Leeds Utd and the Football League begin Arbitration proceedings on Wednesday in a dispute over the 15 point sanction imposed on the club at the start of the season. The penalty was imposed after Leeds went into Administration but were unable to secure a '75% approved' CVA which is built into League rules to allow the club to rejoin the League and continue to play.
Administration
When a team enters Administration, it effectively loses it's League position or 'Golden Share' into the Football League. The Administrators can continue to allow the team to compete but in exiting Administration, the Football League will automatically transfer the Golden Share back to the organisation controlling the club, providing they have CVA in place that has been approved by at least 75% of the Creditors. A further addendum to this rule is that Footballing debts (Players, clubs and officials) MUST be paid in full. This is to protect other clubs and players.
The Football league rules state that a 75% approved CVA must be gained, UNLESS IN EXCEPTIONAL CIRCUMSTANCES - all clubs entering Administration tot his point had an approved CVA in place so no club has ever applied under the 'Exceptional Circumstances' rule in the past.
CVA
When Leeds Utd entered Administration last May, a deal was quickly struck between the Administrators and Ken Bates Consortium to sell the club back to him. One of the leading creditors had in excess of 25% of the debt, so could effectively block any other bids for the club, and publicly declared that they would support only Bates - making any other process pointless. In due course, the Creditors voted and Bates secured 75.1% approval for his bid, despite this only amounting to a return of 1p in the £ for non Footballing debts.There were claims of protests at the fact Bates had managed to effectively buy his own club back for a pittance, it was legal and above board, albeit questionable morally. Some Creditors tried to look into the entire process, especially around the 'Connected Creditors'. trying to prove the major creditors with over 25% of the debt that were backing Bates were financially linked and therefore should not have had the voting power that they did - but no link has ever been proved.
So Leeds had a 75% approved CVA in place and the return of the Golden Share should have been a formality at the next scheduled monthly meeting of the Football league.
Court Action
Up step 'Her Majesties Revenue and Customs' (HMRC) that were one of the creditors owed money by Leeds. Until recently, HMRC were protected under UK law as a 'preferential Creditor', meaning they enjoyed the same privileges that the Football league rules dictate of the Footballing debts. They would be paid first and other creditors would share anything that was left. This was changed recently and HMRC are known to be unhappy that the Football League have the clause protecting Football related debts.HMRC raised an issue with two of the Creditors that voted in favour of the CVA. One of which was Yorkshire Radio. HMRC felt they should not have been allowed to vote but the Administrators (KPMG) (it was not Leeds Utd being taken to Court but the Administrators) were more than happy to defend the issue in court having previously taken advice from Counsel on the matter (Counsel are Court appointed Barristers that advise on legal issues in advance of an item going to Court so that you can understand how a Court is likely to view such matters.) The matter could have been dealt with relatively quickly and was expected to be scheduled before the next Football League meeting.HMRC then added the issue of the Footballing debts being given priority to the issue to be discussed. In effect, the HMRC were taking KPMG to Court to dispute Football League rules! Leeds Utd (Bates and Co.) were not under scrutiny but these matters meant the club were not able to exit administration.
The additional 'issues' meant that the Court hearing was extended to five days, and the court schedule meant this could not be heard until September 2007, some four months after the start of the season. The Administrators were now forced to either find the running costs to keep the club going, or take alternative action (wind the club up or sell the club outright).
Penalty
Running costs could not be found (other interested parties did offer to meet running costs but this was conditional and those conditions were not practical) so KPMG decided the only way forward was to sell the club outright, securing the best possible price for the creditors. A closed bidding process followed that Ken Bates and Co. won outright. He had now bought the club but there was no '75% approved CVA' in place - he now had to apply for the clubs League share back under the yet untested 'Exceptional Circumstances' clause.What followed was a Football League Announcement that Leeds Utd would be allowed to re-enter the League as they had 'Exceptional Circumstances' but would be docked 15 points for the 2007-08 season. Leeds appealed and the Football League agreed to put the matter before the other members (teams0 in the Football league - a vote followed which the Football League unsurprisingly won. Leeds requested an independent review which was repeatedly turned down by the Football league and have since appealed to the FA who distanced themselves from the whole process and in failing to get anyone to revue the case, then decided to issue a High Court Writ against the Football League. The League eventually responded on the final day they had to respond with an offer of Arbitration - which is all Leeds asked for in the first place.
Arbitration
Arbitration is a way to resolve disputes without the formality (and costs) associated with a Courtroom. Rather than a judge presiding over matters, an Arbitration panels formed consisting of three men - one independent and one selected by each of the parties in dispute. Leeds Utd's hearing will be chaired by retired High Court judge Sir Philip Otton, with the other two members being former Premier League chief executive Peter Leaver and Peter Cadman, a lawyer who has chaired Premier League disciplinary commissions in the past. The Hearing will take place behind closed doors and an undisclosed location and whilst less formal than Court, each side will be allowed to present any evidence and respond to any allegations in the normal manner. Arbitration is sometimes used to find a compromise between disputing parties although this in not belied to be the case here as Leeds are stating that the Football League acted incorrectly in deducting points, not that the penalty was too harsh.
The full details of Leeds dispute is not known however it is expected the following will be raised;
--Leeds united have still not been informed what rule has been broken despite repeated requests. Leeds complied with the rules in so much as the League agreed they had exceptional circumstances which was required. The argument could be that if Leeds did not have a CVA and did not have exceptional circumstances, then they could be let back into the League with a penalty - but this was not the case.
-Leeds DID have an approved CVA, and the final offer to buy the club outright was higher than the CVA offer. The League were aware the only reason the CVA could not progress in the timescale was because HMRC were disputing the Leagues own rules?
-Why did the League vote against the CVA when they were guaranteed a 100% return of their debt due to their own rules? How have the League voted in the past?-Why did the Football League cite one of the reasons for the point deduction which was actually relating to the action of KPMG, not Leeds Utd?
-Why were other League 1 clubs asked to vote when the outcome directly benefited themselves - Conflict of Interest?
-Leeds United feel strongly they have complied with the laws of the land, the question will arise whether the Football League have done the same. Any club or association can introduce it’s own rules, but they must comply with the laws of the land.
The decision by the panel is due to be made public before the Millwall game on April 19th.
Whislt there is nothing legally binding to stop further action from either party following the decision by the panel, both sides have agreed to comply with the result, and further action is only likely if one party feel that the Arbitration has not followed the correct procedures.
