Is football's owners' & directors' test fit for purpose?
Published 21 January 2015 By: Richard Barham
When a new prospective owner of an English football club hoves into view, the question is often raised, particularly if the prospective owner is portrayed (rightly or wrongly) by the media as a "shady character", as to whether he is a fit and proper person to run a football club, and whether he will or should pass the relevant owners' and directors' test.
Test Under Premier League, the Football League and the Football Association Rules
The Premier League, the Football League and the Football Association all have separate and different owners' and directors' tests.1 However, one thing that all the tests have in common, is that they are objective tests. There are essentially a number of boxes that need to be 'ticked' in order for a person to pass the tests, and be deemed a fit and proper person to be involved in the management or ownership of a football club. The tests all require, to all intents and purposes, simple yes/no answers, and they focus on a number of areas, covering various which include unspent criminal convictions, involvement in other clubs (including insolvent clubs), breach of certain league rules, sports bans, bankruptcy, and professional misconduct. So, for example, the rules ask if an individual has been disqualified by law from being a director under the Companies Disqualification Act 1986, or has been convicted of a dishonesty-based offence in either the UK courts or the competent courts of a foreign jurisdiction. If the individual has, he is deemed to be an unfit person to run a club and will fail the test unless they are spent under the Rehabilitation of Offenders Act 1974.2 The tests are applied strictly to the letter of the rules.
These are all objective tests, applied formulaically, and most individuals would not find it difficult to pass them. In fact, there have been very few individuals who have been prohibited from being a director or owner of an English club for failing the relevant test.3 This has lead to a view expressed by some that, given the lack of disqualifications, the test is not sufficiently rigorous, especially where individuals who are portrayed as unfit have managed to pass the test. Also, in a number of cases owners and directors have stood down before the test has been applied to them by the relevant League or Association.4
Case: Leeds Untied and Massimo Cellino
An interesting case in point, is the recent acquisition of Leeds United by Massimo Cellino. Mr Cellino has certainly been portrayed in the English press as an untrustworthy character, and arguably not someone who should run a club. Mr Cellino has been successfully prosecuted in the Italian courts for tax evasion in relation to the acquisition of a luxury yacht. A court judgment has been given against Mr Cellino, but it is understood that he is seeking to appeal the verdict. Initially the Football League found that Mr Cellino had been convicted of an offence involving dishonest conduct, and hence should be barred from being an owner or director under the Football League's rules. However, on appeal5 Cellino's lawyers convinced Mr Tim Kerr QC to uphold Mr Cellino's appeal against the League's decision.6 Specifically, the Italian court judgment in its summary did not provide "enough factual information to reach the conclusion that what [Mr Cellino] was convicted of was conduct which would reasonably considered to be dishonest." Mr Kerr therefore ruled: "I conclude that it would not be reasonable on the evidence before me to consider Mr Cellino's conduct to be dishonest and that accordingly he is not subject to a Disqualifying Condition. It follows from my reasoning above that if the reasoned ruling of the court in Cagliari discloses that the conduct of Mr Cellino was such that it would reasonably be considered to be dishonest, he would become subject to a Disqualifying Condition. But that is not a matter before me."
Nevertheless, after obtaining the full Italian judgment, the Football League concluded that in fact Mr Cellino had been convicted by the Italian courts for conduct that "would reasonably be considered to be dishonest"7 and re-imposed the ban. Mr Cellino challenged this ruling but his appeal has recently failed.8 He is currently considering his position. The decision means that he is prohibited from having anything to do with the ownership or running of Leeds until 10 April 2015 (when his conviction will be deemed to be spent).
Case: Manchester City and Thaksin Shinawatra
Another interesting case in point was Thaksin Shinawatra when he brought an interest in Manchester City.9 At that time, he was being pursued by the Thai authorities for various alleged criminal offences. However, whilst a case was passing through the Thai courts, no conviction had been made and no sentence passed. For understandable reasons, a conviction is needed for an individual to fail the "criminal" elements of the test.10 In addition, at that time, the new Thai regime was not recognised by the UK. So even if there had been a conviction, it was questionable at the time whether Mr Shinawatra would have failed the test.
Both the above cases demonstrate the strict application of the wording of the rules, and arguably the limitations of the objective tests.
Should a more subjective test be introduced?
So, does more need to be done? Should we move away from the 'tick box' structure of the existing tests. In particular, should there be a more subjective test? If so, how should that test be framed? Ultimately, what characteristics or activity points towards an individual failing the owners' and directors' test
How is the decision-making process to be changed? Should it simply left to a panel of relevant "experts" to make the judgement? Or should there be guidance given to the panel as to what constitutes an appropriate person to run a club, to determine what are the expected characteristics of the 'right' type of owner? Who should be invited to sit on the panel? Should it simply be others involved in the game for a length of time? Or should it be a narrower group of individuals who have been involved in club ownership? Should an independent entity be appointed to make a thorough and impartial investigation on an individual and report back to the panel?
Any subjective test is likely to mean that it will take longer to form a judgement, as more needs to be taken into account and there needs to be some discussion amongst the panel, and that needs to be factored into the process for obtaining clearance. In addition, under the current rules, it is a requirement for the relevant club to apply for clearance on behalf of an individual.11 So, in the case of a takeover, it is often quite late in the process before the club actually makes the application. Should it be opened to a relevant individual to seek clearance earlier so an application can be made sooner in the process; in which event there may be a greater number of applications than currently. Also, how will the appeal procedure work? If a subjective judgement has been made, then there must be greater likelihood of an appeal by affected parties.
In addition, if more individuals are going to fail the owners' and directors' tests, where does that leave the relevant club? Often an owner is looking to exit a club for reasons that commonly relate to a lack of ongoing resources, a desire to continue to provide finance to fund the club, or a recognition that the dream of owning a football club has not worked as expected. In such circumstances, if there is a move to a subjective test that could result in fewer individuals being approved, and there may be fewer club sales. In that event, what is going to happen to the club itself where it has an owner that wants to exit? The risks of financial difficult could well increase.
The owners' and directors' tests applied by the leagues undoubtedly do lack some bite given the relative ease with which they are met. However, giving those tests some real teeth will raise a large number of issues, are likely to involve significantly increased costs, and will not necessarily create an easier or quicker process, and indeed the results may not be as desired. Any plan to move to a more subjective test will therefore require careful thought.
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- Tags: Corporate Law | Criminal Law | England | Football | Football Association | Football Association Owners and Directors Test 2014-15 | Football League | Governance | Italy | Premier League | Premier League Rules | Regulation | Rehabilitation of Offenders Act 1974 | Thailand | The Football League Regulations
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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.