Director Xu Ke faces 38 big questions on West Brom ownership and finances

Shareholders 4 Albion (S4A), who represent the 12 per cent of minority shareholders of the club not controlled by Guochuan Lai, have set former chief executive Xu Ke a 10-working day deadline to satisfy their fears.

The latest Albion club, WBA Group and WBA Holdings accounts, for the year to June 30 2022 were published at Companies House on April 5 and featured directors describe 'a material uncertainty' over the historic club if cash is not raised.

In two six-page documents to Xu Ke penned by S4A chairman Leigh Kent and seen by the Express & Star, the shareholder group – who have previously held written correspondence with the director – explained a delay in their response to the accounts due to important fixtures in Albion's bid for promotion. Now, though, the letter stresses S4A have 'no choice' to demand answers on behalf of shareholders and supporters.

The director recently returned from a trip to China, where he held in-person talks on Albion matters with controlling shareholder Lai.

Questions include those relating to the newest set of accounts for WBA Group and club, previous unanswered questions dating to 2021 accounts and the decision for WBA Holdings as a guarantor for the repayment of the £5million defaulted Wisdom Smart loan.

The letter raised issue with statements within the accounts, the £20m loan from MSD Holdings in the year and interest rates of 9.75 per cent plus SONIA – an inter-bank rate of 4.18 per cent as of last week and referenced the club being owed monies of in excess of £10m, including interest.

Furthermore, in response to WBA Holdings' £2million loan from Brierley Hill-based Warmfront Holdings, it questions a £187,000 loan from club in connection to legal fees. S4A estimate that the annualised interest cost to Albion stands at around £720,000 and described the situation as "ridiculous and disgraceful".

The shareholders also asked for clarity on the ownership of the club and WBA Group. It stated reports of other interested parties behind the controlling shareholders Lai and P Y Li, sole director of WBA Holdings.

It asked whether other interested parties are aware or share concerns around the asset's 'alarmingly plummeting' value, with examples such as as the defaulted £2m Warmfront loan.

The questions as listed in S4A's letter to Xu Ke, dated May 3, read in full below;

A. Accounts for Club and Group for Year Ended 30 June 2022

1. The accounts of Group which were distributed to all shareholders, were not dated in the places required. The date of approval is key to various areas in the accounts. This calls into question to validity of the accounts.

I understand that one of our members immediately contacted Henry Pu to point this out, hence me not also doing so. No action appears to have been taken yet to correct the omission.

Please confirm the relevant date and confirm the steps you are taking to correct the omission.

2. Please confirm officially that all monies have been drawn down under the MSD loan are now in club's bank account.

3. We assume that the loan monies are being held by club in an interest bearing account until monies are required from time to time, but please confirm that this is correct and that the interest bearing account is UK based.

4. Does the £20 Million capital from the MSD loan reduce as repayments are made or does the entirety of the interest over the term of the loan need to be paid off before the capital balance is reduced?

5. Is the MSD loan capital repayable monthly or quarterly?

Noting that you have clear fiduciary duties in the following regards:

6. Please provide details of the legally and commercially substantive and meaningful steps taken to secure repayment of the Wisdom Smart loan during the accounting period covered.

7. Please provide details of the legally and commercially substantive and meaningful steps taken to secure repayment of the Wisdom Smart loan subsequent to the accounting period covered.

8. We note that you confirm in your Strategic Report under 'Principal Risks' that there are effective credit control procedures to 'mitigate risk.'

Please can you confirm what these are. Given the repeated breach by the borrower and the fact that the said loan has not yet been repaid, the procedures do not appear to be working very well, if at

all.

9. Please explain why the Wisdom Smart loan has not yet been repaid and why you appear not to have taken the necessary legal action to achieve this.

10. When the reduction of share capital of Wisdom Smart was passed by special resolution on 27 May 2022 (please see my letter dated 6 March 2023) why did you not take any action at that point? The Notice of Resolution clearly stated that HK$239,990,000 capital reduction was “in excess of the requirements of the company“.

As a basic on any commercial loan, one would expect a default provisions to be enacted in the event of a reduction in the share capital of a borrower. Were there any such provisions? If not, why not?

If there were, why were these provisions not enforced on what would clearly have been a cause for alarm, given the statement made above, the fact that you had facilitated the lending of money to an overseas company via an unsecured loan and the fact that this had not been repaid as required.

11. Please confirm definitively when the Wisdom Smart loan will be repaid and monies received back into the accounts of club. Shareholders and supporters have had quite enough of vague promises, which are then broken.

If you cannot do so, please confirm the meaningful steps are you currently taking and will take to obtain repayment as soon as possible.

12. The Wisdom Smart Loan balance (£5,059m) is shown as an 'exceptional item' against profit on page 12 of the accounts. It is therefore not included in debtors as a result of 'impairment in carrying value to nil.' Please explain why this has happened, given assurances that the sum will be repaid.

13. Further, given the contents of the accounts how could you confirm in your letter to me dated 13 March 2023 that the Wisdom Smart Loan would be repaid?

14. Please provide the date of the loan agreement for the Wisdom Smart loan and confirm whether this is via deed, agreement under hand or simply correspondence.

15. Please provide a copy of the Wisdom Smart loan 'agreement.' If there is a justifiable need for me to enter into documentation (as a solicitor) not to disclose this agreement further, I will be happy to do so.

16. Please confirm whether external legal advice (both here and in Hong Kong) was obtained prior to the Wisdom Smart Loan being granted. If so, please confirm which firm(s) acted on behalf of cub and Group. If not, why not?

The loan, as well as using cub's money for non-footballing purposes, was an unsecured loan, on unfavourable terms to a company in a foreign jurisdiction. What would have been a clearly unnecessary, unjustified and risky loan to any reasonable observer; quite predictably evidenced by what has subsequently occurred.

17. We note on that you make the following statements in the accounts for Group:

Page 3, Strategic Report:

- “ All decisions are made with the benefit of the company at the fore … “

- “Credit Risk is mitigated by implementing effective credit control procedures on trade and other debtors .. “

Page 6, Director’s Report:

“He is also responsible for safeguarding the assets of the group and company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities .. “

You do not appear to have satisfied these required standards. Please explain.

18. Given that the loan of £187k from Club to Holdings to fund Holdings' legal fees is not for football purposes, please confirm why the directors of club and Group allowed that to happen.

Please confirm which legal fees the loan covered.

19. Please explain why the loan was made interest-free.

20. Please confirm precisely when this loan will be repaid.

21. Please confirm officially that no further monies have left club's or Group's bank accounts for non-footballing purposes since 30 June 2022 and that no further monies will do so going forward.

22. Has the guarantee to be provided by Holdings in respect of the defaulted Wisdom Smart Loan been completed yet? If so, was this done by the sole director for Holdings (P Y Li) under deed, by agreement under hand or simply exchange of correspondence. How has the guarantee been secured?

23. Debtors – this includes £8.5m receivable within one year (of 30 June 2022) in respect of player transfers out. We assume that this relates to Matheus Pereira. Please confirm.

Please confirm officially as to whether or not this money has subsequently been received.

24. Note 5 refers to an 'exchange loss' of £278k which has arisen. That is far too vague an entry to consider and further detail is required. Before we can assess whether or not that is a reasonable outcome, please provide an explanation and breakdown for this.

25. Note 23 refers to contingent liabilities of £10.7m in respect of players acquired. Please provide details of the players concerned and the contingencies at play.

26. Whilst noting that the new auditors have tidied up various matters within the accounts (for which we are grateful) and notwithstanding the current KC-led investigation into club making the loan to Holdings in 2014, shareholders are entitled to ask the following simple accounts questions which arise from these accounts:

a. Why is the actual loan agreement and its date still not disclosed in the accounts?

b. Why is the KC-led investigation into the loan not disclosed under note 27 'Events after the reporting date', as the club announced this on its website on 20 December 2022.

B. Accounts for Holdings for Year Ended 30 June 2022

1. Please confirm who has paid the auditors fees for Holdings from and including 2017.

2. Please confirm who has paid for any legal fees for Holdings from and including 2017.

3. Please confirm who has paid the remuneration for directors of Holdings from and including 2017.

4. Please confirm who has paid for administrative costs for Holdings from and including 2017.

5. Please provide full details of any other payments which have been made on behalf of Holdings or in respect of services or goods provided to Holdings by club or Group at any time and explain why.

6. In order to assess the strength or otherwise of the guarantee to be provided by Holdings in respect of the Wisdom Smart loan, we assume that you have established whether or not Holdings has made any further borrowing since 30 June 2022.

Please confirm. If so, please provide details of any borrowing in addition to the loan taken from Club in 2014 (when Jeremy Peace owned Holdings), the loan of £187k, detailed above in respect of Holdings' legal fees and the £2m loan from Warmfront Holdings.

7. We are concerned to note the terms of the Warmfront Holdings loan to Holdings and the fact that this loan is in default. Please confirm when this is due to be repaid.

We note that the proceeds from the £2m loan from were passed to WBA Hong Kong and has been 'invested' in four companies, including £692k in Wisdom Smart, all of which investments have had their value impaired to nil.

With regard to 'credit control' procedures, the same concerns apply to Holdings as we have raised above in this document. The same statements are made in the accounts for Holdings. Such statements are clearly misleading given what has happened/is happening.

It is also noted that interest is accruing on the Warmfront Holdings loan at an incredible 5 per cent a month (79 per cent annualised)!

C. Accounts for Group for Year Ended 30 June 2021

As you will be aware, on 3 August 2022 I submitted a set of shareholder questions on the back of the delayed year ended 30 June 2021 accounts (distributed on 30 June 2022 instead of 31 March 2022).

Your response on 15 September addressed a small number of those questions. In some areas you merely stated facts we already knew rather than providing a full response/a response to the question actually asked.

Some key questions were repeated in my email to you dated 6 March 2023. Further questions arise on those accounts, now that we have also seen the 30 June 2022 accounts.

For legal reasons, I need to reserve my ability to press for responses on all unanswered questions in due course. I will, however, resist from doing so at this time given the questions raised above (and on the assumption the questions above will be responded to substantively and fully).

For now, we do still need a response to the following points please:

1. Why were the 30 June 2021 accounts were delayed until 30th June 2022? They had been signed off by the directors and previous auditors prior to the end of March 2022.

I note that they were released shortly after most season ticket sales had been made and after the previous auditors had resigned.

2. Why was the fact that the previous auditors had resigned not disclosed when the 30 June 2021 accounts were released?

D. Miscellaneous

1. In the event that Albion fail to secure promotion in the season 2022-23, please confirm whether or not any Premier League parachute payments will be payable to club in respect of season 2023-24. If so, please confirm the amount and when these sums will be payable.

2. Concern remains as to the level of transfer fee negotiated for the sale of Matheus Pereira in the summer of 2021, particularly given his very healthy contractual situation at that time and the transfer fees of players at the same time of equivalent or arguably less ability.

An example of this being Emiliano Buendia's transfer from Norwich City to Aston Villa (had not played at Premier League level). The reported transfer fee for Pereira (by then an already proven and recognised Premier League performer) being circa £17-18m and (up to) £38m for Buendia respectively.

This has always seemed very odd to say the least. The reported fallout between (the Head Coach) Valerien Ismael and Matheus Pereira around that time is noted, but that does not account for such a discrepancy.

Subsequent transfer fees for players of equivalent or lesser ability add further weight to concerns on the reported level of the fee actually received by club.

Accordingly, please could the directors of club confirm:

a. Whether or not any payments over and above any transfer fee received by the Club were made directly by Al Hilal SFC or any other party at any time directly or indirectly to any individuals or entities within the controlling shareholders of Group or any other parties as part of the transfer of Matheus Pereira and whether or not any such payments are due to be made at any time.

b. Ditto, for any other form of consideration or business arrangement for money's worth, rather than money.

3. Please confirm who gave permission for third party company WBA Hong Kong to use te name of West Bromwich Albion. Please confirm how much was paid for such use.