The “investment mis-selling” controversy – what should footballers do next?

Published 29 December 2015 By: Daniel Northall


This article examines the legal implications of the recent controversy1 concerning the mis-selling of investments2 to high net worth individuals, notably footballers.3 Specifically, it explores the nature of the problem, including the investments made, how they might come to be mis-sold, and the avenues available to a footballer who has sustained substantial losses through mis-sold investments. It will be particularly relevant to footballers and their professional advisors.



Financial mis-selling is not new; nor is it a problem restricted to the wealthy. But there are few sections of society where the scale of the problem is particularly acute as it appears amongst professional footballers.4 All of the investments reported as “mis-sold” stem from the use of unregulated collective investment schemes (UCIS).

A collective investment scheme, also known as a “pooled investment”, is a fund which several investors collectively contribute towards. A fund manager then uses the pooled money to invest in one or more classes of asset, such as stocks or property. Its legal definition can be found in s.235 of the Financial Services and Markets Act 20005 (FSMA).

A collective investment scheme may be regulated or unregulated. The rules on what amounts to a regulated collective investment scheme are technical but, in short, such a scheme is regulated if it is authorised or recognised by what is now the Financial Conduct Authority (FCA).

An unregulated scheme is simply one which does not fall within the defined categories of regulated scheme. This is normally because the scheme does not comply with the strict borrowing and investment criteria of regulated schemes. They are often characterised by an investment portfolio which is not diverse, with the pooled money being invested into a single asset, such as a foreign property. This is why they are seen as high risk. If the asset fails, so will everyone’s investment. More prudent investment would see a more diverse range of asset classes in the fund so that the performance of the fund did not depend on the performance of a single asset or asset class.

Despite being unregulated, UCIS are not unlawful in the UK, but restrictions apply on their promotion to the public consistent with the degree of risk that they carry. Section 238 of the FSMA introduced a general prohibition on the promotion of collective investment schemes by persons authorised to conduct financial services by the FCA. A number of exceptions to the general rule are then carved out through various statutory instruments. A number of the important exemptions are set out in the CIS Promotion Order.6 These include:

  • Certified high net-worth individuals (article 21). 
  • Sophisticated investors (article 23). 
  • Self-certified sophisticated investors (article 23A). 

The Section 238 prohibition on the promotion of UCIS does not apply to persons not authorised by the FCA, but the effect of Section 217 FSMA creates a similar result. An unauthorised person cannot promote a UCIS unless the promotion is approved by an authorised person or is exempt under the Financial Promotion Order.8 That order creates similar exemptions relating to certified high net-worth individuals, sophisticated investors and self-certified sophisticated investors.



Footballers are uniquely positioned in the accumulation of their wealth. If successful, they may be paid large sums of money in a relatively short period of time. However, that earning potential is time limited, with most footballers’ careers at the highest level lasting no more than 10-15 years. Consequently, many footballers seeking financial advice may:

  • have large amounts of disposable income;
  • be young and impressionable;
  • lack sophisticated investment knowledge;
  • understand the need to plan for the future for when their footballing career is over;
  • be surrounded by advisers who exert an influence on their decision making.

These factors combine to create a situation in which the pursuit of risky investment strategies is made more likely. The collective nature of UCIS would appeal to most footballers. If a team mate has already made an investment, why shouldn’t they? The “clubbing together” of money might also give rise to a false sense of security – an individual’s exposure would only be as great as the next person’s.

The influence of a footballer’s advisers is another important factor. The original Sunday Times story9 reported that the financial advisers accused of mis-selling made undisclosed payments to agents of the footballers making investments as “introducer fees”, casting doubt on whether the financial adviser and the footballer were genuinely operating at arm’s length.


As outlined above, the assets into which a UCIS invests can be many and varied and are usually less traditional and riskier than assets found in more orthodox funds. Many footballers have invested in, and since fallen foul of, UCISs investing in film production.

Why film production? A film partnership scheme is designed to exploit generous tax breaks created by the government (and which have existed for many years) in order to promote investment in the UK film industry. Such schemes come in many flavours, but a typical scheme involves the establishment of a limited liability partnership (LLP) with each investor becoming a partner. The LLP would then acquire the rights from a film production company to exploit and distribute films for a defined period. The LLP would then lease those rights back to a film distributor under a sub-licence which required the distributor to make annual payments to the LLP for the same period. The lease agreement would therefore generate revenue for the LLP.

The original acquisition of the film rights by the LLP would be costly and would be financed in one of two ways. Firstly, by a capital contribution by each partner. Secondly, through each partner taking out a loan. Typically, the value of the loan would be far greater than the capital contributions made. Up to 90% of the acquisition cost of the film rights would be financed by a loan.

The real advantage for investors arose from the interest repayable on the loan. It was believed that this interest could be offset against each investor’s overall tax liability notwithstanding the fact that their main sources of income (such as player wages) were completely unrelated to film investment. The cost of the loan repayments would also be financed by the income received under the lease for the film rights. If the scheme worked in accordance with expectations, it was a win, win situation: each investor saw a huge reduction in their income tax liability through a self-financing debt obligation.



What footballers were perhaps unaware of was the fact that the heavy tax reliefs that the scheme relied upon to provide a financial benefit sat on an uncertain legal footing and risked being scrutinised and challenged by HMRC.

Unfortunately for the footballers, that is exactly what occurred, and the ability to claim tax relief through film partnership schemes have been dealt a number of body blows this year through legal challenges mounted by HMRC.

The most notable of such challenges, and the most bitterly fought, was to the Eclipse 35 film partnership scheme. Eclipse 35 was first challenged by HMRC in April 2012. It argued that the partnership was not trading and was specifically structured with the simple purpose of creating tax relief for the individual partners. The first tier tax tribunal agreed and consequently each partner lost their tax relief. The decision was further upheld by the upper tribunal in December 2013. The matter came to the Court of Appeal in Eclipse Film Partners No 35 LLP v Commissioners for Her Majesty's Revenue and Customs.10

Eclipse sought to argue that the partnership was ‘trading’ and that the acquisition of film rights and their sub-licensing inherently amounted to a trade. (Under the relevant tax legislation, in order for its partners to claim tax relief, Eclipse had to demonstrate that it was carrying on a trade and that the money the partnership borrowed was wholly for the purpose of that trade). The Court of Appeal roundly rejected Eclipse’s argument in a decision handed down in February 2015. Its conclusions on Eclipse’s arguments were stated briefly:

"The proper characterisation of the business of Eclipse 35 depends upon the totality of its activity and enterprise. Stripping the business down to its essential elements, the transactions on which Eclipse 35 was engaged had two aspects. One aspect was that a payment by Eclipse 35 of £503 million would be repaid with interest over a 20 year term and would produce a profit unrelated to the success or otherwise of the exploitation of the Rights sub-licensed. That aspect had the character of an investment."

"The second aspect was the possibility of Eclipse 35 obtaining a share of Contingent Receipts and the activity on the part of Eclipse 35 to secure such a share. The FTT considered that this second aspect was in real and practical terms insufficiently significant in the context of Eclipse 35's business as a whole to lead to a proper characterisation of Eclipse 35's business as one of trade within the meaning of the tax legislation."



The Court of Appeal in Eclipse 35 rightly observed that the consequences of its decision were fiscally calamitous for the investors in the scheme, and for other investors in similar schemes.

Investors are liable to face three serious and unforeseen consequences:

  1. Income tax will become payable on income which investors sought to shield through film partnership schemes. Tax relief will be transformed into a tax demand.
  2. Perhaps most disastrously, tax will also be payable on income received by the partnership under the licensing agreement, even though this ‘income’ was used to service the loan obligation and investors did not receive any of it.
    The high debt to equity ratio in financing the partnership means that tax payable on partnership income may far exceed tax to be paid as a result of the loss of tax relief on other income. In some cases, an investor’s tax bill may be ten times their original capital contribution. In other words, if a partner invested capital of £100,000, they might expect a tax bill of £1 million. The more that has been invested, the more ruinous the tax bill and this will spell bankruptcy for many.
  3. Since late 2014, HMRC has issued accelerated payment notices to investors within film partnership schemes. The notices require the upfront payment of outstanding tax before any tax tribunal has ruled against the scheme, with payment having to be made within 3 months of the date of the notice. HMRC will only refund the additional tax paid if the scheme is ruled valid. Investors are therefore presumed guilty, unless proved innocent.

In July of 2015, a judicial review of HMRC’s decision to issue accelerated payment notices11 to investors in film partnership schemes failed. Investors will therefore be required to pay outstanding tax else face a bankruptcy petition.



Mis-selling” is not a legally defined term. It is simply the sale of a product or service in breach of a legal obligation. That may entail a misrepresentation, negligent advice, a failure to assess the suitability of a product or service to a customer’s needs, or a failure to comply with some other regulatory requirement. Since UCIS are, by their nature, unregulated, this latter category of mis-selling is unlikely to apply.

Most professional footballers’ complaints regarding the promotion and sale of UCIS, notably in film partnership schemes, is likely to result from a lack of adequate notification or advice of the risks that such schemes entailed.

Investors in such schemes, and in particular investors whose day jobs were as professional footballers, could not hold themselves out as tax experts. They relied on the advice and guidance of those financial advisers who promoted investment into the scheme. These schemes, which were otherwise highly complex structures, may have been sold to investors as an entirely legitimate and safe means of shielding earnings against income tax. They have proved to be anything but.

Although some sophisticated investors may have anticipated the possibility of losing tax relief on their income (which, in the final analysis, would be fiscally neutral) if the scheme was challenged by HMRC, few if any would have predicted the disastrous consequences of being taxed on the profits of the partnership.

Competent financial advice involves setting out both the reward and the risk associated with an investment. A failure to do this, and in particular a failure to identify so grave a risk as has materialised in film partnership schemes, may be found to be negligent and give rise to a claim for compensation.



Footballers facing financial ruin through the mis-selling of UCIS are only likely to recover some or all of the sums lost through litigation in the courts.

Since UCIS are unregulated investments, investors have no right of recourse through the Financial Ombudsman or the Financial Services Compensation Scheme, although claims under the scheme are capped at £50,000 and that is likely to be pocket change in relation to the large sums lost.

Most claims for compensation are going to have to demonstrate a material misrepresentation or negligent advice. The viability of such a claim will, of course, depend on the continued solvency of the adviser or their firm, or the presence of an adequate policy of insurance.

Unfortunately, the nature of the advice given, and the circumstances in which it was given, will be different case by case. Determining the prospects of a claim succeeding will involve a detailed and lengthy consideration of the information that passed between the investor and adviser, the basis of the contract between them and the advice given. Obtaining necessary disclosure from the advisor or their firm may of itself be a difficult and protracted process.

Investors also have the issue of limitation to contend with. A claim against a professional advisor must be brought within 6 years of the date of investment into the scheme.12 Since film partnership schemes were at their most prevalent in 2005-2007, most footballers seeking compensation will no doubt face an argument that their claim has been brought too late.

The limitation period may be extended where the claimant is unaware of facts relevant to their cause of action. In such a case, they have three years from acquiring that knowledge in order to bring a claim. However, ignorance is not bliss. If it was reasonable for the claimant to acquire knowledge relevant to their cause of action, whether personally or through a professional adviser such as a lawyer, the three years will begin to run regardless. Given the extensive reporting of the original Eclipse 35 decision in 2012, any further extension of the limitation period may be set to expire.

A footballer who has fallen foul of a film partnership scheme may have several fires to fight at once, including responding to an accelerated payment notice, fending off a bankruptcy petition, investigating the strength of a claim against earlier advisers and issuing proceedings in order to protect their position.

It has been reported that many footballers are too embarrassed to speak about the position in which they find themselves.13 They would be well advised to swallow their pride and to consult lawyers as soon as possible

Note: the allegations of mis-selling to professional footballers reported in the Sunday Times, on which this article is based, concern the advice given by Kingsbridge Asset Management. This article does not, nor does it intend to, comment on the competency of advice given by that organisation.


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Daniel Northall

Daniel Northall

Daniel Northall is an employment, commercial and sports lawyer at Littleton Chambers. His work has included a range of sports related disputes, including the dismissal of a Championship manager, and multiple claims against a rugby club in the Aviva Premiership brought by a former player.
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