Portsmouth on Brink of Bankruptcy

Portsmouth has become the latest club to have been served with a winding-up petition by Her Majesty's Revenue & Customs.

Several news agencies are reporting that the demand was served to the club on December 23. However, the story is only just breaking, and the club itself has only released a statement following the media speculation.

A full court hearing is expected to take place in early February, and the club could be made bankrupt if it does not meet its tax obligations.

The ownership situation at Fratton Park has been one of the worst seen in English football in recent times, with a number of bids coming from consortia all over the world at various stages of the year, and has now seen the club owned by three different people in the same year, two of them unknown Middle East businessmen.

Portsmouth is a club that has long been in decline, but found a revival in fortune with Harry Redknapp in charge of the first team. A great 2007/08 season saw Portsmouth finish eighth in the league and qualify for the Uefa Cup after defeating Cardiff City in the FA Cup Final at Wembley—their first major trophy since winning the league in 1950.

Redknapp left, taking a number of his FA Cup winning team with him to Tottenham Hotspur, which is currently fourth in the Premier League, while Portsmouth sits bottom of the league going into 2010.

The club has also had a transfer embargo enforced on them until it pays off debts owed to other English clubs. As a result, they will be unable to strengthen the squad in the January transfer window which begins on Saturday, a problem exacerbated by four key first team players now departing for the African Cup of Nations in January.

Dubai businessman Suleiman al-Fahim, supposedly the fourth most influential Arab in the world, bought the club in August 2009 from French businessman Sacha Gaydamak, having initially agreed on a deal in May.

However, when questions were raised about al-Fahim's finances, he sold on a 90 percent stake in the club to Saudi property tycoon Ali al-Faraj after just 40 days as chairman.

He now retains a 10 percent stake and is non-executive chairman until the end of the 2010-11 season, while also claiming to have made a £10 million profit from the sale and holding the club's real estate assets, although he has subsequently contradicted his own statement.

Despite promises of significant investment from the al-Faraj family, the club remains in financial difficulties, with outstanding transfer fees still not paid to other clubs and a mounting bill with HMRC.

Portsmouth is no stranger to financial difficulty. Throughout the 20th century, they suffered massively, including relegation to Division Three in 1976 after then chairman John Deacon could no longer bankroll the club.

In late '76, the club faced bankruptcy if it could not raise £25,000. The money was found by selling its best players, but with inexperienced youth players and Ian St. John as manager, they were relegated again in 1978.

Pompey's second dice with death came in the late-nineties, as former England manager Terry Venables joined the Championship club in a "consultation" role before buying the club for £1 in 1996.

Enjoying some success again, they narrowly avoided the Championship playoffs and made the quarter-final stage of the FA Cup in 1997.

The club entered administration in December 1998, finally being rescued by foreign investor Milan Mandaric in May 1999.

Mandaric had previously owned the San Jose Earthquakes, Belgian club Standard Liège, and French club Nice, but having rescued Portsmouth, he set about transforming the club, pumping in millions to fund new players, while also preparing plans for a new state-of-the-art stadium.

The Mandaric millions would eventually bring success back to the south coast in 2003, and under Harry Redknapp, Pompey would eventually win promotion from the Championship with a team built around former Premier League players.

Many people have labelled Portsmouth as a sleeping giant, a club that finally realised its potential when it arrived in the Premier League. The problem for the club and its fans, however, is that their promotion and longevity in the Premier League has been based upon millions being spent left, right, and centre, with little return.

The club's transfer fee records have been broken several times over the last few years, and the wage bill has also increased beyond reasonable levels for a club with the smallest ground in the league. That's right, even Burnley's Turf Moor has a larger capacity than Fratton Park.

The initial investment might have been wise when rival clubs in the Championship were suffering from the lost revenue following the ITV Digital collapse, but trying to maintain it in the mega-rich world of the Premier League without stable financial footing is never going to be sustainable. Ask a number of Leeds United fans if you're feeling brave.

Despite the talk of bankruptcy and imminent court action, Portsmouth FC have released a statement denying that they have been served, threatening to take HMRC to the High Court and apportioning blame to previous owners, while the al-Faraj family are working to remedy the situation.

"The club is disputing the VAT amount outstanding and has formally notified HMRC of this. We expect HMRC to withdraw their demands forthwith.

"Otherwise we anticipate a hearing being held in early January 2010 during which we will request that the High Court order HMRC to withdraw their demands."

Regarding the al-Faraj family's efforts to strengthen the club's financial situation, it goes on to say, "Since the takeover by Ali Al Faraj in October 2009, extreme efforts have been made to reach payment arrangements with HMRC to allow the owner time to deal with inherited debt.

"To date the new owner has injected a total of £9.7m of new funds to HMRC - £5.7m paid and security to the value of £4m.

"In such a tough economic environment the club finds it hard to understand this action by HMRC.

"It is well known that the business has been in a difficult position following former owners’ decisions and the current owner is committed to resolving this and moving forward."

So it looks like we're set for a royal showdown in the High Court in London in the new year. Not the best start to the year for a club already suffering this season.

If al-Faraj has the money to bail out Pompey, then what's taking so long? He has owned the club for almost three months now. Debts to other clubs are still unpaid, players and other staff are still being paid late, and the tax bill is mounting.

If staff wages and debts to other clubs are paid first, perhaps HMRC won't have too much of a problem with a bit of a tax dispute, but even that smells funny.

The al-Faraj family had time to look at the books before they took over the club, and his friend al-Fahim was only there for a month after scrutinising the figures before he took over.

So is Portsmouth's current owner blaming the financial situation on Gaydamak's regime? Best to ask Peter Storrie, who has been in an executive position at the club under all three owners.

If al-Faraj has the money to run the club, and by all account he isn't a poor man, why doesn't he pay up and wait for his rebate like everyone else if they can prove they've over paid?

The taxman will only wait so long for unpaid money. Maybe that should be mentioned during the consultation period with foreign investors.

Portsmouth's fate could be sealed by February. Currently four points adrift of their nearest relegation rivals, financial administration would all but send them down to the Championship and see the start of another period of declivity that they might not be able to recover from.