Pitreavie - The Facts

27/03/14: DAFC neither operates nor manages the facility at Pitreavie, it merely uses it as a training facility for the first team squad.

As previously stated in an earlier statement in January, DAFC continues to be concerned about the current state of the community facility at Pitreavie Playing Fields. DAFC neither operates nor manages the facility at Pitreavie, it merely uses it as a training facility for the first team squad. The current disrepair and lack of management control over the facility continues to be damaging not only to the brand of the Football Club, but to the wider community of West Fife.

In recent weeks our members of staff have had to contend with: two visits from Environmental Health Officers; the threat of the gas supply being terminated; and, in recent days, a visit from Health and Safety Officers from Fife Council.

The sole operator of the facility at Pitreavie is The Pars Trust, a company limited by guarantee which was set up as a charity by the previous owner of DAFC, Gavin Masterton. The sole director is Ms Karen Masterton. DAFC understands from an article in the Dunfermline Press newspaper last week that The Pars Trust has plans to enter into an arrangement with a company called LK Galaxy, to operate the facility as from 1 April on their behalf, but as a profit making facility. The Pars Trust has not obtained the consent of either DAFC or Fife Council before making these arrangements.

Although, DAFC has a long term lease of Pitreavie from Fife Council, a sub lease was put in place between DAFC and The Pars Trust several years ago. On acquiring DAFC, Pars United had to take control of DAFC with both the lease and the sublease in place.

Before DAFC came out of administration, Pars United had indicated to the Club's administrators, BDO LLP, that, as a condition of the acquisition of DAFC, the Pitreavie lease was renounced and handed back to Fife Council as, in the opinion of Pars United, they would be best placed to take on the facility, given the level of investment required to be made to bring it up to standard. During the purchase negotiations, it became clear that the SSAS held a security over the lease in respect of a loan from the SSAS to Charlestown Holdings Ltd, which was, at the time, DAFC's parent company. It was also assumed at that time the loan was used for the benefit of DAFC.

In order to protect that security, the trustees of the SSAS applied to the Court of Session for an interim interdict to try to prevent the renunciation. The Court was told that a third party was prepared to take a transfer of the lease and invest a considerable sum in redeveloping Pitreavie and that that third party was prepared to pay a fee to the SSAS for the lifting of its security. The application was rejected by Lord Woolman and Pars United had then hoped to complete the purchase of DAFC with the lease over Pitreavie having been renounced. However, the existence of the security made renunciation a practical impossibility and two business days later BDO LLP gave an ultimatum to Pars United that unless they acquired control of DAFC with the lease in place, the Club would be liquidated as they were not able to finance the club any further, to wait for the legal issues regarding Pitreavie to be resolved. Effectively, Pars United had to accept the existing lease arrangements otherwise DAFC would have been liquidated.

Since taking over DAFC, the Interim Board has attempted to understand fully and resolve the very complex set of arrangements put in place by the previous owners. Representatives from DAFC had, in the early days, a number of meetings with Karen Masterton to try and resolve matters but without success, so DAFC formally notified The Pars Trust that the sub lease was to be terminated no later than September 2014.

The existing sublease arrangements put in place by the previous owners, involve a most convoluted set of circumstances whereby four members of staff working at Pitreavie are employed and remunerated by DAFC, but the income from the facility is received by The Pars Trust. In recent weeks DAFC has attempted to arrange further meetings with Karen Masterton to try to resolve matters, but she has simply ignored our correspondence. This included a demand from DAFC to the Pars Trust for the outstanding rent, which The Pars Trust has still not paid.

As a consequence, DAFC had not paid the outstanding rent to Fife Council, who then started a process to terminate the lease due to non- payment. This termination notice was due to expire on 8 March 2014. However, DAFC understands that Gavin Masterton made personal payment of the outstanding rent due to Fife Council only hours before the expiry date, as Charlestown Holdings Limited themselves are the guarantor for the rental payment, and presumably to protect the SSAS's security over the lease. Lawyers acting for Charlestown Holdings Limited have now written to DAFC requesting reimbursement of the rent payment, within 7 days, which DAFC has now paid, despite never receiving the outstanding rent payment from The Pars Trust. However, as a consequence, DAFC, as the lease holder received from Fife Council on 12 March 2014, a Wants of Repair Schedule, the costs of which are estimated to be a substantial six figure sum. Fife Council expects the remedial work to be completed within 3 months. However, DAFC will robustly defend its position, as the state of disrepair at the Pitreavie facility is largely attributable to the sub tenant, The Pars Trust. Therefore, as per the terms of the sub lease the repair notice has now been passed on to The Pars Trust to carry out their proportion of the remedial work.

It is the considered opinion of the Interim Board of DAFC that the complexity and uncertainty surrounding rights and responsibilities over Pitreavie have been created unnecessarily by arcane financial engineering. The grounds at Pitreavie are a community asset and should never have been allowed to be used as security for a loan from a private pension scheme.

However, further serious issues have been identified by the Interim Board and as a result we do not consider that the security was validly granted in any case, and are currently seeking further legal advice on the question of challenging this in order to protect the integrity of our Football Club.

In response to the Dunfermline Press articles illustrating the public concern about the condition of the premises at Pitreavie, The Pars Trust issued a statement on 15 January 2014 which alluded to the security over the Lease. This stated:

"All past DAFC Directors were aware of the arrangement when it was first put in place whereby Mr Masterton's and Mr Yorkston's Pension Fund would make a loan directly to DAFC and thereby deliver much needed short term funding to the Football Club with a security then held over DAFC's lease of Pitreavie in return to satisfy the Trustees.

All Directors of the Club at the time signed off on the deal. Ultimately this was not, and could not be, the decision of one man acting in isolation but rather was a decision taken by a company Board and reflecting the joint responsibility membership of that Board brought, and past membership still brings".

That statement alleged that all the then directors of DAFC were involved in approving the decision that DAFC grant that security to provide a loan from the SSAS to DAFC. It is the belief of the current Board of DAFC that no such discussions took place nor were any approvals provided. There is no record of either Mr Masterton or Mr Yorkston discussing this matter with, or disclosing this matter to, the Board of Directors in advance of the security being put in place, far less obtaining their consent to something which prima facie gives rise to an obvious conflict of interest.

DAFC's management secretary, who was also management secretary of Charlestown Holdings Limited, has confirmed that she has checked the records of DAFC, including board minutes, and they include no reference to the tenant's interest in the Lease being offered as security. A signed statement from DAFC's management secretary to that effect has been obtained. The Board have also verified this fact from checking all of the sequential board minutes between 2008 and 2012.

It is clear from DAFC's board minutes that, at no stage during the period from 2008 to 2012, were any of these matters raised. This is potentially a breach of the Companies Act 2006 as a director has; a duty to avoid conflict of interest (s.175); and a duty to declare an interest in any proposed or existing transaction (s.177 & s.182).

Further, signed statements have been provided from 9 former directors who were on the Board of DAFC during the period 2008 to 2012. These statements confirm that disclosure of the security and guarantee by DAFC in favour of the SSAS in respect of certain debts due to the SSAS was never made by Mr Masterton or Mr Yorkston at any point.

The former DAFC Chief Executive who was on the Board between July 2006 and October 2012 and who followed the specific instruction of Mr Masterton to liaise with the relevant legal and regulatory parties to put the security and guarantee in place, also confirms that, to the best of his knowledge and belief, at no time was this matter brought to the attention of the wider Board nor was their consent sought. A signed statement from the former Chief Executive has been obtained.

We have also concluded from our review of the documentation that the security over the Pitreavie lease was only actually offered as a replacement security in 2011 for loans which had already been advanced in January 2010 to Charlestown Holdings Limited, in connection with the activities of Charlestown Developments Limited. The need to seek a replacement security only arose when it was identified that the residential property at the Charlestown Developments site was unable to be used as security for a loan from a pension fund and this corresponds with the fact that the standard security was not actually registered at the Land Register until 22nd December 2011. It is standard practice that a loan should not be advanced before a suitable security is put in place.

It is therefore also of concern to the Board of DAFC that the grant of this standard security may be an unfair preference over other creditors of DAFC as it was granted as security for sums previously advanced to a company other than DAFC. As a result it is our belief that a number of substantial creditors of DAFC were severely disadvantaged by this.

In addition, we have determined that the loan of £250,000 was never paid directly to DAFC in January 2010. It was paid into Charlestown Holdings Limited bank account in January 2010, and from our review of the Club's existing internal accounting records there is no evidence that this capital sum was ever transferred to DAFC's bank account, as it is our belief it was used for the other purpose denoted above, and not for the purpose of providing "much needed short term funding to the Football Club". Therefore, clearly there has been no economic advantage to DAFC, and effectively an asset of DAFC was used as a fall back in order to provide a convenient security for monies not even provided to DAFC.

Therefore, in view of the absence of approval of the Board of DAFC, and the fact that the security may constitute an unfair preference with no economic advantage to DAFC, we are obliged to consider challenging the validity of the standard security, and our legal advisers are seeking Counsel's opinion. In addition, notifications will be made to HMRC, FCA and OSCR (the Charities Regulator) and we have raised this matter with Members of Parliament.