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David Conn: Members-only club may still blackball Leeds
Confusion remains over whether the Football League will allow Leeds United to compete in League One next season.
The administrator of Leeds United, KPMG, believes it completed its work last week with the sale of the business to a new company chaired by Ken Bates for an amount it has not disclosed. But KPMG may have more to do yet before it can move on from this most tangled of jobs. Football club insolvencies are not like those in other industries and Bates's new company, Leeds United Football Club Limited, has no business at all unless the Football League agrees to allow it membership. That remains far from certain.
To do so would require the League to make an exception in its insolvency policy for Leeds, after standing firm on all the other 41 clubs which have collapsed into insolvency since 1992. The League's policy requires, controversially, that "football creditors" - players, other clubs and the League itself - must be paid in full but the League must also be satisfied that the best possible deal has been obtained for other creditors. This would normally be via a Company Voluntary Arrangement (CVA) - unless there are exceptional circumstances - because a CVA is a formal procedure which requires 75% of creditors to agree.
KPMG first agreed a sale for 1p in the pound to Bates's new company, owned by the Cayman Islands-registered Forward Sports Fund, which was approved in the CVA by 0.2% over the required 75% majority. However, HM Revenue and Customs challenged the CVA legally, alleging there were "material irregularities" and unfair prejudice to HMRC, which was left owed £7.7m by Leeds. KPMG announced it was offering the business for a rapid sale, then, last Thursday, that it had sold "the business" again to Bates' company, which offered the best deal for creditors. The League is now being asked by Bates to grant this new company League membership, the so-called "golden share", even though it did not acquire the club via a CVA.
The League has already declined, complaining it did not receive any details from KPMG to support the sale. The League is not even clear what has been sold - until League membership is granted, the players' registrations are still owned by the old company, which is still in administration. The League will have further questions about the administration with its chairman, Lord Mawhinney, mandated by the League board to take legal advice about it. Even if the League is then inclined to agree these are exceptional circumstances, it would have to defend that decision to other clubs and creditors, including HMRC.
Although KPMG has not revealed the size of Bates' winning bid, it is understood that it provides for non-football creditors to be paid 13p in the pound. That narrowly beat at least one other offer, from the venture capitalist firm Redbus. Although the former Hull City owner Adam Pearson was widely reported to have made a bid it appears that he did not, because he and his advisors considered KPMG was providing too little information about the club's finances during the administration. Although Redbus did bid, Simon Franks, its chairman, was similarly unhappy, complaining that KPMG could not guarantee that the money from 8,000 Leeds fans who had bought season tickets was protected and available for all bidders.
The new sale does indeed amount to a significant increase on the 1p in the pound KPMG first proposed. Sources close to this latest deal say it was reached not by the Forward Sports Fund providing more cash but because the major offshore creditor, Astor, registered in Guernsey, agreed to waive any return on the £12.84m it claims it is owed.
In the original sale Astor agreed to waive half its claim if Bates's 1p in the pound offer was accepted, a stance it has now extended even more favourably. Astor made the latest offer only to Bates and Forward, not to Redbus, which would have had to repay Astor at the same rate as the other non-football creditors. Throughout Astor has stated it has no connection to Bates, any Leeds director or the Forward Sports Fund.
The basis of HMRC's challenge has not been made public but it was seemingly concerned above all about the size of debts which some creditors were permitted to vote on, particularly Astor's £12.84m. Another was Mark Taylor & Co, the law firm run by Mark Taylor, Bates' solicitor and a Leeds United director, which was stated in the administrator's original proposal to be owed £59,756 but was admitted for voting at £273,615.32. Yorkshire Radio, another company of which Bates and Taylor were directors, did not appear in the original proposal but voted at the creditors' meeting for £480,000 owed. Taylor has argued since that these were both correct amounts owed.
HMRC is also understood to have challenged the favouring of football creditors, arguing it was unfairly prejudicial that players and clubs who were being paid in full could vote through a proposal which left other creditors with 1p in the pound.
With the court not due to hear the challenge for several weeks, KPMG appears to have decided that the club could not fund itself for that long and so called for bids by 5pm on Monday, July 9. Less than three days later KPMG announced it had again sold the club to Forward. That effectively rendered HMRC's challenge to the original CVA redundant. HMRC is now taking legal advice and is said to be considering all its options, fed by fury at the loss of so much public revenue when football clubs collapse into insolvency while players are paid in full. However, even though HMRC is said to be fuming at the way this administration has been handled and the legal challenge left unresolved, it may be difficult for it to mount another challenge, this time to KPMG's decision to sell outside the CVA.
That leaves the new Leeds company at the doors of the Football League, with Bates arguing he should be given the golden share. That would be the easiest option but the League is not being rushed into agreeing that these constitute "exceptional circumstances", justifying the absence of a CVA. It does not consider the administration finished, because the former, collapsed company still holds the registration of the players.
KPMG says it has sold "the business" and cannot now buy it back, in order to go through administration again. The administrator, Richard Fleming, said last week: "We received several offers for the business which we considered carefully. The approved deal represents the best result for creditors in the circumstances and we believe provides the club with the best chance of survival."
That leaves the League faced with giving Bates's new company the golden share or sinking into what could be a fiendish legal tangle. The League, though, has to maintain a policy, promoted by Lord Mawhinney, of good governance. So far the League's board has been robust, asking for full details from KPMG, and it may yet surprise the administrator by asking for a lot more work to be done before the Forward Sports Fund is confirmed as Leeds United's owner and Ken Bates as the club's chairman.
What happens next
The Football League's board has asked KPMG for further details of the sale and is also independently taking legal advice. When it has the information, the League could grant the new Leeds United company, chaired by Ken Bates, League membership, the so-called 'golden share'. That would regard the sale as an 'exceptional circumstance' allowing it to be done without a CVA. The League board could decide, alternatively, these do not amount to exceptional circumstances and refuse to transfer the share. The share would remain with the old company, which is in administration. However, KPMG says it has sold the business and cannot buy it back. So Leeds would be at an impasse if the League refuses to transfer the golden share to the new company. That would put pressure back on KPMG to find another solution.
Kilde:
http://blogs.guardian.co.uk/sport/2007/07/18/membersonly_club_may_still_bla.html