Gillingham have reported a pre-tax loss of £886,677 in their latest published accounts.

The club’s accounts are for the year ending May 31, 2016. The previous year’s trading had shown a profit of £188,438.

Club chairman Paul Scally pointed to the ongoing battle with former caterers Centerplate Limited for a chunk of that loss, while their decision to turn down big-money transfer fees also contributed.

Mr Scally, speaking about the catering side of the company, said that ‘the most significant effect’ was the ‘loss of a guaranteed income and profit of over £400,000’.

Centerplate quit the club in March 2015 and Mr Scally was forced into starting up a brand new operation from scratch.

“The task is substantial,” said the chairman. “It is envisaged that the catering business will take several years before it can have a positive impact on the main trading account.”

Gillingham are currently involved in negotiations with Centerplate in regards to compensation, with a High Court date set for November 1, 2017. The Gills were keen for season ticket holders to purchase two-year packages this summer to help bolster the club’s coffers for what could be an expensive legal battle.

In July 2016, Centerplate were instructed by a court order to pay the Gills £375,000 for damages. They offered to settle the disagreement by paying the club £950,000 but a counter-proposal of £1,450,000 has yet to be agreed on.

The Gills also usually budget for player sales but the club decided to keep their star players.

During the previous season (the 2015/16 campaign) former boss Justin Edinburgh had led the Gills to the top of the league but a dramatic reversal in form – coming after transfer offers were rejected - left them finishing the season ninth.

It was a season where the Gills turned down a big offer from Bristol City for Bradley Dack and also rebuffed Brentford’s efforts to sign John Egan.

Egan eventually moved for a fee that was settled by tribunal in the summer, after the date of these accounts. Dack’s loss of form, coupled with the fact his contract now has just one year to run, means he is no longer going to attract the same kind of offer, which was thought to be in the region of £2m.

Transfer fee income fell from almost £1m to just over £300,000, as the club’s reliance on add-ons from previous transfers diminish.

The selling of players remains one of Gillingham’s ‘key strategies’, with the club’s financial report stating that “an exciting and potentially beneficial season lies ahead as clubs in higher divisions start to show interest.”

There was a slight increase in turnover, up £100,000 from £5.6m the year before, but the gross profit margin dropped to 8.8% from 27.7%, with the statement again pointing to Centreplate’s withdrawal from their contract as a reason.

The Gills came close to relegation at the end of the current season but the accounts state that the financial risk associate with that is ‘not deemed to be material’ with attendances and costs of similar level.

Gillingham continue to seek external investment to increase their fortunes on and off the field. The chairman has been abroad exploring different opportunities since the end of the season.

The club have an outstanding debt of £1.8m payable to Three Directors Limited, of which Mr Scally is also a director, along with Michael Quarrington and Michael Anderson. The latter is owed an additional £433,475 at the date of the accounts.

Mr Scally received £191,708 during the year for consultancy services, down from £233,161 the year before.

The chairman said: “I would like to thank all sponsors and supporters for their efforts during the period and indeed the staff who once again have faced significant challenges in a strong and positive manner.”