Accounts for 2012-13 reveal huge salary and consultancy fees as £4m loss sinks club further into crisis
The Birmingham City director Peter Pannu was paid nearly £1m in 2012-13, a year in which the club lost £4m and sank into a perilous financial situation which continues to threaten its solvency.
Appointed a director in September 2012 of the club's holding company, Birmingham International Holdings, registered in the Cayman Islands tax haven and listed on the Hong Kong Stock Exchange, Pannu was paid a salary of HK$6.7m (£525,073) for the nine months to 30 June 2013.
In addition Pannu's company, Asia Rays Limited, registered in Hong Kong, was paid HK$5.9m (£464,569) for consultancy services to BIHL, whose overwhelmingly main business is owning Birmingham City.
This figure of close to £1m follows more than £1m paid to Pannu the previous year, also in the form of a salary and consultancy fees to Asia Rays.
Pannu declined to answer questions from the Guardian about City's financial situation as disclosed in accounts for the club and holding company released last month, or about his own pay. Pannu did not clarify whether the £525,073 salary paid to him as a director of BIHL includes the payment of £389,620, apparently to him as the highest paid director of Birmingham City, in the year to June 30 2013. The club also rented offices from Asia Rays at a cost of £60,000.
The Birmingham club's supporters trust, Blues Trust, said of that £389,620 payment: "It seems out of kilter given the current state of the club's finances."
The largest shareholder in BIHL, leader of the £81m takeover of City from David Sullivan and David Gold in 2009 and still the club's chairman, Carson Yeung, is awaiting the verdict after his criminal prosecution in Hong Kong on charges of money laundering, which he denies. The club's and BIHL's accounts and subsequent statements show that the prosecution of Yeung, who owns 26% of BIHL and whose assets are frozen, is weighing heavily over St Andrews and hopes of salvaging the stricken club.
The accounts of BIHL, which lost £9m in 2012-13, include a warning from the auditors that the loss and liabilities "indicate the existence of a material uncertainty which may cast significant doubt about the group's ability to continue as a going concern".
BIHL's chance of remaining in business, the accounts state, depends on finding additional money, which the company has said it has secured in a series of deals it hopes can be completed shortly. However the auditors state that there is "uncertainty surrounding the outcome of future funding," and that this too raises a "significant doubt" about whether BIHL will remain a going concern.
Edwards accountants, the Walsall-based auditors of the club itself, said the club needs "additional funding to be made available to continue its operations for at least 12 months". The accountants had examined forecasts by the club's directors – Pannu, Yeung and Yeung's son Ryan – of cash the directors expect the club will earn, their assumption that £15m owed to Yeung will not have to be repaid and the proposed deals to raise new money and said: "We do not have sufficient appropriate audit evidence to conclude whether the directors' [assumption the club will remain a going concern] is appropriate in the circumstances."
Pannu and the Yeungs have stated that they will borrow £5.4m, secured against unspecified future income. BIHL, of which Pannu is the chief executive, has said it has also agreed to raise around £7m by placing shares, and a further £24m by issuing a bond, convertible into shares, to a Hong Kong-registered company, U-Continent, which has a sole director, Yue Zhon Yang.
Ultimately both of these deals to raise significant money for BIHL depend on Yeung agreeing not to be repaid his £15m loan to City – about which the club's accounts say no documentation exists.
That arrangement, by which Yeung will in effect swap his £15m loan for more shares in BIHL, can happen, according to BIHL's statements, only if the Hong Kong department of justice "or other relevant Hong Kong government body" does not "raise an objection to the transaction".
So the future of Birmingham City, formed in 1875, bought by BIHL fronted by Yeung in 2009, then relegated to the Championship in 2011, depends to some extent on the Hong Kong justice department. The verdict on Yeung's money-laundering trial is expected at the end of February.
Daniel Ivery, a blogger on Birmingham's finances at the Often Partisan website, said the club's financial position depends on too many variables and BIHL should sell now. A Blues Trust spokesman said they are extremely worried about the club's future and are examining ways for fans to raise money in case they can be part of a solution. BIHL said in October it does not intend to sell the club.