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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”.
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.
Footy Law 