An analysis of how English football can reinforce the criteria of who is a “fit and proper person” to run or own a club

Published 26 November 2015 By: AnneMaree McDonough

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This article is aimed owners and directors of football clubs, football regulators, and their respective legal advisors. This article will also have general appeal to anyone who has an interest in football governance at a national and club level.

In this article the author compares and contrasts the ‘Owners and Directors Test’ in English football with the similar tests used by the British Horseracing Authority, the Financial Conduct Authority, and the National Health Service.

 

Introduction

As regularly as a new football season rolls around, so does public and media disquiet about governance of English football clubs and the appropriateness of their owners and directors. In recent years, controversy has raged around Massimo Cellino at Leeds,1 Carson Yeung at Birmingham,2 the Venkys at Blackburn3 and Thaksin Shinawatra at Manchester City.4

Much of the media focus centers on whether a relevant individual is ‘fit and proper’ to own or be a director of a football club. The ‘fit and proper’ phrase in fact reflects the language of the test previously adopted by the three major English football authorities, The Football Association (The FA), the Premier League (PL) and The Football League (FL).

The test is now known as the “Owners’ and Directors’ Test”, and each authority has their own slightly differing version (“OAD Tests”). The renaming was introduced to deal with the growing number of cases where owners or directors classified as fit and proper under the previous test were seen by the public and media as anything but that.5

Within the United Kingdom however, football authorities are not the only ones applying ‘fit and proper’ tests and it is arguable that lessons can be learnt from other similar tests (both inside and outside of the sports industry) including the Financial Conduct Authority (FCA) and the British Horseracing Authority (BHA) about the structure and application of a ‘fit and proper’ persons test. This article compares and analyses the sufficiency of UK football’s OAD Tests and then explores potential learning from these other tests.

The author notes that the OAD Tests are supplemented by responsibilities and duties (including fiduciary duties) contained in the Companies Act 2006; however, the analysis of these duties under the Companies Act is beyond the scope of this article.

UK Football’s OAD Tests

The introduction of a fit and proper persons test to assess the suitability of directors of a football club was first recommended in 1999 by the Football Task Force.6 In 2004 by the FL and the PL introduced the test. The FA followed suit in February 2005 and implemented a test for the Southern Football League, Isthmian Football League and the Northern Premier League.7

Three separate objective tests

Today the FL, The FA and the PL each have a separate OAD Test.8 Each test differ slightly from the other (see below), but each sets out a series of objective criteria that, if satisfied, mean that an individual cannot act as a ‘director’ of the relevant club. The tests capture not only directors per se but also those owning 30 percent or more of the shares of a club (either individually or in concert with others) and also shadow directors.9 Shadow directors are individuals (not including professional advisors) on whose instructions or advice a company regularly acts even though they are not directors.

There are three broad categories of objective criteria that can disqualify an individual:10

  1. Matters that would generally disqualify a director in all business sectors (i.e. that the individual has previously been disqualified as a company director);11
  2. Sporting sanctions - such as where the individual has been subject to a ban or suspension by any sporting governing body or if they hold ownership in another club in the relevant league;
  3. Previous convictions - the tests applied by the three authorities differ (see Appendix for specific details of each test).

 

Comparing and contrasting how football authorities deal with OAD Tests

The PL’s and the FL’s test provide for disqualification for an unspent conviction for any offence where a sentence of 12 months imprisonment has been imposed. Such a provision is not included in The FA’s test, which only includes convictions where the offence involves dishonesty, corruption, perverting the course of justice or football related offences.

While the PL test does not specifically cover offences involving corruption or perverting the course of justice, it is arguable that these offences would be regarded as involving dishonesty and, therefore, caught.

Interestingly, only The FA’s test requires applicants to declare that they are not currently the subject of criminal proceedings for any of the offences listed. The absence of such a requirement in the PL has been most prominently seen in the case of Thaksin Shinawatra who was able to take over ownership of Manchester City despite facing criminal investigations for fraud and corruption in Thailand.12

The FA’s ‘Test of Good Character’

It is interesting to contrast The FA’s OAD test with the convictions that are considered by The FA under their Test of Good character and Reputation for Intermediaries.13 An intermediary is the new term for “agent” and The FA has adopted Regulations on Working with Intermediaries based on regulations from FIFA.14 The FA’s regulations contain many but not all of the rules that previously applied to agents and the requirement that intermediaries must be of good character and reputation. As with the OAD Tests, a person applying to be registered as an intermediary must submit a declaration that he is not subject to a Disqualifying Condition and the declaration must be resubmitted every time the intermediary takes part in a transaction.15

Unspent convictions that must be declared by intermediaries include those that “The Association considers to fall within the category of a violent and/or financial and/or dishonest crime16 (emphasis added). It is not immediately clear why an unspent conviction for violence and or a financial crime is thought by The FA to be sufficiently serious that it would disqualify a party from registering as an intermediary, but is not considered to be sufficiently serious to be included in their version of the OAD Test.

The implementation of the three OAD Tests is similar. At the start of each season, clubs are required to submit a list of all relevant individuals along with a declaration that the individual is not subject to a disqualifying condition. In addition, if a new director is proposed during the course of the season, a declaration must be made in advance of that director taking office17 and a declaration must also be made if any director’s circumstances change.18

The ultimate punishment for clubs who disobey these rules is that the club can be suspended from the relevant league. That this is not just an empty threat is illustrated by the case of Hereford United who was suspended for their failure to provide relevant documentation relating to the OAD test.19

 

The OAD Tests in Action – The Cellino Case

Despite extensive public controversy over numerous individuals, the most high profile individual banned under the OAD tests is Mr. Massimo Cellino, the owner of Leeds United. The Cellino case and its travails through the FL process up to October 2015 are well described in John Shea’s articleA guide to the Football League’s decision on Massimo Cellino."20

In summary, however, following two findings by the Football League and two appeals to the Professional Conduct Committee (PCC), the PCC found that Mr. Cellino was subject to a conviction for an offence that involved dishonest conduct and he was banned for 79 days. Following this decision, the FL, Leeds United and Mr. Cellino settled the separate disciplinary proceedings with Mr. Cellino accepting an extension to his disqualification from April 10 to May 3rd.21

Too weak and narrow?

As a result of his disqualification Mr. Cellino was prevented from controlling Leeds United for less than four months. The sanctions’ shortness arises from the fact that the relevant Italian conviction was spent 12 months after it was handed down. The elephant in the room during the whole process however, was that Mr. Cellino had two other spent convictions for deceiving the Italian ministry of agriculture of 7.5 million euros and for false accounting at his Italian club Calgaria dating from 1996 and 200122 and also faced fresh charges for other tax avoidance offences. Within the bounds of the FL test, however, none of these factors could be taken into account.

Mr. Cellino’s case illustrates why the OAD tests are seen by the public and media as being weak. The exclusion of spent convictions and forthcoming charges (apart from in The FA’s OAD Test) is seen as inappropriate. Mr. Cellino’s three convictions for ‘dishonest’ offences combined with the fact that he faced fresh charges for similar offences should at the very least suggest a further level of scrutiny than was given under the FL’s OAD test. By failing to allow for such scrutiny, the FL’s test was seen at the time as lacking both rigour and legitimacy.

That the OAD test is too narrow in its ambit, has only been emphasized by the fact that on October 19, the FL declared that they had once again disqualified Mr. Cellino under the OAD test.23 This was based on the fact that Mr. Cellino had been found guilty in June 2015 of an offence relating to the non-payment of VAT on a Land Rover that was imported (one of the charges that had been pending in the earlier case). The FL’s most recent decision has not yet been released but no doubt the case will again have turned on the issue of “dishonesty”. Mr. Cellino has declared that he will appeal.

 

Criticisms of the OAD Tests

Parliament’s Football Governance Report

The OAD Tests have also been the subject of recent extensive criticism by MPs. In the 2011 inquiry into football governance, MPs expressed concern that the importance of football clubs to their local communities was being harmed by growing numbers of insolvencies arising from the inappropriate actions of owners and directors. The report concluded:

We are not convinced that the football authorities have focused sufficiently on the link between the fit and proper owner test and the sustainability of English football's uniquely deep pyramid structure. Although we recognise that the football authorities have moved to tighten ownership regulations recently, their track record does not inspire confidence. One key issue which appears to have been insufficiently considered is the need for regular monitoring given that intentions can change over time.24

Cardiff City Supporter’s Trust gave evidence to the inquiry suggesting that the fit and proper persons test should become a statutory obligation of the associations and that "new measures should include the person's previous record not simply in business but also in football, their personal history and past and their present financial standing."25 The same supporters trust also submitted that the problem with the fit and proper persons test was that it looked backwards and that it needed to be paired with an "an intentions test" which would set out what the owners and directors plans were for the club.26

Despite the criticisms by MPs, no further changes have been made by any of the football authorities. The media have report that the football authorities argue that introducing a more subjective test would open them up to greater legal challenge and that they do not have the resources to administer a more subjective test.27 As the Cellino case demonstrates however, the current objective test does not insulate them from legal challenge and, as will be illustrated below, other sports and regulatory bodies appear to be able to effectively administer a subjective test.

The private members bill on football governance

In the absence of action by the football associations, some MPs took proactive steps to introduce a private members bill on football governance, which provides a statutory underpinning for The FA in respect of the application of a subjective fit and proper persons test.

The bill provides in clause 2 (1) that the Football Associations shall not grant membership to any clubs whose owners it does not consider to be fit and proper persons. Subsection 2 (3) provides that in reaching that decision the Football Association shall have absolute discretion. The bill however has never gone past a second reading and is unlikely ever to be passed.

 

British Horseracing Authority - Introducing a Subjective Test

In contrast to the OAD Tests, which are based on mainly objective considerations, the British Horseracing Authority (BHA) in its Application for Jockey Licence Guidance Notes utilizes subjective judgment to assess whether applicants for trainers’ permits and jockey licences are “suitable to hold a Permit (i.e. that they are ‘fit and proper’)”.28 A similar provision is included with the guidance notes for individuals wishing to register as a racehorse owner.29

In making their judgement, the BHA may take into account “any fact or matter that it considers appropriate30 and “expects full and frank disclosure from the applicant”.31 Failure to make a full and frank disclosure “will be a relevant factor in the assessment as to an applicant’s honesty and integrity.32

Decisions based either on a single factor or an accumulation of factors

The BHA makes it clear that it can make its decision based either on a single factor or an accumulation of factors.33 Unlike the OAD Tests, which only require certain unspent convictions to be declared, the BHA will consider any unspent conviction for a criminal offence (excluding road traffic offences).34 The BHA will also consider “whether the applicant is the subject of any proceedings of a criminal nature or has been charged in connection with any alleged criminal offence involving dishonesty, fraud or those relating to sexual conduct, violence or animal welfare.”35

Again in contrast to the OAD Tests, the BHA will also consider “whether the applicant has been the subject of any adverse finding by a judge in any civil proceedings or has settled civil proceedings brought against him/her relating to his/her honesty or integrity36 and “whether or not the applicant has been dismissed from any previous employment or position of trust or has been asked to resign or resigned on grounds connected with his/her honesty or integrity.37

Perhaps most controversially the BHA’s guidance state that “an applicant’s fitness and propriety includes assessment of the fitness and propriety of those with whom he/she is or may be associated or connected with in their personal or business dealings.38

The Richard Tierney decision

The application of the test in practice can be seen in the Richard Tierney decision.39 In that case the BHA refused a jockey’s licence to Richard Tierney following the expiry of a two year ban that had previously been imposed on him for riding a “ringer” (a horse entered into a race under a fraudulent identity). The BHA defined their role as to “make a judgment as to whether or not Mr. Tierney has sufficient honesty and integrity so as to be suitable to hold a licence.40 They found that his conduct during the previous proceedings had not been honest and argued that given this and the seriousness of the offence, he could not be licensed.

In the course of their decision, the BHA cited Lord Bingham’s statement in R v Crown Court at Warrington that:

"Some consideration must be given to the expression “fit and proper” person. This is a portmanteau expression widely used in many contexts. It does not lend itself to semantic exegesis or paraphrase and takes its colour from the context in which it is used. It is an expression directed to ensuring that an applicant for permission to do something has the personal qualities and professional qualifications reasonably required of a person doing whatever it is that the applicant seeks permission to do."

Unlike the BHA, the football authorities are not currently making an assessment of the honesty and integrity of individuals nor are they making an assessment of whether the individual has the professional qualifications to control a football club, in the sense suggested by Lord Bingham.

 

Requirements of the Finance Sector and HMRC

Managers of Community Amateur Sports clubs

Schedule 6, Part 3 of the Finance Act 2010 introduced a requirement into the Corporation Tax Act 2010 that in order for charities or Community Amateur Sports Clubs42 (CASC) to qualify for charity tax reliefs, the charity or CASC must satisfy the management condition. This condition requires that managers must be “fit and proper persons43 and is aimed at ensuring individuals involved in managing or controlling charities do not represent a risk to the charity or CASC’s tax position.44

HMRC’s guidance states that it will consider whether the individual in question has been involved in fraud involving tax or other issues such as identity theft or misrepresentation, have used a tax avoidance scheme involving a charity or charitable reliefs, have been involved in designing or promoting tax avoidance schemes or have been disqualified from acting as a company director.45

Administrators of registered pension schemes

A similar “fit and proper person test” also applies to administrators of registered pension schemes and HMRC has indicated they will take similar factors to those considered above into account along with consideration of any bankruptcy or adverse civil proceedings relating to finance or dishonesty.46

The value of the tests applied by HMRC is undermined, however, by the fact they operate in a completely self-regulatory manner. Unlike the football authorities, HMRC does not even require individuals to sign a declaration that they are fit and proper or to tell HMRC if their circumstances change. Enforcement therefore depends solely on HMRC at a time when HMRC’s staff levels are being dramatically reduced.47

Financial services sector

The importance of rigorous enforcement or at least the threat of rigorous enforcement can be demonstrated by the application of the fit and proper test in the financial services sector.

The Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) (formerly the Financial Services Authority) are currently responsible for approving individuals to perform particular functions on behalf of certain financial institutions including assessing whether that person is fit and proper to carry out their role.

This includes an assessment of the applicant’s “honesty, integrity and reputation, competence and capability and financial soundness.48 Between 2007 and the end of 2012, while only 30 out of 227,000 applicants had their applications rejected a further 7000 applications were withdrawn after submission and scrutiny by the FSA.49

The financial services regulators in applying the test can take into account any relevant matter including any conviction whether spent or unspent. The guidance makes clear, however, that in relation to convictions the regulators will take into account the circumstances of the offence, the individual’s explanation, the relevance of the offence, the elapsed time since the offence and any evidence of the individual’s rehabilitation.

Like the BHA, the financial authorities will also take into account civil proceedings including settlements. A recent example of how the FCA takes into account factors that would not be required to be declared under the OAD test is the FCA’s decision that a banker who evaded £42, 550 in rail fares (although not convicted of any offence) was not fit and proper.50

From 7 March 2016, the regime will change with the responsibility for certifying that individuals are fit and proper shifting to the financial institution itself. The rules will also apply to a broader group of individuals within an institution.51 It will be interesting to see whether the movement to self-certification leads organisations to be even more stringent than the regulators in order to avoid having their judgements second guessed at a later point in time.

 

The National Health Service (NHS)

New 2014 regulations have imposed a requirement on NHS providers that executive directors or equivalent or non-executive directors must be fit and proper. The test requires that the NHS provider satisfy themselves that:

  1. the individual is of good character;
  2. the individual has the qualifications, competence, skills and experience which are necessary for the relevant office or position or the work for which they are employed….and none of the grounds of unfitness specified in Part 1 of Schedule 4 apply to the individual.52

The matters that must be considered include whether “the person has been convicted of any offence or been convicted elsewhere of any offence which if committed in the United Kingdom would constitute an offence.53

Like the financial regulatory authorities and the BHA, the NHS provider can consider all offences but unlike the OAD Tests, the existence of an unspent conviction does not result in an automatic bar. Rather the NHS Provider has discretion to assess whether the person is of good character (a subjective test) despite the existence of this conviction.

Arguably the approach of considering all offences as part of the application of a subjective test, not only accords with common sense but also with the description of the fit and proper test put forward by Lord Bingham.

It seems appropriate not only to consider a wider range of unspent convictions (as the BHA does) but also spent convictions as the FCA and PRA and NHS do. As the case of Mr. Cellino would suggest, convictions even if they are spent may be relevant to the individual’s current and future conduct.

Alternatively the individual may be able to demonstrate that they are an anomalous occurrence and that more weight should be placed on their conduct and behaviour since that conviction. This can only be done however if the authority is free to take a broad range of circumstances into account.

 

Suggestions on how the OAD tests be improved

Having examined the OAD Tests and then compared them to similar tests used by the BHA and other regulated industries, it is the author’s view that football authorities could adopt a number of suggestions to improve the current approach. The principal among these are:

  1. There should be a single test. Given that the original ‘fit and proper person’ test was devised by a working party containing representatives of all three organisations, and given the existence of promotion and relegation there appears to be no good reason, why the current tests should not be aligned.
  2. The test should become a proper assessment of the propriety and capability of an individual to control a football club. This test should not only focus on their honesty and good character but also on whether they are likely to have the skills to run such an important institution.

The tests applied by the financial regulators illustrate that it is not unreasonable to apply stricter scrutiny to private sector institutions that play a fundamental role in society.

Whilst different from banks, football clubs as recognized by the Football Governance report,54 are an important part of local communities and potential directors or controlling individuals of these institutions should be prepared to illustrate that they have both the personal and the professional attributes to take on that role.

As Lord Triesman argued in 2008 about the then fit and proper persons test, “The Fit and Proper Persons Test does not do the job sufficiently. A review is now inevitable because football clubs are not mere commodities. They are the abiding passion of their supporters. We forget that at our peril.55

In terms of assessing the individual’s honesty and integrity the current test could, the author suggests, be reformed to include consideration of all convictions spent and unspent as well as relevant civil proceedings or settlements. This would be balanced by allowing the individual to argue why they should not be disqualified and why the convictions for example were no longer relevant to their future conduct.

The administrative workload of the football authorities could be reduced by adopting the approach taken by the BHA, which is to require individuals to make a full declaration including reasons why they feel they are fit and proper.

Whilst this would still require the football authorities to make a careful and considered judgment, the experience of the BHA and the financial regulators suggest that this is unlikely to become an overwhelming task, particularly given that unlike those institutions, the number of football clubs that the football authorities are regulating is currently fixed.

Indeed, if the experience of the financial authorities is illustrative, it is unlikely that there will be a radical increase in the numbers of individuals being disqualified. What is likely to increase, however, is the public’s acceptance of the legitimacy of the test and by association of owners and directors.

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Author

AnneMaree McDonough

AnneMaree McDonough

Annemaree is a consultant at Shepherd & Wedderburn where she works on sports, broadcast and telco issues. She has previously worked in-house for BT and Virgin Media.

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