How can the owner be a creditor?
As I see it the story is as follows. AAF consortium, having bought PFC Ltd, find they don't have enough money to run it and borrow from Balram Chainrai. He secures his loan by a mortgage on Fratton Park and a charge on the company shares. (NB - PFC Ltd still own FP, although it is mortgaged to Chainrai). AAF defaults on repayments, so Chainrai exercises option to seize shares and foreclose on the mortgage. This means he now owns PFC, who own FP, which is mortgaged to him. Having foreclosed on the mortgage, he is now "mortgagee in possession" and has a legal duty to the owner (PFC Ltd, which he owns) to obtain best value for the property, redeem the mortgage, and pay any surplus to PFC Ltd.
This is where it gets confusing.
PFC Ltd will go into administration on Friday. Chainrai therefore loses control of the company, which is now run by the Administrator with a duty to get best value for the creditors. BUT AT THIS POINT CHAINRAI IS NO LONGER A CREDITOR - HE IS THE FORMER OWNER. So how is it possible for Chainrai to claim to be a secured creditor and walk away with £17 million (as reported in the Telegraph - if that is true) and keep Fratton Park, while other creditors, including HMRC and local suppliers lose out?
The situation appears to be similar to a speculator who sees he is about to go bankrupt and transfers his property into the name of his wife, hoping that this will protect him from the creditors whom he has cheated. If the law allows that, the law is an ass. Some commentators have seen Chainrai as a benefactor coming to our rescue. I am not so sure.
Have I got something wrong in this story? I wish someone would explain.
Written by erithacus rubecula.
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