United caught in battle between taxman and Football League
United caught in taxman's battle with Football League Leeds United will argue that a conflict of interests between the Football League and Her Majesty's Revenue and Customs left the club powerless to stave off a 15-point penalty when their bid to revoke the punishment reaches the High Court.
United chairman Ken Bates announced on Saturday that he was issuing a writ against the Football League over what Leeds claim was a "wrongful decision" to deduct them 15 points before the start of this season.
And the club's argument is expected to rest heavily on the dispute over football creditors which contributed to the collapse of Bates' proposed Company Voluntary Arrangement (CVA).
Leeds United 2007 Ltd – the company fronted by Bates – were handed ownership of Leeds by KPMG through an administrator's sale on July 11 of last year after HMRC launched a legal challenge against the CVA put forward by United's chairman.
Bates' CVA had been agreed in principle at the start of June with the support of the required majority of 75 per cent of United's creditors.
The deal initially promised to pay 1p in the £ to unsecured creditors – among them HMRC, who alone were owed more than £7million by Leeds – but government tax officials lodged a legal challenge against the deal an hour before the end of the 28-day cooling-off period provided by law for creditors to consider and contest a CVA.
United are likely to claim in court that the HMRC's prime motivation for fighting the deal was their dissatisfaction with Football League rules, which state that all football creditors – including players, managers and other clubs – must be paid in full before a club in administration is allowed to regain their 'golden share' in the League.
HMRC were until recently preferential creditors but their unsecured status left them in line to receive around £77,000 of the seven figure tax bill they were owed, while United's football creditors received full repayment.
Confirmation of HMRC's legal challenge saw administrators KPMG collapse the CVA and complete a private sale to Bates' company.
The move brought Leeds out of administration, but it conflicted with another area of Football League rules which requires insolvent clubs to implement an agreed CVA before their membership of the League is returned.
United's failure to move forward with a CVA in place began the sequence of events which saw their golden share returned through an "exceptional circumstances" clause within the League's regulations – but at the cost of a 15-point deduction.
Leeds are expected to present the timeline as evidence that the HMRC's policy towards the issue of football creditors left little or no prospect of the club adhering to Football League rules by agreeing a CVA.
At the time of the administrator's sale in July, KPMG expressed concern that the weeks and months spent deciding HMRC's legal challenge would threaten United's survival due to uncertainty over how the club would be funded in the interim.
HMRC's challenge was originally made on July 3 but their case against Leeds was not scheduled to begin until September 3 – a month after the start of the League One season. KPMG's decision to carry out an administrator's sale rendered the CVA redundant, and ultimately led to HMRC dropping their legal challenge.
Bates told the YEP: "We were in an impossible position.
"We'd agreed a CVA with a 75 per cent majority, as Football League rules said we had to, and then the taxman decided to challenge the agreement in court. They weren't happy with the fact that football creditors were being paid in full.
"If we hadn't paid our football creditors in full then we wouldn't have received our golden share in the Football League, because their rules also state that every club in administration must pay every penny they owe to football creditors.
"By meeting that requirement, we brought on a legal challenge from the taxman which meant we couldn't follow through with the CVA. We were damned if we did and damned if we didn't."
HMRC's attitude towards the issue of football creditors was confirmed in a letter sent by Richard Fleming, the joint administrator of KPMG, to Colin Burgon MP on July 10 – 24 hours before Bates bought back United.
In his letter, Fleming stated that "the policy of HMRC, as detailed in the Voluntary Arrangements Service Worksheet, makes it clear they would decline any proposals made by any member of any organisation that requires debt owed to its members to be paid in full, when all other unsecured creditors become bound on approval of the arrangement."
United's writ against the Football League was due to be issued this week, and League officials have so far declined to comment.
But the Football Association has rejected claims made by Bates in his match-day programme notes on Saturday that it advised United to sue the League rather than pursue independent arbitration against the FA itself.
Leeds requested arbitration under FA rules after failing to persuade the governing body to support their challenge to the 15-point penalty, but the club have now abandoned that route and proceeded directly to the High Court.
The FA has consistently maintained that the League followed their own rules appropriately by punishing United. A spokesman for Soho Square also refuted Bates' suggestion that the governing body had used "evasive behaviour and delaying tactics" during the dispute.
YEP
