Blackpool FC’s appointment of a receiver: the background, regulatory framework and what comes next for club & fans
On 13 February this year, the High Court appointed a receiver to realise the assets of Blackpool Football Club (Properties) Limited (Blackpool Properties).1 Blackpool Properties is the majority shareholder of Blackpool FC and owns, amongst other things, Bloomfield Road and the club’s training ground.
Explains the background to the appointment of a receiver, including:
an extensive summary of the original dispute between the shareholders of Blackpool FC; and
a summary of developments since the handing down of the judgment up to the appointment of a receiver on 13 February.
Explains the position under:
general company and insolvency law, and
the English Football League’s (EFL’s) rules on “Insolvency Events” (including the potential sanctions and appeals process); and
Analyses the next steps and practical implications for Blackpool FC and its stakeholders, both in terms of the general law and its position pursuant to EFL rules, and in the context of the recent news that Simon Sadler has acquired a 96.2% interest in the club.2
Blackpool FC shareholder dispute
In 2017 Latvian businessman, Valeri Belokon, through his company VB Football Assets, was successful in his High Court case against Blackpool Football Club and its owners. The High Court ordered the Respondents, including owner Owen Oyston through his company Blackpool Properties, to purchase the entire interest of VB Football Assets in Blackpool FC for £31.27m.3
The parties to the proceedings were as follows:
VB Football Assets:
A limited liability company registered under the laws of Latvia;
Until 3 December 2013, was 100% owned by Valeri Belokon;
Since then, has been solely owned by AS BFHH, in which Valeri Belokon and his brother, Vilori Belokon, are 50/50 shareholders.4
Blackpool Properties (formerly known as Segesta Limited) – 97.2% owned by Owen Oyston;
Karl Oyston – Owen Oyston’s son;
Blackpool Football Club Limited (Blackpool FC).5
Blackpool Properties, together with Owen and Karl Oyston, were noted by the High Court to be the “effective Respondents” and in the judgment are referred to as the “Respondents”.6 Blackpool FC was joined into the proceedings – as is usual, so that it would be bound by the outcome of the proceedings – but the club did not play an active role in the trial before the High Court, which lasted 16 days.7 There were a number of people involved on each side of the dispute, including family members, professional advisers to and employees of the respective companies involved, and these parties were collectively referred to as the “Oyston Side” and “Belokon Side” respectively.8
The original dispute stems back to 2010 when Blackpool FC was promoted to the Premier League. Mr Belokon was originally introduced to Owen Oyston in 2005 and, over time, was persuaded to invest in Blackpool FC. VB Football Assets acquired a minority shareholding in Blackpool FC of 20%, with Blackpool Properties having a 76% shareholding and the balance held by 192 individual minor shareholders.9
VB Football Assets accused Blackpool Properties and Owen Oyston of an “illegitimate” asset stripping of Blackpool FC. Amongst other things, VB Football Assets complained that:
It was excluded from the management of Blackpool FC (by being excluded from material information about the club and through decisions being made outside board meetings);
There was a failure to pay dividends; and
“substantial payments were made out of Blackpool FC which were improper… in that they were made without VB Football Assets’ consent and/or were for the personal benefit of Mr Owen Oyston and/or Mr Karl Oyston”.10
In 2017 VB Football Assets successfully petitioned the court pursuant to section 994 of the Companies Act 2006, which provides that a shareholder of a company:
may apply to the court by petition for an order under this Part on the ground-
(a) that the company’s affairs are being or have been conducted in a manner that is unfairly prejudicial to the interests of members generally or of some part of its members (including at least himself), or
(b) that an actual or proposed act or omission of the company (including an act or omission on its behalf) is or would be so prejudicial.
Thus, in order to succeed in its action, VB Football Assets needed to demonstrate that the affairs of Blackpool FC had been conducted in a manner that was prejudicial to the rights of the minority, including at least itself.
In his judgment, Mr Justice Marcus Smith found, amongst other things, that:
Whilst not entirely excluded from matters at the club, the “Belokon Side were excluded from decisions concerning Blackpool FC where the Oyston Side anticipated they would disagree”;11 and
The Oyston Side, using its majority control of Blackpool FC and using Premier League monies, profited from a number of “disguised dividends” – so termed because the payments concerned were not actually dividends as they did not involve any payment to the minority shareholders at the same time and rate – and thereby behaved in a “discriminatory manner towards other members of the club”.12
Pursuant to section 996 of the Companies Act 2006, the court has an extremely wide discretion in that it may “make such order as it thinks fit for giving relief in respect of the matters complained of”, including regulating the conduct of the company’s affairs in future and providing for the purchase of shares by other members.13 Nevertheless, any such discretion “to do what is fair must be exercised judicially and on rational principles”,14 so as to “to put right and cure for the future the unfair prejudice which the petitioner has suffered at the hands of the other shareholders of the company”.15
Whilst the High Court considered some potential bespoke arrangements, ultimately it decided that the only appropriate order was one requiring the Respondents to buy out the interest of VB Football Assets for the sum of £31.27m.16 This type of order, pursuant to section 996(2)(e) of the Companies Act 2006, is an important remedy, and one which is commonly granted, as on the face of things and leaving aside the issue of enforcement, it allows a petitioner to realise the value of his interest in the company concerned, and for the purchaser to receive full value, without having the company wound up.17
On the matter of share valuation, the courts again have a wide discretion as to how to approach matters.18 In the case of Blackpool FC, having found that there was a “legitimate expectation” that VB Football Assets would have a joint share in the profits of Blackpool FC and in due course a parity of shareholding, the High Court reached the valuation of £31.27m – equating to a shareholding of 48.145% – through the following:
Concealed dividends paid to the Oyston Side totalling £26.77m; and
The money that Valeri Belokon put into the club totalling £4.5m – transactions that the High Court held Mr Belokon should be able to “unwind”.19
Subsequent developments leading up to the appointment of a receiver
As Mr Justice Marcus Smith duly pointed out in his judgment appointing a receiver over the assets of Blackpool Properties, the history of the proceedings is a long one.20 However, in summary, the developments since judgment in the original dispute on 6 November 2017 included the following:
The Respondents made a number of applications to vary the original order of the High Court, including varying the requirement that they should pay VB Football Assets the sum of £10m by 4 December 2017 in full satisfaction of its costs, with the balance to be treated as a payment towards the judgment sum of £31.27m. The Respondents sought to remove the requirement altogether or alternatively to reduce the sum payable to £2.5m on the basis that cash assets were needed to keep their companies operating. The application was refused.21
Having made the initial payment of £10m, the Respondents applied for more time to sell assets, on the basis that large amounts were held in real property, which would take time to realise. The Respondents asked for one year to pay the remaining £25m. The High Court refused the request for a period of one year but instead allowed the payments to be staggered over 6 months. Furthermore, a freezing injunction, which was imposed against Blackpool Properties, Owen Oyston and Karl Oyston on 6 November 2017 in order to restrict dealings with certain assets, remained in force, albeit varied from its original form. This was in an effort to safeguard the positon of VB Football Assets from the risk of dissipation of assets by the aforementioned Respondents, and in return for their deferment of the obligation to pay the full amount sooner.
Although the Respondents were afforded 6 months in which to repay the £25m due to VB Football Assets, and although the initial payment of £10m was made, the next payment was not made on the due date. The Respondents applied for a further 19 days, on the basis that they had been unable to realise assets and needed the time to take out a bridging loan. The application was resisted by VB Football Assets and the High Court agreed, ultimately refusing the application on the basis that the Respondents had failed to sell assets, thereby depriving VB Football Assets of monies due to it, and because permission to appeal against the original dispute had been refused. Accordingly, the freezing order remained in force and VB Football Assets was at liberty to take appropriate steps to enforce the remaining £25m due under judgment as it saw fit and without the need for staged payments.22
In a further judgment the High Court noted that “during the course of these proceedings, [Karl Oyston] has, effectively, dropped out of the litigation”.23 The focus was thus on Blackpool Properties and Owen Oyston, who applied to discharge or alternatively vary the freezing order. However, the High Court held “that, absent the Freezing Order, there is a real risk of dissipation such that the judgment debt to [VB Football Assets] will remain unsatisfied”, and moreover that it is not “adequately protected from the risk of dissipation by the other enforcement processes available” such as charging orders.24
VB Football Assets successfully applied to appoint “a receiver by way of equitable execution over certain assets” belonging to Blackpool Properties and Owen Oyston.25 At the time, Blackpool FC continued to be operated by the aforementioned Respondents and it was the objective of VB Football Assets to seek the sale of the club as a going concern because to do so would yield greater value than selling on a bare asset basis.26 Despite all of its activity in seeking to enforce the £25m judgment debt, in particular via charging orders and the orders for sale in relation to property and also shares in Blackpool Properties, VB Football Assets had achieved very little.27 The High Court identified the “critical question” as “whether there was some hindrance or difficulty” in using the normal processes of enforcement, and ultimately, having answered this question in the affirmative, appointed a receiver over all of Blackpool Properties’ assets, both football and non-footballing, including its shares, “in order to make the work of the receivers clear”.28
General company and insolvency law
A football club that is unable to pay its debts as they fall due will typically enter administration, being a process which provides protection from creditors, is an alternative to liquidation (being wound up) and allows the administrators to sell the club’s business and assets, including its share in the EFL, to a purchaser. Clubs were historically required to exit administration via a Company Voluntary Arrangement, but this is no longer the case and this insolvency procedure is now far less common. 29
Less commonly, receivers may be appointed to a club, pursuant to a charge over the club’s property and other assets, or exceptionally, but as in the Blackpool FC case, by a court. A court can appoint a receiver when “it appears to the court to be just and convenient to do so”30, including to preserve property or (as in this case) by way of “equitable execution” and “if there is a reasonable prospect that the appointment will assist in the enforcement of a judgment or award”.31 This is therefore a means of enforcing a judgment debt, whereby a receiver is appointed to secure assets in circumstances where other methods of enforcement have failed or are inappropriate.32 A question posed in the judgment of the High Court in February 2019 illustrates the types of considerations which would militate in favour of appointing a receiver:
“One asks oneself, how could [VB Football Assets], using simply an order for sale, successfully achieve the sale of the Blackpool [FC] as an ongoing asset? One would imagine that a buyer would ask all kinds of questions as to the operation of the [Blackpool FC], which [VB Football Assets] would simply be unable to answer…
It therefore seems to me that if a sale as a going concern is contemplated, it is clearly in the interests of justice that a receiver be appointed because that order will make an enormous difference to the abilities to achieve a sale which other orders, for instance an order for sale, simply could not achieve… such an order is to my mind the only way of realising these assets.”33
It was identified in the High Court’s judgment of 13 February that the intention, on the part of the receivers, was to replace the management of both Blackpool Properties and Blackpool FC, and to “put in new and expert people who could run the Club… pending a sale.”34
The EFL Regulations on “Insolvency Events”
Regulation 12.3 of the EFL Regulations deals with Sporting Sanctions, the introduction to which confirms that the regulation deals with:
“how sporting sanctions will be applied to Clubs when the Club, or any Group Undertaking, becomes subject to or suffers an Insolvency Event, and also makes provision for an appeals mechanism, but only on the grounds of ‘Force Majeure’.”35
Of particular relevance in relation to Blackpool Properties and the High Court’s appointment of a receiver on 13 February 2019 are the following provisions:
Regulation 12.3.1: “If any Club becomes subject to or suffers an Insolvency Event, that Club shall be deducted 12 points” (authors’ emphasis);36 and
The definition of an “Insolvency Event” in section 1 of the EFL Regulations:
“‘Insolvency Event’ refers to any of the following…
b) the lodging of a Notice of Intention to Appoint an Administrator or Notice of Appointment… at the Court in accordance with… the Insolvency Act…
c) An Administrative Receiver… a Law of Property Act Receiver… or any Receiver appointed by the Court under the Supreme Court Act 1981 or any other Receiver is appointed over any assets which, in the opinion of the [EFL Board of Directors] is material to the Club’s ability to fulfil its obligations as a Member Club” (authors’ emphasis).37
Whilst it is possible to appeal, it is worthy of note that the introduction to Regulation 12.3 provides that “It is intended that this appeals process should be limited to circumstances which are deemed unforeseeable and unavoidable”, before going on to give examples, each of which “would have to be considered on its own merits”. 38
Specifically, regulation 12.3.10 confirms that a club may appeal against an automatic deduction of points, but “only on the ground that the Insolvency Event arose solely as a result of a Force Majeure event (“Sporting Sanctions Appeal”).” Any such appeal must be in writing and received by the EFL no later than seven days after service of the notice of deduction, setting out the grounds of appeal together with any accompanying documentation relied upon.39 At the same time, the appellate club must also lodge a £5,000 deposit in respect of costs.40
Upon receipt of an appeal, the matter then gets referred to the League Arbitration Panel (the Panel), which shall hear the appeal within 21 days, and the EFL is required to instruct independent accountants to review the activities of the club, which shall be taken into account by the Panel when determining, on the balance of probabilities, whether the insolvency proceedings arose as a result of a Force Majeure event.41 The Panel has the power to confirm the deduction, reduce it or quash it.42
Analysis: the implications for Blackpool FC and its stakeholders
Position under the EFL regulations
In mid-February 2019 Shaun Harvey, the chief executive of the EFL, was quoted as saying that the EFL Board of Directors (the Board) “will receive an update at its next meeting on 6 March”, further that “We hope to find a solution that will deliver the stability that will benefit the club going forward", and in addition that:
"It is this framework that has often frustrated parties who think we should have done more with regard to the ownership of Blackpool FC, and is now the same framework that provides the flexibility for the board, to determine if a sporting sanction of a 12 point deduction is to be enforced…
"It is not mandatory that the 12 point sanction must be applied but the circumstances of the appointment of the receiver need to be fully considered and the appropriate decision taken in accordance with the regulations."43
On the face of things, having regard to the mandatory wording of Regulation 12.3.1 – “that Club shall be deducted 12 points” (authors’ emphasis) – a 12-point deduction appeared, on the face of it, to be an inevitable outcome for Blackpool FC. However, according to the above report, far from being an automatic or mandatory sanction, Mr Harvey explicitly stated that it was not.
The matter was also considered in the High Court’s decision of 13 February, as part of the potential disadvantages of appointing a receiver, one of which was:
“the risk that the appointment of receivers will cause [Blackpool FC] to suffer a points deduction in the league where it presently play[s]. The receivers hope to avoid this outcome, which is not inevitable, but I can see that it is a possible risk and so an adverse consequence of the appointment of receivers. I consider, however, that the appointment of a receiver by way of equitable execution is so in the interests of justice, that even taking account of this adverse potential consequence, an order appointing a receiver by way of equitable execution should be made”.44
Indeed, VB Football Assets had confirmed, through its legal team, that it “would seek to reassure the [Board] that the receiver's management of [Blackpool Properties’] assets would not adversely impact the Club's ability to fulfil its obligations.”45
The key provision, it is suggested, is the definition of “Insolvency Event”, and specifically the requirement that the receiver is appointed “over any assets which, in the opinion of the [Board] is material to the Club’s ability to fulfil its obligations as a Member Club” (authors’ emphasis).46 A Member Club is defined as “any Club which is from time to time a member of The League”,47 and while a club’s obligations are numerous, perhaps the most fundamental is that to agree to compete, subject to being eligible, in all competitions controlled or conducted by the EFL.
This leads us to consider the implications of the High Court’s appointment of a receiver, which the Board has determined was “not material to the club's ability to fulfil its obligations as a member club and as a result should not be regarded as having suffered an insolvency event, meaning a 12-point deduction is not applicable". That said, the Board further commented that the decision was “based on the information presented" and they "reserved the right to review the matter should the position subsequently change in the future".48
While the Board has disclosed no further details of the grounds for its decision, it appears that it was ultimately satisfied that Blackpool FC, under the control of the receiver, was able to continue to fulfil all of its relevant obligations. This is perhaps unsurprising given that the role of the receiver was to realise the assets of Blackpool Properties, and the value of those assets depends on Blackpool FC being a member of the EFL.
It also reflects the discretion conferred on the Board in relation to the appointment of receivers, by the definition of “Insolvency Event” contained within section 1 of the EFL Regulations. Whether or not an Insolvency Event has occurred depends on whether, in the opinion of the Board, the appointment is material to a club’s ability to fulfil its obligations as a member of the EFL. This is in stark contrast to the definition of “Insolvency Event” in so far as it concerns administration, liquidation and other formal procedures, in respect of which no discretion is conferred on the Board. For example, in the case of Bolton Wanderers, the EFL simply stated “administrators have been appointed in respect of Bolton Wanderers Football Club” and “As a result, the Club is now subject to a 12 point deduction”.49
Position under company and insolvency law
That the appointment of a receiver was held not to be an Insolvency Event in the circumstances of this case (in contrast to an appointment of administrators or liquidators) reflects the position that the appointment of receivers by the court is not strictly an insolvency process. Rather, it is (unlike a receiver appointed under insolvency legislation or the Law of Property Act), a method of enforcing a judgment debt, available where no other enforcement methods are available. In this case, for example, VB Football Assets had exhausted conventional methods of enforcement, “including the freezing of assets held by the Respondents, charging orders and orders for sale over various assets held by the Respondents”.50
Although the appointment of receivers by the court as a method of enforcement is rare, largely because of its cost and complexity, it is likely to become more common in cases falling to be determined by the English courts, as assets are increasingly held in trust and in multiple jurisdictions.
What next for Blackpool FC and its fans?
When the High Court was considering the valuation of the shareholding of VB Football Assets in the original shareholder dispute, it took the conscious decision not to attribute any value to Blackpool FC’s possible future success. This was because:
“the difficulty of valuing a club like Blackpool FC is that its future is inherently unpredictable. It might – as it has done – achieve great success and reach the Premier League again; or it might – as it also has – sink to League 2, or worse. It is impossible to say what will happen: for that reason, I have declined to make any prediction at all, and simply make provision for VB Football Assets to receive back what was paid - £4.5 million”.51
Upon the appointment of a receiver in February this year, the future of Blackpool FC remained uncertain. At that stage, after a number of turbulent years, Blackpool fans could only hope that, through new management and under the overall control of the receiver, the club would be able to turn a corner and in time, on the field, re-establish itself at the top of English football. Certainly, it would have been unfortunate to see a club with Blackpool FC’s longstanding history and heritage suffer any further difficulties.
Significantly, on 13 June 2019 news broke via a club Statement that Mr Simon Sadler, who was born and raised in Blackpool, and who “held senior roles in finance before setting up an asset management business, Segantii Capital Management, in Hong Kong in 2007”, has acquired a 96.2% shareholding in the club, “in an individual and personal capacity”. In the statement, Mr Sadler says:
“It is my great honour and privilege to become the owner and custodian of Blackpool Football Club. By providing financial stability and investment over time, my intention is for the Club to achieve its full potential. I will ensure that the Club is managed with the interests of all stakeholders in mind.”52
Thus it appears that, after what Mr Sadler describes as a “lengthy period of turmoil”, there is light at the end of the tunnel for Blackpool FC and its fans. In this regard, Mr Sadler thanked “the Joint Receivers and the current board, management and staff for having chaperoned the Club during this time of transition.”53 Indeed, the receiver certainly appears to have successfully steadied the ship by keeping the club afloat and allowing it to operate as normal (or substantially so), and by ultimately achieving a sale of the club as a going concern.
Such gratitude will no doubt be echoed by fans, not least in relation to the avoidance of a 12-point sanction. Whilst the EFL Board explicitly reserved its right to re-visit matters in the future should circumstances change, Blackpool FC now appears to be out of danger, at least in the short term, but hopefully beyond. In this regard, Mr Sadler’s promise of financial stability and investment over time appears to be an extremely positive development for Blackpool FC and its fans, and may be the catalyst for further on-field achievements and success. That said, the football world will just have to wait and see.
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Solicitor, Harrison Drury & Co
Matthew has a multi-disciplinary practice encompassing employment, regulatory, commercial litigation and sports matters. He is the founding head of Harrison Drury’s Sports Sector team.
Matthew has experience in sports dispute resolution matters, including arbitrations and subsequent appeals to the courts. Recent work includes Fleetwood Wanderers Ltd (t/a Fleetwood Town Football Club) v AFC Fylde Ltd  EWHC 3318 (Comm) (30 November 2018).
Matthew also has experience in a wide range of sports regulatory and disciplinary matters, including in football, cycling and rugby league. He has been appointed as a Community Game Discipline Panel Member by the Rugby Football League.
Matthew is a former professional rugby league player, having come through the academy ranks at Wigan Warriors before later signing for Leigh Centurions
Tel. 01772 258321
Solicitor, Harrison Drury & Co
James specialises in insolvency law and is dual-qualified as a solicitor and insolvency practitioner. He acts for insolvency practitioners, as well as creditors, directors and other stakeholders, and has particular expertise in dealing with claims against directors, director disqualification proceedings and a range of technical insolvency matters. James is also a season ticket holder at Burnley FC.
Tel. 01772 258321