entertainment at the Arms Park) and Merthyr Rugby Club £1,600.
Just hours after the directors of Cardiff Rugby had put the business into administration, as it was no longer able to trade solvently without Helford’s required funding, the assets and goodwill of the business were acquired by the WRU in a pre-pack deal with the joint administrators.
As well as a debt liability for the artificial pitch at the Arms Park - funded by former board member Paul Bailey - the WRU’s consideration came to £780,000.
The due diligence of Helford before its takeover was undertaken by London-based advisory firm Thorium in the form of fit and proper person and financial tests.
The outcome was literally a short paragraph saying they had cleared both tests. The report was passed back to the board of Cardiff Rugby from the WRU.
The issue was not whether owners of Helford Capital directors, Phil Kempe and Neal Griffith, didn’t have the required financial resources, but whether they were willing to deploy their own money to make up losses, which benefactors at the four regions had agreed to under the current professional rugby agreement (PRA) with the WRU.
While not suggesting any wrongdoing on the part of Mr Griffith, financial services firm which he was chief executive of and a shareholder in, Optima Worldwide Group (OWG), was put into compulsory liquidation in 2021. The latest progress report - published last month - from joint liquidators at restructuring firm Interpath, shows creditors are owed more than £37m.
Before going into administration Cardiff Rugby were repeatedly asked if they were aware of the liquidation of Mr Griffith’s previous company before agreeing to the takeover and what additional due diligence they had undertaken as the sellers beyond relying on the fit and proper person and financial assessments that the WRU had arranged.
Despite repeated assurances from Helford that they would meet the financial shortfall of the club, their required investment never materialised - although Mr Griffith provided a personal guarantee to a six-figure Barclays overdraft facility with the club, while Mr Kempe had agreed two non redeemable loans worth £250,000.
There had been speculation that Helford were looking, through their contacts in the Middle East, to leverage significant investment into the club.
What PwC is currently assessing is how it can recover the £2m debt from Helford for redistribution to creditors. The Jersey-based firm was established solely as a special purpose vehicle to acquire Cardiff Rugby. PwC would need to determine whether the £2m debt rests just with the company or its two directors in a personal capacity.
If the former, and with no assets held by Helford, there will be no return for creditors. However, if there is any realisation then the first call on it from a creditor position will be HMRC as a government body.
On the debt position of Helford the joint administrators say in their report: "Cardiff was due £2m from Helford under the terms of the RPI (regional principal investor) deed at the date of the administrators’ appointment. We are currently reviewing the position regarding this outstanding balance and will update creditors further in due course.”
With just hours between Cardiff Rugby being put into administration and the pre-pack deal which saw the WRU acquiring the assets of the club, the joint administrators didn’t have time to seek any alternative offers.
However, while not running a formal market process, and acting in the best interest of creditors, they have confirmed they would consider any new offers up to the expiry of a 13-week window before July 9th.
Only if an improved counter deal is received and deemed in the best interest of creditors would the administrators then unwind the current ownership deal with the WRU.
However, any new ownership deal technically would require the backing of the WRU as it is a secured creditor of the failed club, which relates to a £3m debt it had arranged and passed through to it. The WRU also passed through a further £6m of unsecured lending to the club - which now falls on the new Cardiff Rugby company it owns.
The PwC report highlights the increasing concerns of the non-Helford board members of the club and the WRU, over the willingness of Mr Kempe and Mr Griffith to fund losses.
It adds: "By early 2025, Cardiff Rugby Ltd (CRL) faced acute liquidity problems as Helford failed to deliver £2m in funding due under the RPI deed, citing delays in unrelated transactions. Despite repeated assurances, the funding did not materialise.
" In late March and early April the non-Helford directors’ and the WRU sought assurances and firm evidence from Helford relating to the timing of the RPI deed monies but, in the absence of these assurances being received, and after the overdraft facility (Barclays) was removed, the WRU took the decision not to continue advancing any PRA funding outside of the normal payment profile.
“Helford and CRL’s non-Helford directors pursued options to secure external funding and/or obtain evidence that Helford would be in a position to provide immediate cash to the club. These options, however, were ultimately deemed by the non-Helford directors as not deliverable or reasonably demonstrable.
“In light of CRL’s significant financial issues, the board of directors and the WRU had to take immediate steps to consider what action was required.
"Both the CRL board of directors and the WRU wanted to ensure the preservation of the club operations but considered that, given all solvent funding options in the timeframe available had been exhausted, rescuing the club through an insolvency process was going to be the most viable and deliverable option.
“The board concluded that an administration process was the most appropriate course of action under the circumstances, with a pre-packaged sale of the club’s business and assets to the WRU immediately post appointment. The intention of this solution was to offer a safe harbour for the club in the short term, allowing time for Cardiff Rugby to find a long term solution to secure the club’s future.”
Under the in principle agreed new PRA between the union and the four clubs (where Cardiff is now a subsidiary business of the WRU), the benefactor funding position in the case of default will be tightened with personal guarantees - although the new proposed PRA would see the funding for player squads from the union increasing incrementally and reaching £6.9m by 2029.
The new deal would also see the WRU taking on the financing of around £3m per club in debt it has passed through to them.
Chair of the WRU, Richard Collier-Keywood, said: "In the new PRA we want to see what I would call an onshore guarantee. We want to be able to make sure that the source of the money is fine for all sorts of international purposes and that we need to understand the ultimate beneficial ownership line that comes. The second thing we need to understand is the fact that we can enforce against what they have committed.
“Not all money rests in the Ƶ, but we do need to learn from the current experience and improve it going forward as nobody wants to be in the same situation that the Cardiff board found itself in.”
If no counter offer for Cardiff emerges by PwC's July deadline, the club will remain a subsidiary business - which around 170 staff and players of the failed entity transferred over into - of the WRU for at least the next year.
However, the WRU are hopeful that at some future point the business can return into private ownership.
