What is a 'Fit and Proper Person'?

In this article, Simon Pentol QC examines the flaws in the process that scrutinises the suitability of football club owners and proposes a 10-point plan of revisions.

Outside of matters surrounding the restart of English football, Manchester City overturning its UEFA ban at the CAS for alleged violations of FFP Rules and what took place on-field, the thorny issue of club ownership has re-surfaced after the withdrawal by the Saudi Arabian PIF of its agreement to buy top-tier Newcastle United FC of the Premier League [PL] following protracted scrutiny by the PL and the relegation of second-tier Wigan Athletic FC of the English Football League [EFL] as a consequence of it unexpectedly entering into administration before the current season finally ended.

Citing both cases, Simon Pentol QC of 25 Bedford Row highlights the limitations & failings of the current Owners’ & Directors’ Test [ODT] that was originally created to ensure our clubs were owned and run by Fit and Proper Persons. He proposes a 10 Point Plan of revisions that can achieve clarity whilst insulating clubs & their supporters from the ravages caused by the failings of executive management due to owners that are neither fit nor proper.

For Context

The Overall Picture

All 92 English professional clubs that make up the PL (20 clubs) and EFL (the remaining 72 clubs) are registered as private or public limited companies and their officers are therefore subject to Companies Act compliance and general fiduciary responsibilities.

Over the past 25 years all have undergone changes in ownership and/or directorship, often on multiple occasions. More recently this has been in favour of individuals or corporate entities, foreign or domestic, with little shared passion, understanding of the history of the clubs whose stewardship they've assumed or even with experience let alone proven know-how of running a football club. Whereas this has brought about real improvements for some clubs (Chelsea, Man City & Wolves) it has more often than not created significant problems for most others.

The combined attraction of financial gain, brand enhancement or exposure, “sportswashing” and/or self-aggrandizement has continued to fuel the desire to acquire or invest in English clubs especially those in the PL or those otherwise with tradition and an established fan-base that might provide the means by which a prospective owner can justify his/her/its ends.

The ongoing Covid-19 pandemic has significantly depressed revenue streams for clubs at all levels of the football pyramid. The probable imposition of future bio-secure environments will inevitably result in the extended diminution of spectator numbers well into next season that will adversely impact upon the financial wherewithal of all clubs and risk some clubs outside the PL going out of business absent alternative forms of cash injection. All this will likely catalyse many clubs to actively seek fresh investment from new or part owners that in turn, will create a ‘buyers-market’ for prospective buyers or investors whose credentials will come under scrutiny.

Overview

To understand the complications and limitations of the ODT in practice, it is necessary to examine the relevant rules in a little detail . . . .

The Scheme

Typically, there is not one all-encompassing ODT in English football.

The PL and EFL administer separate tests for the 20 and 72 clubs in their respective leagues and the FA administers its own test for clubs in all other leagues. Although distinct all three tests essentially apply a very similar criteria with the same objective even if the language and nuance of the respective rules differs slightly.

The Test

The common purpose is to create a higher standard of conduct than that provided for company directors. The ODT is intended to supplement the fiduciary duties of directors and company officers beyond those governed by the Companies Act 2006.

Since first introduced in 2004 as the ‘Fit & Proper Test’ the criteria have been updated, usually in response to some crisis or another.

Their premise has been to establish a range of disqualifying “events” (per the PL criteria) or “conditions” (the EPL criteria) upon which this article focuses and under which persons or entities seeking to own, control or operate a football club must demonstrate do not disqualify them. The “disqualifications” are split essentially into offences or contraventions governed by domestic law and those that are sports-related. The nature of the test(s) is therefore exclusionary and objective. It amounts to a “tick box exercise” that is judged on a simple “pass or fail” criteria. Beyond this, at a takeover there will be an assessment of the financial plans of a prospective owner to the limited extent that the owner has the financial ability to run the club but this is not measured by a set of established criteria and does not include proof of competence or experience. This creates it’s own problems. Decisively it falls some way short of the more subjective American model where sports leagues exercise rigorous and a more interventionist control of club ownership.

To whom does the ODT apply?

The rules govern a wider class of legal persons than board members or individual directors in order to encompass authorised personnel that control the club and not only a company that owns it but also any entity (holding company or group of companies) or person that is the beneficial owner of that (holding) company.

Accordingly, the rules apply not only to legally appointed directors but also to: shadow directors, anyone who acquires 30% or more of the club’s voting rights, the club secretary, the CEO, the COO, general manager and certain authorised signatories – in short, anyone who controls a club whatever their title and visibility.

Weaknesses

The current process suffers from the following six key weaknesses:

The divergence between the need to control club ownership and the desire not to discourage fresh ownership or an injection of cash that might revitalize an ailing club;
The onus remaining on the club to make full and accurate disclosure of the identity of those that control it and their infractions;
The opaque nature of both the takeover process and the attendant prohibition on the publication thereof which albeit necessitated by commercial sensitivity creates speculation;
The application for new directorship or ownership being made by the club on behalf of the new owner/director rather than the applicant him or her or itself;
The lack of an evolving criteria that inherently cannot capture every eventuality; and
The reliance upon a simple “pass or fail” mechanism that leaves little room for subjectivity, changing situations, conditional approval or on-going supervision.

The Test(s)

Disqualification due to breaches of Domestic Law:

Falls into two categories: a) Criminal matters and b) Non-criminal matters.

a) Criminal Matters:

Essentially comprise a conviction from a UK court or a competent foreign court that is not spent and is otherwise one for which an immediate sentence of 12 months’ imprisonment was imposed, or was for an offence of:

Dishonesty (PL and EFL);
Dishonestly receiving a programme broadcast from within the UK with intent to avoid payment (PL and EFL);
Ticket-touting (PL and EFL);
Admitting spectators to watch a football match from unlicensed premises (PL and EFL));
Being a registered sex offender (PL and EFL);
Committing any act outside the UK that is adjudged to constitute an offence of the above type if committed in the UK (PL and EFL);
Corruption (EFL);
Perverting the course of justice (EFL);
A serious breach of the Companies Act 1985 (EFL).

b) Non-Criminal Matters:

Essentially comprise director disqualification under the CDDA 1996, individual or corporate insolvency and any ban or suspension imposed by a professional body. The director disqualification and insolvency prohibitions however are limited only to infractions concerning football clubs cf. wider business enterprises and there has to be a second insolvency cf. a single insolvency for the prohibition to bite.

Separately, no person may acquire a holding or beneficial interest in a PL or EFL club if pursuant to UK law he/she is prohibited from entering the UK or is denied funds or economic resources.

Disqualification due to Sports-Related Infractions:

Cumulatively the PL and EFL rules disqualify an owner or director who:

Is involved directly or indirectly in the ownership (more than a 10% shareholding) or administration of the affairs of another club;
Is an intermediary and/or registered intermediary or agent pursuant to the rules of member associations of FIFA;
Has breached football betting or bribery rules;
Has been an officer of a club during their tenure or within 30 days thereafter that has been expelled from any senior football league; and
Has failed to provide all relevant information or provides false/misleading/inaccurate information in their assessment under the ODT.

Administering the ODT

At the commencement of every season each club has to provide a list of all relevant persons subject to ODT compliance together with a declaration that no such person is subject to a disqualifying event/condition.

The club must submit a similar declaration on behalf of anyone seeking to take up a directorship or controlling position thereafter, before that person assumes office.

Any subsequent change of circumstances must be notified to the relevant league.

The clubs are under a duty to make full and accurate disclosure of all persons or entities and can be sanctioned for failing to do so.

In addition to complying with the ODT, a prospective new owner will undergo an intelligence-led investigation into his/her/its business efficacy and an examination of their financial plans for the club that will be conducted by the respective league to which the club belongs.

The decision of the respective league will be given in writing and were a director or person with control to remain in office beyond 28 days of being given notice that he/she has failed the ODT, the club may ultimately be suspended until the resignation occurs.

Challenging the ODT Decision

Under both sets of rules there is an appeal process by which prescribed grounds of appeal must be lodged within a specified timeframe from the date of the rejection/disqualification (21 days for the PL; 14 days for the EFL). The disqualification is held in abeyance until the appeal is heard. An independent panel/tribunal will hear the appeal and has a wide discretion to uphold or reject the original decision.

Beyond this, there is recourse to law but only within the narrow purview expressed in the oft-cited judgment of Sir Robert Megarry VC in McInnes v Oslow Fane (1978). A challenge in the courts will essentially be limited to the review of a decision by a sports governing body on the basis of an abuse of power, breaches of natural justice and rationality.

Criticisms of the ODT

The ODT has been revised piecemeal over the past 15 years in an attempt to counter the weaknesses identified above and by the Department of CMS Select Committee in its 2011 Report on Football Governance, to extinguish the failings in the process that gave rise to dubious takeovers by certain owners both before and after the Report with dire consequences for (among others) the following clubs:

Leeds United: Ken Bates followed by Massimo Cellino;
Portsmouth: Alexandre Gaydamak and others;
Man City: Thaksin Shinawatra;
Nottingham Forest: Evangelos Marinakis;
Charlton Athletic: Roland Duchătelet followed by “East

Street Investments” (Dubai)

Bolton Wanderers: Ken Anderson;
Bury: Steve Dale

The root of the problem remains the fixed nature of the exclusionary test, the confidential nature of the process, the lack of subjectivity & supervision and above all, the absence of a test for competence, commitment and know-how. As the renowned football journalist (and former pupil at the same East London secondary school as I!) Martin Samuel once put it so adroitly: “Football club owners can be fit and proper but they can still be useless” . . . . . . .

All of which brings us neatly to the current but very different predicaments concerning Newcastle United FC and Wigan Athletic FC.

Newcastle United FC [NUFC]

Having been heavily reported that in April a deal had been agreed by the hugely unpopular owner of NUFC to sell the club to a consortium comprising the Kingdom of Saudi Arabia’s Public Investment Fund [PIF] (80% shareholding), Amanda Staveley (10%) & the Reuben Brothers (10%) via a corporate structure, the offer to buy was withdrawn before the PL delivered its ODT verdict after four months of scrutiny - much to the consternation of most Newcastle fans.

The PIF is a sovereign wealth fund and its board includes HRH Prince Mohammed bin Salman Al-Saud as chairman alongside other ministers of state. Its objective is to strengthen economic diversity by investment.

Assuming that all necessary declarations of interest were made and the corporate structure adequately identified the Saudi ruler as the true beneficial owner, all that remained was for the relevant parties to demonstrate that they were not captured by the disqualifying criteria.

Given the process usually takes 4 weeks, why did it take 4 months?

Because the process is entirely private, we don't know, exactly.

What we do know however is that the takeover was surrounded by two highly publicized concerns:

Following a complaint made by the Qatar-based broadcaster “beIN Sport” that its rights to show PL matches in the Middle East had been contravened by the Saudi-based “Arabsat” satellite operator, the WTO found that the Saudi-based broadcaster “BeoutQ” had enabled pirated streaming of global sporting events throughout the region and prevented sporting bodies including the PL from taking any action against it. Fifa and UEFA have allied themselves to the WTO’s finding. Saudi Arabia disputes any wrongdoing. Notwithstanding the alleged transgression took place outside the UK, it may be adjudged to constitute an offence of dishonestly receiving a programme broadcast from within the UK with intent to avoid payment, and thereby would prima facie disqualify PIF from assuming ownership of NUFC. Logically the PL would then have to consider how strongly aligned are the Saudi state and the Saudi PIF for these purposes. This is all politically and legally complex, especially in the context of the geo-political conflict between Saudi and Qatar where the latter has its own human rights issues yet ironically will host numerous PL players at the next Fifa World Cup. It is something with which the PL executive is ill equipped to deal. Whereas it is easy to imagine that the PL would not welcome a member that has allegedly pirated its content, it is difficult to understand why the matter could not be resolved by acceptable undertakings being given for future compliance supplemented by an offer of a ‘no admission of liability’ compensation package to alleviate any concerns and spare the PL from having to adjudicate upon such a delicate issue.
As expressed by Amnesty International and other political voices: Saudi Arabia is an absolute monarchy with a questionable human rights record meaning that the same head of state with a controlling interest in PIF would effectively be controlling a PL football club. The acquisition could be said to amount to “sportswashing” in order to distract attention away from alleged human rights abuses to the detriment of the objectives & reputation of the PL. However justified, none of it falls within any of the PL’s proscribed “disqualifying events”. And one can but wonder what in reality, is the distinction between a Saudi ownership and those existing ownerships otherwise closely allied to or under de facto government control of nation states with equally suspect human rights records?

From afar this all has the appearance of the PL wishing to avoid making a difficult decision by stalling and even, other more powerful clubs exerting their influence on the PL executive. Who knows?

Wigan Athletic FC [WAFC]

Coinciding with the restart for teams in the Sky Bet Championship, the board at WAFC announced it had no option other than to enter into administration due apparently to its ownership having refused to fund the club through the remainder of the season that would be played ‘behind closed doors’ and consequentially absent any future match-day revenues. Administration occasions an automatic 12-point deduction as a result of which, WAFC have now been relegated making it correspondingly more difficult to attract new ownership.

So how did it come to this?

According to reports in the mainstream media, WAFC was sold in November 2018 for circa £16m to International Entertainment Corporation [IEC] a corporate entity that is listed on the HK stock exchange, registered in the Cayman Islands and runs a casino in Manila – surely enough red flags to question how the EFL deemed this an acceptable transfer of ownership in the first place but nonetheless the chairman of IEC, Dr. Choi Chiu Fai Stanley passed the ODT. As understood, at the beginning of June 2020 IEC announced to the HK stock exchange that it had raised a £24m loan at 8% interest to extinguish all its debts by selling the club for an additional £17.5m to another HK-based & Cayman-registered entity ‘Next Leader Fund’ [NLF] whose purported majority shareholder at the time was the very same Dr. Choi Chiu Fai Stanley. Within 3 weeks, a purported minority shareholder of NLF one Au Yeung was stated to have become its majority shareholder. It is believed that the EFL sanctioned the takeover. A week later Au Yeung put the club into administration. One can only wonder how the EFL could have approved a takeover in the midst of the Coronavirus crisis of a club outside the PL that was otherwise losing money, to be sold for more than it cost and saddled with a £24m debt to be repaid at exorbitant rates of interest?

And if this wasn't bad enough, its also been reported that:

The Football League chairman Rick Parry had told a WAFC fan that there was a rumour linking the club’s administration to a bet in the Philippines of it being relegated; and
The current administrators are examining documents that may link the current owners to a bankruptcy case in HK in 2012.

Suggested Revisions to the ODT – a 10 Point Plan

Football clubs are unlike any other businesses – there’s far too much emotional and cultural investment to leave their safekeeping in the hands of legal persons that are able simply to bring themselves within a set of pre-ordained disqualifying conditions.

For all the foregoing, the respective leagues have shown themselves ill equipped to protect their members from themselves.

No longer can it be said that the various ODTs are fit for purpose. Their current criteria should be considered only as the first step to a more pro-active, subjective and interventionist regimen.

The onus is now surely on the football authorities to consider introducing the following revisions:

The creation of an independent panel to administer the ODT. The panel to be chaired by a QC and consist of members with the requisite legal, financial, business and football acumen – such as a senior solicitor or QC, an experienced accountant, a successful businessman/woman and an experienced former football administrator;
The independent panel must have an on-going supervisory jurisdiction with the ability to give conditional approval, be the arbitrator of the existing pre-season declarations of interest and be empowered to act subjectively as ‘judge & jury. This will include the power to call for evidence and engage appropriate business intelligence companies whose services are regularly utilised in the corporate or financial services world to vet clients;
As a pre-requisite, any new owner to lodge with the respective league both a personal indemnity in the event their club enters into administration given that an automatic 12 point deduction follows, together with an interest-bearing bond returnable upon subsequent sale in a sum equivalent to the running costs of the relevant club for 12 months to ensure financial stability in the event of financial mismanagement, global crisis or a refusal to make funds available to ensure the survival of the club;
A new owner to provide a full business plan supported by proof of clean funds and verifiable evidence of previous experience & competence of having successfully run a club of a similar status to the one they seek to acquire. Prospective directors or officers of the club to provide similar evidence of competence referable to their individual roles or spheres of responsibility;
The application on behalf of a new owner or director should be made by them and not on their behalf by the club that seeks a new owner or to appoint a new director etc.;
Any applicant should pass the football equivalent of an enhanced CRB check with the onus on them to disclose all relevant data;
Whilst maintaining the absolute confidentiality of the process for reasons of commercial sensitivity, written reasons should be provided of the panel’s decision. The decisions should later be published in summary form on a ‘no-names basis’ detailing the the number of failed takeovers and the grounds therefor in order to lift the secrecy, end speculation and inform the fans and prospective new owners;
The ODT should comprise a single set of criteria for clubs in all leagues to act as a starting point. This should incorporate the entirety of the disqualifying criteria presently administered differently by the PL, EFL & FA to include prohibitions by one authority and not others, for example the insistence upon disclosure of a pending criminal investigation per the FA but not the PL & EFL that merely disqualify a person who has been convicted of a relevant offence or adjudged to have done so;
The criminal behaviour disqualifying criteria should define what is meant by an offence of “dishonesty” and include a person that might have avoided a conviction for a disqualifying offence in a foreign jurisdiction by virtue only of a plea-bargain or offer of immunity in return for giving evidence against others; and
The non-criminal behaviour disqualifying criteria should be extended to include a presumption of rejecting any applicant who has previously been involved in the insolvency of any business (not just football-related) unless rebutted by compelling reasons therefor and add a ‘catch-all’ disqualification for anyone deemed upon reasonable grounds likely to undermine the integrity of the club or the competition.

A proposal that invites the leagues of which the clubs are members to relinquish their jurisdiction and control over matters of club ownership will be deemed controversial but issues concerning the effective administration of the ODT are bound to become ever more poignant in the global marketplace and the current economic climate.

Some might regard the pre-requisite for indemnities and enhanced compliance as discouraging fresh ownership or to add a significant layer of unwanted regulation. However, the complexities surrounding the Newcastle takeover demonstrate that independent, clear, timely & pragmatic decision-making must become the over-riding objective and there can be no repeat of the disarray visited upon Wigan Athletic.

Unfortunately the current ODT is no longer fit for purpose.

Demonstrably, both the PL & the EFL have shown themselves ill equipped to administer ever more complex issues of ownership-compliance with sufficient independence, expertise and expedition.

Clubs should look to attract owners and directors who posses competence, commitment, integrity and a sufficiency of clean funds to ensure financial security. Such prospective owners have nothing to fear and nor should the leagues.

Isn’t it time to finally put in place a mechanism that will better allow the stewardship of the clubs that in our national sport to be placed in the hands of those that are genuinely ‘fit and proper’?

Simon Pentol QC

31 July 2020