A guide to the Owners' and Directors' Test in English football

Published 17 October 2018 | Authored by: Richard Barham

The owners' and directors' test (also known as the "fit and proper person test") is a test that is applied to directors and prospective directors of English football clubs to ensure those appointed are appropriate people to act as directors of football clubs. It is designed to protect the image and integrity of the relevant league and the clubs that play in it.

In the top four English leagues there are two tests1:

(together the EPL Rules and the EFL Rules being the Rules).

This article compares and contrasts the key points of the Rules.

Overview

The EPL Rules and the EFL Rules are similar, although there are variations between them. Both sets of Rules have developed reasonably significantly over the last ten years. Those developments have usually been a response to particular cases that have come before the EPL or EFL, or concerns that have arisen following market events and the need to pre-empt issues arising. Whereas ten years ago, the owners' and directors' test in English football was seen as simply a "tick box", it has begun to develop away from that. There are now starting to emerge areas where a more subjective judgment is needed in relation to the application of the Rules. In the US sport leagues, often the leagues retain tight control of club ownership, and apply a rigorous subjective test to anyone who wishes to become an owner or part-owner. The EPL and EFL will not want to block takeovers that are overall seen as beneficial for the clubs involved; but it is expected that the EPL and EFL will continue to move gradually more to a model requiring more subjective decision-making over the coming years.

It is also noted that there is little transparency in the application of the Rules, as neither the EPL nor EFL publish information about applicants, although there is often press speculation. This is understandable as anyone who fails to satisfy the Rules is unlikely to want publicity. It is noted that there are a growing number of applicants who have been rejected (although the details largely remain private). However, it may be useful in the future if the EPL and EFL were to publish a report from time to time detailing the number of applicants handled each year, the number of applicants that have been rejected, and the grounds for such rejection (on a no names basis).

Application

Under both Rules, there is a requirement for a declaration of compliance to be made. There are certain circumstances in which the declaration needs to be made:

  • Before the commencement of each season, each club is required to complete a declaration in relation to each of its directors, which is signed by the director and counter-signed by an authorised signatory for the club. In each case the declaration needs to be submitted 14 days before the season begins.

  • In the case of clubs relegated/promoted to or from the EPL or EFL, again a declaration needs to be submitted. In relation to the EPL, that is required 21 days after promotion; in the case of the EFL, 14 days after promotion/relegation.

  • If anyone is proposed to become a director of a club, a declaration is also required. It is made clear in both Rules that this covers any person who becomes a director, whether a legally appointed director or a shadow director, and also anyone who acquires control of a club (with control defined in each case to include the power to appoint/remove a majority of the directors or holding 30% or more of the voting rights, including through concert parties, nominees, associates and connected persons).4

The application is made by the club itself rather than the individual director. This can impact on the timing of an acquisition of a club. On an acquisition, usually a club does not want to make an application for a new owner/director to be approved until such time as it is certain that the acquisition is to proceed. Sometimes the acquisition documentation is signed before the club makes the application, and completion of the deal is conditional on the application being approved by the relevant league, which can cause a slight delay in the deal completing.

In terms of timing on the appointment of a director or new owner, advanced notification is required, and the club needs to make the application at least 10 working days prior to the date on which the person is to become a director, and the league is required to respond within five working days of receipt of the application to confirm in the case of the EPL whether or not the person can become a director or is disqualified, and in the case of the EFL to advise on the expected timing to consider an application.

In addition, both Rules impose upon a club director an obligation to notify his club if there is any change in the circumstances which would alter his most recent declaration, and the club are required to notify the league. So, ongoing compliance with the Rules is required. The EFL also have the right to require a club to supply such information as the EFL require to ensure that the club continues to comply with the EFL Rules.

The EFL Rules also reserve the right to charge clubs for processing declarations.

Disqualifying Events

There is no requirement for the EPL or EFL to make an overall judgement on an applicant. There are a set of events or circumstances that can result in an applicant being disqualified. It is essentially a "pass/fail" test. For ease, and for comparative purposes, the events or circumstances that can result in disqualification are categorised as set out below.

Whilst the events/circumstances are stated to apply to directors, they also apply to owners (those looking to acquire or holding a 30% interest or more in a club). In the EPL Rules, this is made clear in the application process. In the EFL Rules there is also a wide definition of Relevant Person to who the EFL Rules apply. Relevant Person covers directors (whether de facto or de jure directors) and, for example, the club secretary, chief executive officer, general manager, chief operating officer and certain authorised signatories. It also includes those who control a club (for these purposes control is defined as stated above), and their representatives at the club. The EFL definition is particularly widely drawn.

Both Rules apply to directors and clubs. Compliance is required from, and sanctions can be imposed on, directors, individuals proposed as directors and clubs.

Most clubs are owned by a company in a corporate group. The Rules, through widely drawn definitions, are applicable to all companies or undertakings in a club's corporate group. For example, the Rules apply not only to a company that owns a club, but also to any entity or person that owns that company.

Information

EPL Rules

EFL Rules

In relation to the assessment of his compliance with [the owners' and directors' test in the EPL Rules] (and/or any similar or equivalent rules of the Football League or the Football Association) at any time, he has:

  • failed to provide all relevant information [both in relation to himself or any other individual who is acting as a director and who has not been disclosed, including any person on whose behalf he is acting]; or

  • provided false, misleading or inaccurate information.

In relation to the assessment of their compliance with [the owners' and directors' test in the EFL Rules] (and/or similar or equivalent rules of the Premier League and/or Football Association) at any time, they were found to have:

  • failed to provide all relevant information [both in relation to themselves or any other individual who is acting as a person who has not been disclosed, including any persons on whose behalf they are acting]; or

  • provided false, misleading or inaccurate information

The wording in the Rules is similar here. It gives the EPL and EFL strong powers to ensure accurate information is provided to it in any declaration. If accurate or complete information is not provided, even if it would not have lead to disqualification if provided, a disqualification should result. This goes to the question of integrity.

The test also covers not only formally appointed directors, but also anyone who is not formally appointed as a director but is actually acting as a director or shadow director. A disqualified director/owner cannot act through a "puppet" director/owner.

Competing interests

EPL Rules

EFL Rules

  • Either directly or indirectly he is involved in or has any power to determine or influence the management or administration of another [EPL or EFL club].

  • Either directly or indirectly, he holds or acquires any Significant Interest in a [EPL club] while he either directly or indirectly holds any interest in any class of Shares of another [EPL club].
    Significant Interest is defined to include the holding of a 10% or greater legal or beneficial interest in a club's share capital or a club's voting rights; and the interests of associates, nominees, connected persons and concert parties are grouped together for these purposes.

  • Either directly or indirectly being involved in, or having the power to determine or influence the management or administration of another [EFL or EPL club] unless a dispensation in respect of the same has been granted by [the league] in accordance with Regulation.

  • Either directly or indirectly holding or acquiring any Significant Interest in a [EFL club] while at the same time, either directly or indirectly, holding any interest in any class of shares or securities of another [EFL club] unless a dispensation in respect of the same has been granted by [the league] in accordance with Regulation.
    Significant Interest has a similar meaning to that used in the EPL Rules.

This goes to the integrity of the league. If a person is involved in the management or ownership of two or more clubs, there is an obvious concern if he might take steps to favour one over the other or others.

There are two tests here. One is more specific and limits ownership in a second club in the same league to below 10%. A few years ago, ntl, in connection with its sponsorship and media interests, owned a 9.9% interest in a number of clubs (Aston Villa, Leicester, Middlesbrough, Newcastle, Celtic and Rangers)5. Its ownership was limited by this rule.

The general test is more of a catch-all, to ensure that there is no influence by other means, including for example a right or ability to appoint or direct directors, or influence through contract.

It is noted that the EFL reserves the ability to give a dispensation against the application of this provision. The EPL does not reserve any such power.

Disqualification

EPL Rules

EFL Rules

He becomes prohibited by law from being a director including being disqualified under the Company Directors Disqualification Act 1986.

They are subject to a disqualification order as a director under the Company Directors Disqualification Act 1986… or any like sanction pursuant to similar provisions in any jurisdiction, unless a Court of competent jurisdiction makes an order under that Act permitting an appointment as a director of [an EFL club].

It is fairly obvious that, if an individual is generally prohibited from being a company director, that prohibition also applies to football companies.

The EFL Rules explicitly cover disqualifications outside England and Wales. However, that is also the position under the EPL Rules as it references "law" and is not restricted to the laws of England and Wales.

Criminal convictions

EPL Rules

EFL Rules

He has a Conviction (which is not a Spent Conviction) imposed by a court of the United Kingdom or a competent court of foreign jurisdiction;

  1. in respect of which an unsuspended sentence of at least 12 months' imprisonment was imposed;

  2. in respect of any offence involving any act which could reasonably be considered to be dishonest (and, for the avoidance of doubt, irrespective of the actual sentence imposed);

  3. in respect of an offence set out in Appendix 1 or a directly analogous offence in a foreign jurisdiction (and for the avoidance of doubt, irrespective of the actual sentence imposed);

  4. in the reasonable opinion of [the league], he has engaged in conduct outside the United Kingdom that would constitute an offence of the sort described [in (ii) or (iii) above], if such conduct had taken place in the United Kingdom, whether or not such conduct resulted in a Conviction;

he is required to notify personal information pursuant to Part 2 of the Sexual Offences Act 2003 [the automatic notification procedures for offenders who receive a conviction or caution for certain sexual offences].

Conviction means a court decision that someone has committed an offence or carried out the act with which he has been charged. Unspent Conviction a conviction that has been spent under the Rehabilitation of Offenders Act 1974.

Appendix 1 lists four specific offences:

  1. dishonestly receiving a programme broadcast within the UK with the intent to avoid payment under Section 297 of the Copyright, Designs and Patents Act 1988;

  2. admitting spectators to watch a football match at unlicensed premises under Section 9 of the Football Spectators Act 1989;

  3. being subject to a banning order in accordance with the Football Spectators Act 1989;

  4. ticket touting under Section 166 of the Criminal Justice and Public Order Act 1994;

Having an Unspent Conviction by a court of competent jurisdiction in England and Wales in respect of any offence involving:

  1. a Dishonest Act [being any act reasonably considered to be dishonest];

  2. corruption;

  3. perverting the course of justice;

  4. a serious breach of any requirement under [the Companies Act 1985 or 2006];

  5. dishonestly receiving a programme broadcast within the UK with the intent to avoid payment under Section 297 of the Copyright, Designs and Patents Act 1988;

  6. admitting spectators to watch a football match at unlicensed premises under Section 9 of the Football Spectators Act 1989;

  7. ticket touting under Section 166 of the Criminal Justice and Public Order Act 1994;

  8. any attempt or conspiracy to commit any of the above offences;

  9. having an Unspent Conviction for a like offence to any of the above offences by a court of competent jurisdiction outside England and Wales;

  10. having an Unspent Conviction by a court of competent jurisdiction anywhere in the world (including the attempt and/or any conspiracy to commit the same) which results in a sentence of at least 12 months imprisonment but for the avoidance of doubt, not a suspended jail sentence unless that sentence is subsequently activated for a period of at least 12 months for whatever reason;

  11. being subject to a banning order in accordance with the Football Spectators Act 1989;

  12. in the reasonable opinion of [the league], has engaged in conduct outside the United Kingdom that would constitute an offence of the sort described in [paragraph (x)], if such conduct had taken place in the United Kingdom, whether or not such conduct resulted in a Conviction;

  13. being a Registered Offender [i.e. a person who has to notify personal information to the police under Part 2 of the Sexual Offences Act 2003].

Once again there are similar provisions, split between the general and specific. The football/sport specific offences are understandable. The general offences are also reasonably clear. There might be a few areas of doubt as to what constitutes a dishonest act, but in most cases it is reasonably clear. The list of general offences leading to disqualification has developed and expanded over the last 10 years.

There does need to be a conviction before this disqualification applies, not merely an allegation of wrong doing, or a pending court case. It is only once the court has given a guilty verdict (and in some instances, delivered a sentence) that a disqualification will result. In 2007 Thaksin Shinawatra acquired Manchester City. At the time he was facing various charges in Thailand, but there had been no conviction, so he was not disqualified from making the acquisition. Once it started to become clearer that he would be convicted he sold the club, knowing that he would no longer satisfy the owners' and directors' test.6

More recently, in 2017 Evangelos Marinakis became the owner of Nottingham Forest, despite allegations of involvement in match-fixing in Greece. Again, there was no conviction, so he passed the owners' and directors' test. More recently he has been charged with drug trafficking, which he denies.7

The provisions listed above as (iv) in the EFL Rules and (xii) of the EFL Rules are relatively new, and were introduced as a result of specific concerns arising on a proposed takeover of Southampton by Gao Jisheng, a Chinese businessman who had admitted bribery offences but avoided being charged by giving evidence against others.8 Prior to the introduction of the new rule the EFL would not have been able to prevent him becoming an owner/director. So now the league reserves the ability to judge if the proposed director would have been guilty of a relevant criminal offence under the laws of England and Wales. The league is acting as "judge and jury" in such cases. Here the league is required to exercise a degree of judgement, unlike other parts of the Rules which are more "pass/fail". This rule was previously an objective one, and now it has become more subjective.

Personal insolvency

EPL Rules

EFL Rules

He is subject to personal insolvency proceedings, including:

  1. an individual voluntary arrangement

  2. a debt relief order

  3. an administration order

  4. an enforcement restriction order

  5. a debt management scheme or debt repayment plan

  6. a bankruptcy restriction order or a bankruptcy order

or an equivalent provision in another jurisdiction which has a substantially similar effect.

Personal insolvency proceedings including:

    1. an individual voluntary arrangement

    2. a bankruptcy order or bankruptcy restriction order

    3. a debt relief order

    4. an administration order

    5. an enforcement restriction order

    6. a debt management scheme or debt management plan

    7. or any arrangement or order in any other jurisdiction which has a substantially similar effect

The Rules are identical here, which is not surprising as a bankrupt is prohibited from being a company director until his bankruptcy is discharged.

Corporate insolvency

EPL Rules

EFL Rules

  • He is or has become a Director of [an EPL Club] which while he has been a director of it, has suffered two or more unconnected Events of Insolvency in respect of each of which a deduction of points was imposed [or such an event occurs within 30 days of his resigning as a director of that club]

  • He has been a Director of two or more [EPL or other clubs] each of which, while he has been a Director of them, has suffered an Event of Insolvency in respect of each of which a deduction of points was imposed

Event of Insolvency includes all the normal types of corporate insolvency.

Being a Relevant Person of:

  1. at least two Football Clubs [being any club, and not just an EFL club] that have each been subject to or suffered unconnected Insolvency Events

  2. one Football Club that has been subject to or suffered two unconnected Insolvency Events

on or after 11th June 2004, in respect of each of which a sporting sanction was imposed under Regulation.

For the purposes of the above, a person is a Relevant Person for a club that was subject to a sporting sanction if the relevant Insolvency Event occurred in the 30 days immediately following his having resigned as a relevant person at that club.

The Insolvency Event of a group undertaking alone where the Football Club was subjected to a sporting sanction in accordance with the regulation sporting sanctions of the league regulations, or the applicable rules of the relevant legal association, shall be treated as an Insolvency Event of the Football Club.

Insolvency Event includes all the normal types of corporate insolvency.

Interestingly, these insolvency provisions only relate to football club insolvencies; not general corporate insolvencies. And they only result in disqualification if the league has imposed a points deduction following the insolvency (which is usually the case).

It is also recognised that a single insolvency should not result in a disqualification. There needs to be a "second strike". It is also noted that in the EFL Rules it is made clear that if a club is subject to two insolvencies arising from the same circumstances (such as administration followed by a company voluntary arrangement) that will count as a single insolvency. The EPL Rules refer to “unconnected” Events of Insolvency. "Unconnected" is not defined for this purpose, although it is likely to be interpreted in a similar way to the EPL Rules.

The insolvency test applies to all companies in a club's corporate group. So the insolvency of a single club group company (even if it is not the company which owns the team) will count.

It is also clear that a director cannot escape the application of this provision if insolvency is imminent and he resigns just before the insolvency commences.

Sports ban

EPL Rules

EFL Rules

  • He is subject to a suspension or ban from involvement in the administration of a sport by any ruling body of a sport that is recognised by the International Olympic Committee, UK Sport, or Sport England, or another of the home counties sports councils or any other national or international sporting association or governing body, where such suspension or ban is direct or indirect [for example, a direction that he should not be employed, or contracted or engaged with by those subject to the jurisdiction of such an association or body].

  • He is subject to any form of suspension, disqualification or striking-off by a professional body including, without limitation, the Solicitors' Regulation Authority, the Bar Council or the Institute of Chartered Accountants of England and Wales, [or equivalent bodies outside England and Wales] whether such suspension, disqualification or striking-off is direct or indirect

Being subject to a suspension or ban or other form of disqualification:

  1. from the involvement in the administration of a sport by a Sports Governing Body

  2. or by a professional body (including by way of example, and without limitation, the Law Society, Bar Council, the Institute of Chartered Accountants, equivalent bodies in any other jurisdiction

whether directly or indirectly (for example, the sanction against the individual in particular) or indirectly (for example, a direction to persons subject to the jurisdiction of the sanctioning body that they should not employ, contract with, or otherwise engage or retain the services of the person in question).

The Rules are similar here, as would be expected. Any ban by a sporting authority or professional body will be implemented by the EPL and EFL.

Betting offences

EPL Rules

EFL Rules

He is found to have breached (irrespective of any sanction actually imposed), or has admitted breaching (irrespective of whether disciplinary proceedings were bought or not);

    1. [the EPL Rules concerning offering or receiving a payment or any inducement to or from any club or the official or player of any club in relation to or in connection with betting on an event or the result of a match, or seeking to receive any such payment or other form of inducement from anyone];

    2. any other rules in force from time to time in relation to the prohibition of betting on football (whether in England and Wales or elsewhere).

Being found to have breached (irrespective of any sentence actually imposed) or having admitted breaching (irrespective of whether disciplinary proceedings were brought or not) at any time the rules in force from time to time in relation to the prohibition of betting on football matches in England and Wales.

These Rules are relatively new. Football is continuing to consider its position on betting, and there may be further developments on the betting rules in the future.

The Rules are similar save that the EPL Rules cover breach of football betting rules in any jurisdiction. The EFL Rules are confined to England and Wales.

Intermediaries/Agents

EPL Rules

EFL Rules

He is an Intermediary and/or registered as an Intermediary or Agent pursuant to the regulations of any national member association of FIFA.

Intermediary is defined by reference to the FA Regulations on Working with Intermediaries.

They are an Intermediary and/or registered as an Intermediary or Agent pursuant to the regulations of any national member association of FIFA.

Intermediary is defined as "any person who directly or indirectly represents, negotiates on behalf of, is engaged by, advises or otherwise acts for [a club] or [a player] (other than a solicitor giving professional legal advice only) in the context of either the registration or transfer of the registration of [a player] or the employment of [a player] by [a club] including pursuant to and in accordance with the Football Association’s Regulations on working with Intermediaries".

These Rules are new. The EPL only introduced this rule in the latest version of the EPL Rules published on 30 July 2018. There has been a concern that a group or groups were looking to acquire a club, having already acquired a player agencies or stated an intention to do so, and the potential disruption that could cause to the player transfer market.

Prohibited from entry to the UK

EPL Rules

EFL Rules

No [person] may acquire any Holding in a [EPL club] if, pursuant to the law of the United Kingdom or the European Union:

  • he is prohibited from entering the United Kingdom; or

  • no funds or economic resources may be made available, directly or indirectly, to or for his benefit

For these purposes, Holding means the holding and/or possession of the beneficial interest in, or the ability to exercise voting rights attaching to the voting shares in a club.

No [person] may acquire any Holding in a [EFL club] if, pursuant to the law of the United Kingdom or the European Union:

  • he is prohibited from entering the United Kingdom; or

  • no funds or economic resources may be made available, directly or indirectly, to or for his benefit

For these purposes, Holding has a similar meaning as in the EFL Rules.

It is obviously relatively rare for there to be a banning order in place in relation to an individual looking to enter the UK, but clearly there would be concerns with such a person holding any shares in a club.

General observations

It should be noted that these disqualification categories are detailed and developed. They might be the most detailed owners' and directors' test criteria operating in any football league around the world. Compare for example the equivalent rules applying in the Scottish Premier League. These are much more limited only half a page of text; although they do prohibit players of other clubs and referees from holding shares in a club (which disqualification event is not in the Rules).

There are a few points to note:

  • There is a lot of similarity between the Rules. This is perhaps unsurprising.

  • As stated above these are generally "pass/fail" requirements. There is relatively little room for subjective judgement by the EPL or EFL.

  • Most potential directors/owners should not have difficulty in satisfying these requirements.

It is not clear how many individuals have been disqualified from being a director or owner of an English football club. The declaration process to become a director or owner is confidential. So it is only where an applicant has publically indicated that they are looking to buy a club that information is available. In 2017 Richard Scudamore said that the EPL had turned down prospective buyers for clubs "too many times to mention", and he went on to say that "I wouldn’t have a count of them, that it will run into the tens and probably to the twenties".9

It is also the case on any application that the league will conduct its own investigation, engaging business intelligence companies of the type that are often engaged by financial services organisations or professional service firms in order to investigate and clear prospective customers or clients. In addition to the owners' and director's test, on a club acquisition the EPL will also look at the prospective owners' financial plans for the club. Such plans are tested rigorously. Richard Scudamore has also said that prospective owners "must show they have the financial ability to run the club, although we have to separate that from incompetence and some people don't run clubs very well – but that is not what the owners' and directors' test is about." He also said, "the test is based on two things fundamentally – have you committed any of the crimes that say you cannot possibly own a club, and then it is down to the finances".

Disqualification

Once the league has made a decision in relation to a declaration, and it decides that a person should be disqualified from being a director/owner, it must give written notice:

  • To the individual applicant, giving reasons for the decision, and, in the case of a person who is at that stage a director, requiring him to resign. In the case of the EFL, the individual is required to resign as a director within 28 days of the notice.

  • To the relevant club that the person is disqualified, again giving reasons, and, if the individual is then a director, requiring that the club procure he resigns as a director within 28 days of the notice.

If the club or the director fail to comply with these requirements, it will be in breach of the Rules and will be liable to be dealt with under disciplinary rules for the relevant league.

Under the EPL Rules, if a director, having failed the owners' and directors' test, fails to resign, the club may be suspended until that resignation occurs. During that suspension period, the club will not be able to play matches.

In the case of the EFL, where a club (i) fails three or more times to provide a declaration or update a declaration, or to provide information required by the league, or (ii) intentionally, recklessly or negligently provides a false declaration to the league, or (iii) fails to ensure within 14 days of written notice that a relevant person complies with the requirements of the EFL Rules, the EFL may require the club to transfer its ownership to the EFL company secretary.

In each case these are serious ultimate sanctions.

Appeals

Under both Rules there is a right of appeal. In each case the appellant needs to lodge the appeal setting out full details of the grounds for appeal. In the case of the EPL, the appeal needs to be made within 21 days of notification of the league's decision, and a deposit of £1,000 is required. In the case of the EFL, the appeal needs to be lodged within 14 days.

In each case, there are very specific grounds for the appeal including that the disqualifying condition does not apply. In the case of the EFL Rules, there is also a ground for appeal if a relevant conviction is subject to an appeal that has not been determined, and in the circumstances it is unreasonable for the individual to be disqualified as a director pending the appeal decision. In the case of the EFL Rules, it is also a ground for appeal if there are compelling reasons why the relevant individual should not be prevented from acting as a club director.

Under the Rules, an appeal heard by the relevant league panel/tribunal, who have required to give written reasons for their decision. The appeal tribunal/panel are given relatively wide powers to uphold or reject the appeal.

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About the Author

Richard Barham

Richard Barham

Richard heads both the London Corporate practice, and Sports practice, of Dentons.

Richard's focus is on M&A and corporate work.  He is particularly interested in corporate governance issues, and regularly advises companies and other organisations on how they best operate to achieve good and effective governance standards.

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