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FOI responses expose Coventry City Football Club’s “new stadium plans”
The Football League has maintained that a commitment by SISU-owned Otium Entertainment Group to return Coventry City Football Club to the city of Coventry was a condition of their permission for the club to “temporarily” ground-share with Northampton Town.
Coventry City’s chief executive, Tim Fisher, has repeatedly stated that the club’s owners intend to return the club to the Coventry area and they have agreed a £1 million bond with the Football League should the club not do so (the Football League has since revealed that this “bond” is nothing of the sort – it is, instead, a promise to pay should the club default on its promise, rather than a sum that has been lodged with the League or an Escrow service).
Tim Fisher has made a number of promises and self-offered deadlines over the past few months, stating that more information about the company’s (or companies’) plans for their new stadium would be forthcoming. But despite this, Coventry City Fans remain in the dark.
Tim Fisher’s first – and most significant – promise was made in May this year when he said that the new stadium would be built within three years. Four of those 36 months have now passed and fans still don’t know where the proposed new stadium will be built.
And on 26 July Tim Fisher told the Coventry Telegraph that “terms had been agreed” on one site, subject to contract and that they had entered “exclusive talks on a second site”. He said that they were “aiming to finalise a deal within eight weeks.”
That is a self-imposed deadline of the 20th September for the fans to be told where the new stadium will be built; although he still has not said which SISU-owned entity was seeking to buy the site and build the new stadium (and therefore own it).
In order to build a stadium CCFC will not only need to buy the land but they will also need to obtain planning permission. It is usual practice when developments on such a scale are envisioned for discussions to take place with the local authority planning offers prior to the purchase of a site.
While these discussions can’t bind the local authority on which way the decision will go once any planning application is eventually made; they can help developers identify whether planning permission is likely to be particularly difficult on the proposed site and whether it is appropriate to purchase land for the intended purpose.
Using the Freedom of Information Act, the Footy Law Blog asked Coventry City Council and all six neighbouring local authorities whether their planning offers had “engaged in formal conversations with third parties over the past 36 months about any proposed new sporting stadia within the council boundary area”.
The local authorities were also asked for the number sites discussed as a proposed location for any new stadia; whether any discussions were still on-going; and whether the planning department had received any indication that a planning application for new sporting stadia was to be expected.”
The local authorities were deliberately not asked for the identity of any third parties engaged in such discussions: such a request was likely to have been refused on the basis that the information was exempt from disclosure on the grounds that it would breach the Data Protection Act or prejudice the third parties’ commercial interests.
In response to the requests, Coventry City Council – which covers the area that the Football League regulations say CCFC should be based (not that the Football League has followed its regulations in its handling of CCFC’s move away from the Ricoh Stadium) – say that its planning department “has not engaged in formal conversations with third parties over the past 36 months about any proposed new sporting stadia within the council boundary area” and that it has “not received any indication that a planning application for new sporting stadia is expected.”
The same is true of North Warwickshire Borough Council, Solihull Metropolitan Borough Council, Stratford upon Avon District Council and Warwick District Council.
Nuneaton and Bedworth Borough Council was slightly more nuanced: it’s head of development control said that she was “not aware” of any formal conversations with anyone about a new sporting stadium; and that no planning application was expected.
Rugby Borough Council, on the other hand, has had discussions with third parties during the past three years about proposed new sporting stadia. Six locations were identified but discussions “primarily revolved around one specific location.” Those discussions are no longer on-going and the planning department has received no notification that a planning application should be expected.
So, the question remains: “Where does Tim Fisher plan to build CCFC’s new stadium?”
Or, perhaps a more pertinent question is: “Does Tim Fisher really plan to build a new stadium for CCFC?”
And a key question that the Football League can no longer duck: What information have they received to show that Otium Entertainment Group intend to return the Club to the confines. Are the Football League presiding over another Wimbledon franchise by stealth?
Note: The FOI requests were made in separate emails to the local authorities on 12th August 2013. On 13th August the request to Solihull Metropolitan Borough Council was clarified to make clear that the question referred to large sporting stadia with spectator seating rather small community facilities. Responses were received in the period from 13th August 2013 to 6th September 2013.
Leaked player transfer documents contradict CCFC position on contracts
The Prison of Measured Time blog, which focuses on football finance, has published leaked player transfer documents which clearly contradict statements by Coventry City FC chief executive Tim Fisher and administrator Paul Appleton.
The leak is important – and the blog should be congratulated for getting hold of these documents and having the courage to publish them – because Tim Fisher and Paul Appleton have repeatedly stated that key assets of Coventry City Football Club – player registrations – were not held by Coventry City Football Club Ltd (the company in administration) but by Coventry City Football Club (Holdings) Ltd, a different SISU-owned company that was not in administration.
This information would have seriously affected the so-called “sale”-process of Coventry City FC Ltd which saw another SISU-owned company, Otium Entertainment Group Ltd, emerge as the preferred bidder. In the end the sale didn’t go through because Ricoh Arena owners ACL rejected a CVA and the administrator has announced his intention to liquidate the company that was in administration (but doesn’t appear to have made any progress on this).
The information would have been key to the Football League’s decision to transfer its “golden share” in the League from the company in administration to Otium Entertainment Group.
Tim Fisher, writing in the Preston North End match-day programme on 25th August, claimed that the Football League had been registering players in Holdings, rather than Ltd since “way before SISU took over”, adding: “there is a myth that somehow SISU have set up this structure because they have something to hide when, in fact, it was a structure they inherited.”
The documents obtained by A Prison of Measured Time show this to be false.
They have published compensation agreements from Aston Villa for Richard Blythe and Kofi Poyser, dated 17th December 2007; a transfer agreement with Newcastle United for Leon Best, dated 1st February 2010; transfer agreements with Walsall for Dan Fox (28th January 2008) and Scott Dann (31st January 2008); and a transfer agreement with Bolton Wanderers for Temitope Obadeyi, dated 19th September 2006.
All these documents show that the agreements are between the respective clubs and Coventry City Football Club Ltd.
Of interest to most football fans will be the financial agreements for the transfers and associated add-ons. Those details have, however, been redacted. But they are very significant for fans of Coventry City and other football fans who are concerned about the lack of transparency and fair-dealing by those tasked with regulating football.
Some unanswered questions to the Football League about Coventry City FC
Last night the Football League said:
“Following the failure of Coventry City FC Limited’s Company Voluntary Arrangement earlier today, the Board of The Football League has considered an application by the Administrator’s preferred bidder, the Otium Entertainment Group, for a transfer of the club’s share in The Football League under the ‘exceptional circumstances’ provision of The League’s Insolvency Policy.
The Board has agreed to transfer the Club’s share on the basis that it accepts a 10 point deduction for the 2013/14 season. This decision will enable Coventry City to continue its membership of The Football League, despite the failure of its CVA, and participate in the 2013/14 Sky Bet League 1 season.“
These three sentences leave so many questions unanswered, so I thought I would list them:
- Why is the Football League’s “Insolvency Policy” secret?
- What were the “exceptional circumstances” that applied to the situation at Coventry City?
Following the failure of the CVA, the administrator of Coventry City FC Ltd said he would now seek to liquidate the company. This has not yet happened. Coventry City Football Club Ltd remains in administration and can only be liquidated by an order of the High Court.
If disputed, as is the case here, a High Court liquidation order will only be made after a hearing at which the court will inquire into the circumstances that led up to the insolvency. The hearing will include questions about the transfer of assets; such as the “sale” by the administrator of the assets of Coventry City FC Ltd to the Otium Entertainment Group Ltd.
- Why has the Football League transferred an asset of Coventry City Football Club Ltd (the “golden share” in the Football League Ltd) to Otium Entertainment Group Ltd before awaiting the outcome of the legal process?
- Why does the Football League refer to a “preferred bidder” when talking about a company heading towards liquidation, bearing in mind that liquidation is about the closure of a company rather than its sale?
- Bearing in mind the implication behind the immediately preceding question, on what basis have the Football League decided to allow Otium Entertainment Group Ltd to be given a “golden share” in the Football League Ltd, to operate a club called Coventry City Football Club?
In an earlier statement, the Football League said it would allow Coventry City to play its home matches at Northampton Town’s Sixfields Stadium, contrary to its own rules and regulations, and the FAs rules and regulations, but that this agreement was “entirely conditional on the Club ultimately exiting administration in accordance with The Football League’s conditions and achieving a successful transfer of its League share.”
- Why did the Football League deem it appropriate and necessary to ignore both its and the FAs rules and regulations when agreeing to the ground share with Northampton Town?
- Why has the Football League overturned its own position that the ground-sharing agreement was “entirely conditional on the Club ultimately exiting administration”, bearing in mind that Coventry City Football Club Ltd is still in administration?
At a number of points during the administration process, the Administrator of Coventry City Football Club Ltd has stated that he could not operate the club in administration, as other football club administrators have done, because while Coventry City Football Club Ltd owned the “golden share” in the Football League, the players were contracted to and registered with a different company, Coventry City Football Club (Holdings) Ltd. This is contrary to the Football League’s rules and regulations that define a club as the company holding the “golden share.” This arrangement came to light after the club went into administration.
- Now that this irregular arrangement is a matter of public knowledge – and, effectively, a matter that the Football League is now aware – has the Football League insisted that the players’ contracts and registrations be transferred to Otium Entertainment Group Ltd as a condition of the transfer of the Golden Share?
- If not, isn’t it the case that Otium Entertainment Group Ltd are in the same position that the Administrator was in – ie, they have the “golden share” entitling them to play in the Football League, but no players contracted to it?
- If the “new” Coventry City Football Club (ie, Otium Entertainment Group Ltd) play a Football League match with players who are owned by another company (ie, Coventry City Football Club (Holdings) Ltd) are they not in breach of Football League and Football Association rules and regulations concerning third party ownership?
- If the players’ contracts and registrations have not been transferred to Otium Entertainment Group Ltd, are the Football League not sanctioning a further breach of their rules and regulations (and, in fact, their Articles of Association) by allowing a “club” to be operated by two separate entities?
- If the players’ contracts and registrations were transferred to Otium Entertainment Group Ltd, when did this transfer take place, and why did the Football League not publicly announce the transfer as they do with every other payer transfer?
And finally, In its earlier statement about ground-sharing, the Football League said: “with the new season less than four weeks away, the Board required certainty as to where the Club would play its matches from the start of the new campaign.” It continued: “the Board was placed in an unenviable position – with the very real possibility of Coventry City being unable to fulfil its fixtures for next season.“
In its statement last night, the Football League said its decision, in “exceptional circumstances” to transfer its share to Otium Entertainment Group Ltd “will enable Coventry City to continue its membership of The Football League, despite the failure of its CVA “
- Is it correct to read into the Football League’s statements, that its position that its rules and regulations will never be applied correctly by the Board if it means that a club will be forced to exit the Football League?
- If that is the case, aren’t the Football League saying that owners and directors can flout the rules with impunity; so long as they get their timings correct and allow things to happen right next to the start of a Football League season?
The Football League concluded its statement last night by quoting its chairman Greg Clarke saying that the Board were “dismayed at the level of intransigence being shown.”
The Board need to be aware that football fans up and down the country – not just Coventry City fans – are dismayed at the actions of the Football League and the lack of proper transparency and accountability in holding football club owners and directors to account for their mismanagement.
As one football fan said on another club’s message board last night: “Before a ball is kicked in its 125th season, the football league betrays its legacy.”
Sixfields ground share would make Northampton play second fiddle to Coventry City
It was reported in the Coventry Telegraph last night that an agreement had been reached for Coventry City to ground share with Northampton Town at the latter’s Sixfields Stadium while a new permanent stadium is built at an undisclosed location somewhere in the Coventry area.
The Telegraph reports that the Football League Board were due to discuss the proposal today. The League has made no announcement so far.
Northampton’s chairman David Cardoza told the BBC that “There’s some legs in this, but it’s not near done and dusted,” adding: “It’s speculation at the minute.”
If Northampton and Coventry do reach a deal to share the Sixfields and the proposal is ratified by the Football League; Northampton will play second-fiddle to Coventry City on the 10 occasions when both teams are due to be home.
Internet forums and the media have quoted Football League regulations on ground sharing, particularly regulation 13.4 which states: “Ground sharing will only be approved at the discretion of the Board. The Board will not generally approve any ground-sharing arrangement where the club plays its matches outside the conurbation, as defined by the Board, from which the Club takes its name or with which it is otherwise traditionally associated.”
Many people have interpreted this by saying that a club can only ground share within 30 miles of its existing stadium – but such a condition is not stipulated in the regulations. That may be one of the Football League’s unpublished rules, or it may be that it has been applied to a different club. But the regulations themselves state it is at the discretion of the board; and the conurbation requirement will only be applied “generally”.
But little attention has been paid to the Football Association’s rules which would also apply to any ground sharing.
The Football Association’s rule 2.3.1 states that where two clubs enter a ground-sharing agreement “the Club playing in the most senior competition has priority of fixtures at all times”.
This means that if Coventry City and Northampton Town do agree a ground-sharing arrangement, League One Coventry City’s fixtures would take priority over League Two Northampton.
Northampton’s home matches against Newport, Torquay, Scunthorpe, Exeter, Morecambe, York, Southend United, Bristol Rovers, Mansfield and AFC Wimbledon would have to move to a Friday or Sunday (FA rule 8.13) to make way for Coventry’s home matches against Bristol City, Preston North End, Colchester, Gillingham, Brentford, Crawley Town, Carlisle, Shrewsbury, Port Vale and Stevenage.
But the possibility of a ground share being ratified by the FA is slim, if the Association applies its rules correctly. The same rule (2.3.1) states that: “Ground sharing may not be permitted when one of the sharers retains the use of another ground unless that club can show by means of a refused planning permission or similar that it cannot meet the requirements of the Criteria Document at that ground.”
Coventry City’s present landlord, Arena Coventry Limited (ACL), has repeatedly said that it wants Coventry City to continue playing at the Ricoh Arena. The difficulty is that it won’t negotiate with the proposed new owners while the club is still in administration. ACL says it can only negotiate with the administrator as legally, the administrator is the person responsible for running the club until it exits administration.
The FA rule also states that, except in an emergency, any ground sharing agreement must be completed by the 31st March if a club is to be permitted to ground share in the following season.
- The Northampton Chronicle and Echo’s report of the story contains a peculiar line: “The deal would not be a groundshare, but purely a rental agreement.” I have absolutely no idea what they mean by this. Both the Football Association and the Football League require member clubs to have their own ground with security of tenure; but will allow the sharing of a ground, either with another member club, or with another sporting club, but such sharing agreements require the consent of both the FA and the Football League. The rules do not cover any situation that could be described as “purely a rental agreement”.
Safe-standing in football grounds
Should safe-standing areas be introduced to football grounds?
It is a question that is not going to go away: fans want the excitement and atmosphere that standing brings; but nobody in authority wants to make a decision which could see them blamed in the future for any subsequent tragedy.
This is a subject that I will return to in the future. Until then, here is a post by Bhaarat Patel on the Student Lawyer blog looking at the legal position.
How can you make a footballer redundant without closing down the football club?
How can you make a footballer redundant without closing down the football club?
That was the question that came to mind when I read that Trevor Birch, the administrator for Heart of Midlothian FC, had made striker John Sutton redundant and that four other players from the club could follow suit.
In English employment law, it isn’t the employee who becomes redundant; but the post they hold: you can’t make somebody redundant and then employ somebody else to do the same job on a lower wage. That’s English law, but Hearts are a Scottish club based in Edinburgh and playing in the Scottish Premier League; so Scottish law applies.
Fortunately, the Employment Rights Act 1996 extends (for the most part) to Scotland! So the same law about redundancy that applies in England applies equally in Scotland.
Section 139 of the Act specifies the two conditions under which a person can be made redundant:
The first of these, section 139(a), covers the scenario where an employer has either ceased to trade, or intends to cease trading; or if he intends to cease doing business in the place where the employee was employed.
This condition does not appear to apply in the case of “the Hearts’ Five” because the administrator is striving to sell the club as a going concern and there has been no announcement of a plan to move the club from its Tynecastle stadium.
The administrator is encouraging fans to buy season tickets and he has thanked a commercial sponsor for bringing forward their payment for next season’s sponsorship fee, saying: “All these gestures have played their part in keeping the club afloat and giving it a lifeline.”
This does not sound like there is an intention to cease trading; unless the administrator’s intention is that the present company behind the club, Heart of Midlothian PLC, will cease to trade when new owners purchase the assets through a new or different company.
The second of the two conditions, section 139(b), is more interesting. This applies where the requirements of the business are such that the employer no longer requires employees to carry out work of a particular kind, whether that is at all or just at the place where the employee was employed.
I don’t think that anybody would seek to suggest that Hearts no longer requires employees to carry out work as professional footballers!
But Heart’s website lists 22 first team players (I don’t know if the list is up to date, but John Sutton’s name isn’t amongst them). It could be argued that the club didn’t need as many footballers in order to carry out their business; or it could equally be argued that they didn’t need as many of the same type of footballer.
Of the 22 players listed on the club’s website, five are strikers: Dale Carrick, Callum Paterson, Billy King, David Smith and Scott Robinson; so it is quite possible that the administrator no longer needed six strikers to carry out the business of the football club.
If John Sutton has been made redundant under this condition, the club (or rather its administrator) would be unable to sign another striker because doing so would demonstrate that the company did need an employee to carry out this type of work: the redundancy would then be unlawful dismissal.
Of course, circumstances change; and this does not preclude the company from signing another striker in the future should other players leave or if one of their remaining strikers receives an injury.
Redundancy isn’t fun for anybody – employees or employers. Fortunately, in this case, John Sutton wasn’t unemployed for long. STV reports that within hours he had returned to his previous club Motherwell.
The player told Motherwell’s website: “It’s good to be back, good to see some familiar faces and there’s a lot to look forward to. I wasn’t desperate to leave here last time and I was glad for the opportunity to come back again and work with the manager and the staff who always made me feel welcome any time I returned.”
Coventry City FC’s administrator’s contradictory position on players’ contracts
In yesterday’s statement about the sale of assets from Coventry City Football Club Ltd to Otium Entertainment Group Ltd, the administrator Paul Appleton said: “as I’ve stated on many occasions, it is Holdings which employs the players…”
This statement is in line with previous public comments made by both him and by Tim Fisher, a director of Coventry City Football Club Ltd, its owner Coventry City Football Club (Holdings) Ltd and its owner, the proposed purchaser, Otium Entertainment Group Ltd.
This is the reason that Mr Appleton gives for the joint administrators not running the football club during the administration: that the football club is Holdings rather than Limited.
In my post yesterday I spoke about this bizarre set-up of two seemingly interchangeable and interoperable companies running a football club; and I did so, on the basis of the statements made by Mr Appleton and Mr Fisher.
But I did so knowing that something wasn’t right with the statement and I wanted more time to consider the implications.
The difficulty with the statement is that the players aren’t registered to Holdings, as Mr Fisher and Mr Appleton have said; but to Limited.
What’s my source for this?
My source is Mr Appleton and Mr Fisher themselves.
In his report to the creditors, Mr Appleton includes an appendix listing the director’s estimates of Coventry City Football Club Ltd’s assets as of the 21st March 2013 – that’s Mr Fisher’s estimates.
Appendix 4 of Mr Appleton’s report clearly shows that Mr Fisher believes that the company in administration owns players’ registrations as an asset with a book value of £466,742; and an “uncertain” release value.
The players’ registrations can’t be an asset of Ltd if the contracts are held by Holdings.
The Footy Law Blog is a vehicle for legal analysis rather than personal opinion; and I do not want people to assume that I am accusing or implying that Mr Fisher and Mr Appleton are lying. What I am saying is that they have made seemingly contradictory statements.
As I considered how to approach this self-contradictory position, a story appeared in the Coventry Evening Telegraph, reporting a similar claim from a different source.
Arena Coventry Ltd, owners and operators of the Ricoh Arena, told the paper that: “CCFC (Holdings) Ltd did not employ the Sky Blues players as per the most recent set of accounts filed for the business reporting upon the financial year ending 31 May 2011, signed off by BDO as an independent auditor on 20 June 2012.
“On the basis of this publicly available information, Mr Appleton’s statement today is not entirely factually accurate.”
We don’t know the current position, because neither Coventry City Football Club Ltd or Coventry City Football Club (Holdings) Ltd have filed their 2012 accounts with Companies House; and it could be that the players’ registrations are amongst the assets sold by the administrator yesterday to Otium Entertainment Group Ltd.
If they are, then the administrator has definitely has jumped the gun because until the Football League agrees to transfer its share to Otium, the proposed new owner has no right to compete in the Football League or its associated competitions.
Move along please, nothing to see here: “Sale” of Coventry City FC changes nothing
“The sale of Coventry City Football Club Limited to Sisu company Otium has been completed,” the Coventry Evening Telegraph trumpeted today on its website. It wasn’t alone. ITV News said: “Breaking: Coventry City sale ‘completed'”.
This is a major milestone in the history of the Sky Blues.
Or, it would be if it had happened; but it hasn’t. Or, rather, this isn’t what the administrator has announced.
The statement issued by Coventry City Football Club Ltd’s administrator, Paul Appleton, said: “I can confirm that the asset sale by Coventry City FC Limited to Otium Entertainment Group Limited has been completed. Otium has purchased the right and title to certain assets possessed in Limited including the shares in the Football League and the Football Association.”
To me that’s clear as day: Paul Appleton has sold “certain assets” – not the whole company.
The full extent of those assets isn’t clear; but the administrator does say the sale includes the shares in the Football League and the Football Association.
I’ve not researched the Football Association’s rules – that’s a job for another day; but I do have information about the Football League.
There are 100 shares in the Football League; of which 72 have been issued at a cost of £0.05 – five pence each: one for each club in the League. They can be sold, but only for five pence; and any transfer is subject to the approval of the Football League.
When Mr Appleton placed the company for sale, he warned potential bidders that Coventry City Football Club (Holdings) Ltd asserted beneficial ownership of the Football League and Football Association shares; and he repeated this caveat in his announcement today:
“I stress that I have only been able to sell such right and title to these as Limited possesses because CCFC Holdings Ltd asserts beneficial ownership over them.”
This statement is nonsense.
The Football League’s Articles of Association, the legal document setting out how it does its business and how its shares can be transacted, makes it very clear in unambiguous language that a share can only be owned by a single company; and that joint or trust ownership is not allowed.
I covered this in a separate post last night about the Football League’s insolvency policy.
In a nutshell, there is no such thing as beneficial ownership of a Football League share. The share is owned by a single company and can be transferred only with the consent of the Football League.
In addition, the Articles state, in clause 4.5, that the Football League can give notice to a shareholder to transfer the share to “such person as the Board [of the Football League] may specify” for the price of just five pence, if one of a number of conditions are met.
One of those conditions (4.7.1) is that if somebody other than a Member Club becomes a shareholder. If Mr Appleton has sold the Football League share to Otium Entertainment Group Ltd in the way he has announced, then this condition is met and the Football League can now order this share to be given to any company that they choose to run Coventry City FC.
I qualified that statement by saying “if Mr Appleton has sold the Football League share…” because another one of the conditions (4.7.4) is a club going into administration; and another (4.7.5) is a group company suffering an “insolvency event”.
I understand that it is usual practice for the Football League to implement these conditions when a club goes into administration by effectively suspending the share – having it returned to the League for redistribution when they are satisfied that the administration has been completed with owners who pass their Owners and Directors Test.
If this is the case, what has Mr Appleton sold?
He doesn’t claim to have sold the company, merely its assets; but if the Football League followed their Articles of Association and usual practice, the company didn’t own the assets he says that he has sold.
Coventry City Football Club is in a bizarre position: two distinct companies, Coventry City Football Club Ltd and Coventry City Football Club (Holdings) Ltd, appear to be operating interchangeably. Mr Appleton acknowledges this in his statement by saying that “This has been no ordinary football administration and I have tried to undertake a sale process which allows the club to compete in all of next season’s competitions. Obviously, one of the key points now is to determine where the club plays its football next season, but that is a matter for the purchasers and the Football League.”
He adds: “In this regard, the offer made by ACL”, the company that owns and operates the Ricoh Arena, “to allow the club to play at the Ricoh was dependent on Limited remaining in administration and was based on the mistaken belief that Limited had the ability to field a team.
“However, as I’ve stated on many occasions, it is Holdings which employs the players and, consequently, Limited was never in a position to take up the offer.”
According to public statements, Coventry City’s players are contracted to Coventry City Football Club (Holdings) Ltd. But without a share in the Football League this company can’t play in the League.
The share – and with it the right to play in the League – is owned (or was owned) by Coventry City Football Club Ltd. Under insolvency laws it is for the administrator to control this company until it exits administration. But if Holdings insist the players belong to them, his hands are tied.
Mr Appleton adds: “The Football League have been kept closely informed of developments and I am continuing to work closely with them so that the process of transferring the share can begin. This will involve sending out proposals for a voluntary arrangement to creditors which will be considered at a meeting of creditors to be convened within the next three weeks.”
In other words, nothing has changed.
- Coventry City Football Club Ltd is still in administration.
- Coventry City Football Club Ltd is still owned by Coventry City Football Club (Holdings) Ltd.
- Otium Entertainment Group Ltd is still the preferred bidder; but has now brought some assets.One of these assets, according to administrator Paul Appleton, is the Football League Share; but according to the same Paul Appleton, the process of transferring the share hasn’t begun and can’t be started until the club comes out of administration.
We are this evening in exactly the same place as we were this morning.
Mr Appleton’s announcement might be an attempt to circumvent the bizarre structural mess behind the Sky Blues so that they can begin preparations for next season; but it looks incredibly like the runners have jumped the gun.
Mr Appleton’s statement has not been followed up by announcement from the Football League. They need to make clear where Coventry City Football Club and its fans now stand.
Ignorance is no defence – except where the Football League’s rules are concerned
The most interesting response to my first post, which explored the Football League’s Owners and Directors Test, came from the senior and experienced football administrator Brendan Guilfoyle, who said in a comment: “Excellent Blog can I suggest you research the FL rule requiring a newCo seeking a transfer of the FL share having security of tenure at a stadium in Coventry conurbation.”
If there is such a rule it would prevent Otium Entertainment Group Ltd, the administrator’s preferred bidder for Coventry City Football Club Ltd (in administration) from being given the Football League’s golden share, as it stands.
By “as it stands” I mean the proposal to move Coventry City Football Club out of the city for three years in a ground-sharing deal while a new stadium is built at an un-announced location. This is the plan that has been put forward by Tim Fisher, chief executive of Coventry City Football Club (Holdings) Ltd (not in administration), the current owners of Coventry City Football Club Ltd (in administration).
We do not know whether the proposed new owners, Otium, will adopt this plan, but Otium own the Holdings company; Tim Fisher is a director of Otium and Holdings; and both companies are owned (down the line) by Sisu – so it’s a fair bet that this is the plan of the proposed new owner.
So, we are dealing with an “if there is such a rule” and “as it stands” so we are in the grounds of hypothetical.
I have no reason to doubt Brendan Guilfoyle and this post should not be read as questioning whether he knows what he’s talking about: he has been the administrator of Luton Town, Crystal Palace and Plymouth Argyle; and he led the investigation into the conduct of directors at Leeds United. It’s fair to say that he knows what he’s talking about.
But this blog is an analysis of rules, regulation and law – and so I looked for the rules and regulations that Mr Guilfoyle mentioned. And I failed.
This rule cannot be found anywhere on the Football League website; despite the website having a section listing its regulations. I’ve worked through those regulations and none of them come close to such a rule.
The Football League’s press statement in response to the administrator’s selection of Otium Entertainment Group Ltd as preferred bidder said: “The League will now work with the administrator and the proposed purchaser with regards to the fulfilment of the requirements of The League’s insolvency policy.”
Ah, so there’s a specific insolvency policy, separate from the Football League regulations. I searched the Football League site for the policy but couldn’t find it. It doesn’t appear anywhere on the Football League’s site. There are references to it, though, such as in their statement about Coventry City and their rules for clubs promoted into the League from the Conference; but not the actual policy.
The insolvency policy deals with who can and who can’t be members of the League – and therefore who can and who can’t be shareholders of The Football League Ltd. So perhaps the League’s Articles of Association, the legal document that lays out how the League conducts its business, will shed light on the matter.
No! The latest edition of the Articles, as amended at the League’s AGM in Portugal on 7th June, contains no such policy.
It does contain some of its rules for dealing with clubs in administration, such as the controversial Football Creditors rule, but not all of its rules. There is certainly nothing headed “insolvency policy” and nothing that details how it would transfer a share from a company in administration to a new company that takes over a club.
The Articles do include a clause that states “the Board may, in their absolute discretion and without giving any reason for its actions, refuse to register any transfer of shares.” That clause is “subject to the provisions of Article 0” – but there is no Article 0, at least not one that I could find.
So where is this hidden insolvency policy? How can I investigate the suggestion made by Mr Guilfoyle that a new company needs to show the Football League that it has security of tenure over a stadium in the conurbation before the League agrees to transfer its share?
I went to the League itself and asked for a copy – twice, before I was told by the Football League’s head communications John Nagle that “the insolvency policy is not a public document.”
So that’s that. It is impossible to analyse rules, regulations or laws that you can’t read. But more than that, it’s impossible for people to comply with them either. Ignorance of the law is no excuse for acting in breach of the law; but what if the law is secret?
Okay, we’re not talking about a law, we are talking about a policy containing rules and regulations, but the same principle applies – how can companies bid to buy a football club that’s in administration, if they can’t know the conditions that will be applied to them by the Football League?
Without access to the insolvency policy I can’t do the analysis that I was going to do. What I can do is point you to an article in the Coventry Evening Telegraph which quotes Mr Guilfoyle in some detail. Mr Guilfoyle is familiar with the League’s insolvency policy because of his previous work.
He told the Telegraph: “I don’t think you can say to the Football League, ‘we’re going to groundshare and then build a stadium in three years,’ when you haven’t even got planning permission or submitted a plan. So I think they have got major difficulties, major difficulties, in complying with the Football League’s insolvency policy.”
- But there’s something else I can do: Having read the Football League’s Articles of Association, I spotted something directly relevant to Coventry City’s situation.Clause 3.4 states that “The League will only recognise a member club in relation to a share and the rights which may be exercised by a shareholder. The League will not recognise any kind of trust or joint ownership…”Clause 4.1 states that “A Member Club must be a company that is limited by shares or guarantee” under the companies acts.
This means that the set-up that appears to be the situation at Coventry – with the club being part-Coventry City Football Club Ltd and part-Coventry City Football Club (Holdings) Ltd – is a breach of the League’s rules.
Of course a company may operate through any number of subsidiaries. In the football world, a subsidiary may be the business that operates a club shop and merchandise operation; another subsidiary might operate its catering business; another might be responsible for the conferencing and banqueting.
But two companies operating a single business operation is not only fraught with a number of legal difficulties (not least with a person not knowing which company they are doing business with) but it is also in breach of the League’s rules.
A club must be a company – not a collection of companies; and as far as the League is concerned the club is the company that has the Football League Share – and that share can’t be jointly owned.
Will Coventry City FC’s new owners fail the “fit and proper person” test?
The sorry tale of the mismanagement of Coventry City Football Club is long and confusing – not least because there are many conflicting reports of the events leading up to Coventry City Football Club Ltd going into administration.
Last week the administrator made an announcement that, in normal circumstances, would give hope to the football fans: a buyer has been found and the sale would be completed “as swiftly as possible” following discussions with the Football League.
But these are not normal circumstances, and administrator Paul Appleton acknowledged that “the end result of the sale process will not necessarily be welcomed by a large number of Coventry fans.”
Their anger is simple – he intends to sell the club to the people who already own it, albeit through a separate but related company. He says that “the bid from Otium Entertainment Group Limited was substantially more than any of the other three bids received,” and that it “gave the greatest return to the unsecured, non-connected creditors of CCFC Limited by a considerable margin.”
However, when an administrator is dealing with a football club, he not only has to comply with company law; but also with Football League rules. A company may exit administration and be able to operate as a company; but it won’t be able to operate as a football club without the permission of the Football League, through the grant of a golden share.
The grant of the share is not a given. The League has rules in place to ensure clubs are owned and operate to the highest financial and governance standards. It’s rule 21.2 requires all clubs to “ensure that they, and where appropriate any Officials of that Club, comply with the obligations of the Owners’ and Directors’ Test.”
Often known as the fit and proper person test, the Owners’ and Directors’ Test is designed to ensure that clubs aren’t owned by companies or people who have failed to comply with legal obligations regarding the running of companies; or who have demonstrated serious financial misjudgement through being involved in multiple football club administrations.
Do the proposed new owners of Coventry City Football Club pass this test? They possibly pass the letter of the Rules; but certainly not by the spirit of them.
The test is not based on some abstract opinion of a Football League decision maker; but is laid out in Appendix Four of the Football League’s rules.
First, a little – and I mean a little – background is required. The Football League rules refer to “the club”.
What is meant by “the club”? Unfortunately, it is not defined in a helpful way. The rules state that for the most part, “the club” is “any Association Football club which is, from time to time, a member of The League”.
Part of the difficulty of Coventry City Football Club is that “the club” doesn’t appear to be owned by a single company. I’ll clarify that because most clubs don’t have a single owner: Coventry City Football Club doesn’t appear to be a single company.
When Coventry City Football Club Ltd (CCFC Ltd) went into administration, the chief executive of Coventry City Football Club (Holdings) Ltd (CCFCH Ltd), explained that CCFC Ltd was merely a non-trading property subsidiary. Evidence given to the High Court demonstrates that this statement was false.
There has been little factual transparency, but it appears that some aspects of Coventry City Football Club are owned and operated by CCFC Ltd and others by CCFCH Ltd. It appears that there may even be some aspect of interoperability; and even confusion by people dealing with Coventry City Football Club as to what company they are dealing with.
Whichever company is “the club”, both have failed to comply with their statutory reporting requirements.
CCFC Ltd should have filed its statutory accounts for the year ending 31st May 2012 with Companies House by 28th February this year. It has not done so. It should have filed its annual return by 13th June. It has not done so.
CCFCH Ltd should have filed its statutory accounts for the year ending 31st May 2012 with Companies House by 28th February this year. It has not done so.
Not only is this a serious breach of company law, it is also a serious breach of the Football League rules, which resulted in the Football League placing the club under a transfer embargo last year.
But now we stand on the cusp of a new era with new owners, so everything will be alright? Well, no; because the proposed new owners, Otium Entertainment Group Ltd, is also in breach of company law.
Otium Entertainment Group Ltd was formed on 21st April 2011. It should have filed its first statutory accounts with Companies House by 21st January this year. It has not done so. It should have filed its annual return by 19th May. It has not done so.
According to the respected company information service Duedil, CCFC Ltd is a subsidiary of CCFCH Ltd which is a subsidiary of Otium Entertainment Group Ltd which is a subsidiary of Sky Blue Sports and Leisure Ltd.
And, you’ll never guess what’s coming next:
Sky Blue Sports and Leisure Ltd should have filed its statutory accounts for the year ending 31st May 2012 with Companies House by 28th February this year. According to Companies House, there is a proposal to strike this company off the register of companies.
For the record, Sky Blue Sports and Leisure Ltd is a subsidiary of the Cayman Islands registered company Sconset Capital Lp which, according to the US law firm Translegal, Sconset Capital LP is fully owned by the London based Sisu Capital Management Ltd; which is a subsidiary of the Virgin Islands based Wynacre Ltd.
The ownership structure is complicated but this is not in itself a breach of the Rules. The structure doesn’t provide transparency and many might think it is over-the-top for a League One Football Club; but it is not in breach of Football League Rules.
What is in breach of the Football League Rules is the failure to comply with statutory financial and regulatory reporting obligations.
The breaches by CCFC Ltd and CCFCH Ltd were acknowledged by the Football League as serious; hence the transfer embargo. So it makes no sense to think that life will be better with the proposed new owner as they too are in breach of the law – so much so that on 23rd April, Companies House announced, with a statutory notice in the London Gazette, that they were beginning the statutory process to strike Otium Entertainment Group Ltd off the register of companies.
But “common sense” isn’t relevant when the decision as to whether a proposed director or owner is fit and proper is down to written rules.
What do the Rules say?
I said at the start that the Football League Rules define a “club” as “any Association Football club which is, from time to time, a member of The League”.
It expands this definition for the purpose of the Owners and Directors Test, to say that “club” includes “any associated undertaking, fellow subsidiary undertaking, group undertaking, parent undertaking or subsidiary undertaking of such club.”
This is important, because the Rules go on to define who is covered by the term “directors” – and it is much wider than you think. Under Football League Rules, a director is not only the statutory directors and any shadow directors as defined in the Companies Act 2006, and any directors registered with Companies House and people elected to become directors by the board of members, but also: “a person in accordance with whose directions or instructions the persons constituting the management of the Club are accustomed to act” and “a person who exercises or is able, legally or beneficially, to exercise Control over the affairs of the Club.”
This means that it is not just the directors of the immediate owning company – which would be Otium Entertainment Group should the sale go through – but also the directors of all the companies detailed above, whether in the UK, the Cayman Islands or British Virgin Islands.
The test that the directors must meet is laid out in Appendix Four of the Rules.
The most interesting of the rules is is “disqualifying condition (e)”. I use the word “interesting” rather than “relevant” deliberately. Disqualifying condition (e) relates to criminal convictions and I make no accusation, inference or suggestion that any of the companies or directors have any criminal convictions.
But it is interesting because it specifies the type of offence that would be relevant, including:
(i) dishonesty
The chief executive of CCFCH Ltd has made a number of statements which have subsequently proved to be untrue – including his description of CCFC Ltd as a “non-trading property subsidiary.”
(iii) perverting the course of justice
In 2005, Sisu Capital Fund Ltd and others sought to overturn a Company Voluntary Agreement on the basis that they claimed was “unfairly prejudicial” to their interests. In his judgment, Mr Justice Warren produced a structural diagram of the various companies involved which showed that it too was a complicated multi-layered cross-border undertaking. He described Sisu Company Secretary Joy Seppalla as “the least satisfactory of all the witnesses”, saying: “I fear Ms Seppala has a distorted recollection of some events … and, with the benefit of hindsight, has introduced a ‘spin’ which suits the Applicants’ case. She is also prone to exaggerate – the Respondents would characterise it as lying, but I give her the benefit of the doubt on that.”
He added: “She is, I am quite sure, an astute and effective business woman. I totally reject her description of herself as naïve. I am quite sure that she was closely involved in developments as the representative of SISU as a Committee Creditor” ([2005] EWHC 2170 (Ch)).
It is important to stress that judges often indicate the strength or weaknesses of particular witnesses; and Mr Justice Warren did not seek to accuse Ms Seppalla of perverting the course of justice.
(iv) committing a serious breach of Companies Act requirements
The directors of CCFC Ltd, CCFCH Ltd and Otium Entertainment Ltd have all breached section 441 of the Companies Act 2006 as they have failed to file the necessary statutory accounts and returns. This is an on-going offence as the breach continues. Section 451 of the Act allows for each director, upon conviction, to be fined up to £5,000 plus an additional £500 for each day that the accounts are late.
Conclusion
Appendix Four of the Football Leagues Rules is headed “Owners and Directors” but it seems concerned only with individuals. In law, an individual can be a company – an entity with its own distinct legal personality – but this doesn’t seem to be reflected in the Football League’s Rules.
The Rules themselves contain requirements for financial reporting but nothing to address the situation that Coventry City Football Club now finds itself: Company A owns Company B; and Company B owns Company C. Company A now intends to buy Company C from Company B despite the fact that it already owns it.
The Football League Rules recognise certain criminal convictions as “disqualifying conditions” relating to directors; but it does not recognise criminal conduct as disqualifying unless there is a conviction. This is a significant loophole as it allows for people to carry out undesirable conduct without any sanction under the Rules.
Otium Entertainment Group and its directors have acted, and are acting, in breach of criminal law by not filing the accounts and returns as required under section 441 of the Companies Act 2006.
And so while they are not in breach of the letter of the Football League’s Rules they are certainly in breach of the spirit of the Rules.
What is the Football League to do?
Whatever it does, it should bear in mind the warning from Mr John Whittingdale MP, at the launch of a report into football governance by the Commons Culture Media and Sport Select Committee earlier this year: “The financial risk-taking by clubs is a threat to the sustainability of football as a family and community orientated game, which it should be. This is a central issue which must be addressed and real solutions – and the will to make the necessary changes – have been glaringly absent from the proposals [by football’s governing bodies] so far.
“We recommend that the DCMS make it clear to the football authorities that further progress on these issues is expected within twelve months. If football cannot reform itself, the Government should introduce legislation as soon as practically possible.”
The Committee’s report used Coventry City Football Club as an example of what is wrong with football governance:
“When asked about the ownership of Coventry Football Club, as one example, Greg Clarke said that the Football League knew who the owners were and possessed sworn statements from legal representatives of the club’s trust. Although he agreed in principle that supporters should know who owned their club, he told us that some investors did not want it to be known that they were part-owners to protect themselves from the minority of fans who could try to pressure them into giving the club more money.
“He said that there was not ‘a big queue of people wanting to give capital to Football League clubs’, implying that such people would be put off by the prospect of having to disclose their identity to fans. He argued instead that wider issues of payment of taxes and the use of offshore trusts by club owners were more important, and were for the Government to address. Mr Clarke admitted that the Football League had no way of independently verifying the ownership of clubs and it was able to act only on ‘publicly available facts.'”
An announcement from the Football League about the future of Coventry City Football Club is expected soon. The Football League needs to understand that the world is watching to see if its “Owners and Directors Test” is fit for purpose.
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