David Conn: Sterling service comes at a price for those who can afford it least

Of all the highlights in football's financial meltdown, fashioned during these years of boom - the unpaid bills to St John Ambulance; David Sheepshanks' memorable announcement that Ipswich Town were going into "temporary" administration - the involvement of several clubs with the moneylenders Melvyn Laughton, Sean Verity and Stewart Davies, known as The Sterling Consortium, has not covered the game in glory.

They first surfaced in April 2001 at Chesterfield, where they made a loan of £150,000, repayable within a maximum six months, secured on the club's historic Saltergate ground. On that, they charged "profit costs" of £50,000 - 33 per cent - and legal costs. Terrified that the club would lose its ground, two local businessmen-supporters, Mike Warner and Barrie Hubbard, paid Sterling in full just a month later. Shortly afterwards the club went into administration.

The men turned out to be partners in a large national accountancy firm, BKR Haines Watts. Since then, with the Football League in its post-ITV Digital crisis and its clubs frantic for money, the three men have been involved at Carlisle United, and lent significant sums to Cambridge United, Barnsley, Scarborough and Darlington.

George Reynolds, Darlington's picaresque chairman, told me the club borrowed £3.5m from Laughton, Verity and Davies, and a further £400,000 from Davies personally, from May 2002, in a final desperate fling to complete the £20m, 27,000-seat stadium which he opened this season, christened the George Reynolds Arena.

However, in December last year Reynolds' money ran out and Darlington collapsed into administration. The Sterling lenders, secured on the new stadium, had the right to appoint an administrator and they did: David Elliot, himself formerly of BKR Haines Watts. He is acting alongside co-administrators David Field and Lisa Hogg.

Reynolds' agreement with Sterling provided that if he failed to make a payment, all overdue amounts would be charged at 30 per cent annual interest. He also provided a guarantee to repay the money personally if the club were to default, secured on the mansion that he has publicly relished owning, Witton Hall in County Durham.

With the club now insolvent, the Sterling moneylenders told Reynolds, in a letter from their solicitors last week, that their loan is up to £5,950,370. Interest is rolling, according to Reynolds, at £6,000 a day.

David Field has said that no other realistic offers have been made to buy the club except from Sterling themselves, who are said to have offered around £3m. However, that price falls short of what they are owed, so they have called in Reynolds' personal guarantee.

He has not paid them, so they issued a bankruptcy petition, due to be heard on 14 April. Last week Stewart Davies' solicitors, Cobbetts, based in Leeds, wrote to Reynolds asking him to hand his house over: "We hereby request that you ... give up voluntary possession of the property. In default, we have instructions to commence proceedings to recover possession."

Reynolds, the orphan and former safecracker who subsequently made a fortune in chipboard, says he has spent all his money on Darlington and the new stadium, but is not prepared to lose everything to Sterling. He said he is challenging the deal, including the valuation put on the stadium: "How can we build something, state of the art, for £20m, but see it sold for £3m?"

There is an interesting relationship between David Elliot, Darlington's administrator, and Davies, Laughton and Verity. At least until recently, when Elliot left the firm, he worked at BKR Haines Watts, where the Sterling moneylenders were all partners. In August 2002, when Carlisle United, then owned by Michael Knighton, were in administration, Elliot, based at BKR Haines Watts' office at Sterling House in Tankersley, Barnsley, was appointed the administrator. He then recommended to creditors that Carlisle should borrow £2m from the Sterling Consortium, secured on the club's Brunton Park ground. Elliot explicitly pointed out in his proposal that Laughton, Verity and Davies were partners in his firm: "The Sterling Consortium is a business owned and controlled by three general practice, non-insolvency partners, who are also partners in BKR Haines Watts. The administrators ... have no direct connection with the Sterling Consortium."

When, in January last year, Scarborough were experiencing the latest financial problems in their perennial seaside melodrama, two accountants from BKR Haines Watts' Hull office, David Walker and Mark Loftus, were appointed administrators.

Stewart Davies, described by Walker and Loftus as "a director of a company which is a partner in BKR Haines Watts," then agreed to lend Scarborough up to £120,000. The club's chairman, Malcolm Reynolds, told me he saw no problem with the interrelationship between BKR Haines Watts acting as administrators and partners in the same firm lending money to the stricken companies. "Nobody else would lend us money at the time. Ultimately we borrowed £100,000 from Davies and it helped us get through the administration."

Scarborough's windfall cup run, culminating in the sunny, televised, 1-0 defeat to multi-roubled Chelsea, ultimately earned the club £400,000 and paid off creditors, including Davies. Reynolds is due next week to sell the McCain Stadium and build a new ground out of town, which he hopes will finally ballast Scarborough.

At Cambridge in late 2002, the club again found no bank would lend them money, and they borrowed £500,000 from Laughton, Verity and Davies, at 15 per cent, secured on the Abbey Stadium and other property. That led to a frantic campaign to pay off the loan a year later, failing which, according to the supporters' trust, default interest of 30 per cent annually would have become payable.

Eventually, the trust, Cambridge Fans United, raised £100,000 for 15 per cent of the shares and a seat on the board for an elected director, Brian Attmore. Another board member invested, and the club then managed to replace the Sterling money with loans from another company, Grovefield Finance.

"The club could not borrow from anybody else after ITV Digital collapsed," Attmore told me, "but the climate seems to be getting a little easier."

But not for George Reynolds, who stands to lose Darlington, its stadium, his house and all his money. He is holding out by using his status as the club's biggest creditor - he is owed £14m, he claims - to refuse to vote through any CVA settlement, unless Laughton, Verity and Stewart release him from his personal guarantees. So far they show no inclination to do so. "If they don't, I'm not voting for the CVA and the club will fold," Reynolds told me. "I don't want that to happen, but I don't see why they should have everything I built."

David Elliott left BKR Haines Watts at the end of last year. He is currently a director of HW Sterling plc, based at Sterling House in Tankersley, Barnsley. Stewart Davies is also a director of the same company. Elliott's co-administrator, David Field, told me that Elliot works with his firm, Wilson Field, as a consultant. "David took very detailed advice about whether there was a conflict of interest," he said. "He wouldn't act if there were."

Carlton and Granada precipitated a financial crisis for football when they pulled ITV Digital and failed to pay what it owed. Quite how close to the bone the clubs have been taken is illustrated painfully clearly by the Sterling Consortium, lenders of the last resort, and their high-interest tour of the beautiful game.

Sterling Consortium's loans to faltering clubs

Chesterfield

April 2001. £150,000 for six months, £50,000 profit, secured on the ground. Repaid a month later.

Barnsley

December 2001. Borrowed £2m, secured on Oakwell and land around it. Now repaid.

Carlisle United

August 2002. The administrator, David Elliot, recommended the club borrow £2m from Sterling, which was owned by three partners in his firm, BKR Haines Watts.

Cambridge United

December 2002. Borrowed £500,000, secured on Abbey Stadium. £585,000 paid off in December 2003 or 30 per cent interest would have been payable.

Scarborough

January 2003. £100,000, secured on the McCain Stadium, at 15 per cent interest. Now repaid.

Darlington

May 2002. £3.9m secured on the George Reynolds Arena with personal guarantees from Reynolds. Debt now over £5.9m. Darlington in administration, Reynolds served with bankruptcy petition and faces losing house.