Guardian 7/5/08
A simple reason behind the defeat of Leeds' appeal
The club had agreed not to seek legal redress over their 15-point penalty. Then they did regardless.
• David Conn
• The Guardian,
• Wednesday May 7 2008
• Article history
Ken Bates' futile call for Lord Mawhinney, the Football League chairman, to resign after last week's decision over Leeds United's 15-point deduction somewhat deflected attention from the prime reason why Leeds resoundingly lost: the club had given a signed, written agreement that they would not mount a legal challenge, then went back on their word. Last February Leeds did issue high court proceedings against the League, which were referred to arbitration under Football Association rules.
The three-man arbitration panel found that when Leeds emerged from a £35m insolvency last summer Bates agreed to the League's imposition of a 15-point penalty, which was in fact lenient because Leeds could have been expelled or relegated to League Two. Leeds agreed in writing to accept the penalty and promised that while they could appeal to the League's clubs, they would not mount a legal action. Mark Taylor, Bates' solicitor, signed the agreement on Leeds' behalf. "Leeds hereby covenants," said the crucial clause, "that it shall not... commence... any proceedings... before any court [or] arbitration body... against [the League]."
The panel hearing Leeds' appeal therefore decided it was being asked to determine proceedings that the club had promised not to bring. In its ruling, the panel wrote: "The case begins and ends with [the agreement]. There is no basis to allow [the club] not to honour that covenant."
Mawhinney, far from resigning, feels wholly vindicated, and the League has been significantly strengthened. The judgment stated that the League did have the right to impose conditions when Leeds failed to agree a company voluntary arrangement (CVA) after going into administration, and that the 15-point penalty was "reasonable and proportionate". On Leeds' conduct in bringing the case, and Bates' comments, Mawhinney was scathing:
"The fact that Ken Bates personalised it on me was a distraction from the fact they had comprehensively lost every argument," he said. "Leeds agreed to accept 15 points as a condition of playing in League One. They signed the agreement, gave their word, then immediately reneged on it. The arbitration panel were singularly unimpressed with Leeds' behaviour."
The judgment is important beyond the battlements of Elland Road, because it reinforces the League's authority to maintain sanctions for clubs which fail to pay their bills then cut them wholesale when declaring themselves insolvent. Clubs which do that, then fail to exit via a CVA, which requires 75% of creditors to agree, now have as a standard possible sanction the deduction of 25 points - 10 for going into administration, 15 more for failing to agree a CVA. The League argued it did not want the Leeds case to be a binding precedent but Mawhinney acknowledged that 25 points is now "an established fact" and so has set a bar.
In any consideration of the fairness of this, the context has to be remembered. English football, in its greatest boom-time, is leaving millions of pounds unpaid to HM Revenue & Customs, public bodies and utilities, local businesses and, always, St John Ambulance when clubs go bust. The League pointed out that 40 clubs, over half its 72 members, have declared insolvency in recent years. This season Bournemouth, Rotherham and Luton fell into administration and after a sober period following ITV Digital's 2002 collapse, several other clubs' finances are far from pretty.
The League introduced its 10-point automatic penalty for clubs declaring insolvency partly to show that it disapproves and also as a "sporting sanction" so that clubs which cut their debts in this way cannot benefit at the expense of those paying every penny they owe. Many League chairmen who strive to keep their clubs solvent feel vehemently that administration is dishonourable. Several resent Leeds' spending this season on wages and new players - including Neil Kilkenny, signed from Birmingham City for a reported £150,000 - after slashing their debts last summer.
The League's moral compass in negotiating this landscape is skewed by its rule that in any insolvency "football creditors" must be paid in full - meaning, mostly, players' wages to the end of their contracts and transfer fees to other clubs. The League justifies this in terms of "sporting integrity", so that clubs cannot recklessly sign quality players whose wages they cannot realistically afford, then lay them off unpaid when "living the dream" unravels. The rule leads, however, to the deeply unappealing spectacle of multi-millionaire footballers being paid their outlandish salaries in full while "ordinary" creditors must settle for a fraction of what they are owed. In Leeds' administration Danny Mills, who played his final game for the club in May 2003, four years later was still owed £216,667 under his contract and was required to be fully paid. The West Yorkshire Ambulance Service, owed £8,997, was among the creditors whose debts were cut.
The League has survived legal challenges to this rule but understands how appalling it looks. This partly lies behind its insistence that if a club does declare insolvency, it must exit via a CVA agreed by at least 75% of creditors.
Leeds went into administration owing £35m and initially the administrator, Richard Fleming of KPMG, agreed to sell the club back to a consortium fronted by Bates for just 1p in every £1 owed to ordinary creditors. That offer eventually rose to 52.9p in the pound, but Leeds encountered an obstacle which all insolvent clubs can now expect: HMRC, owed almost £7m in unpaid tax and VAT, voted against it.
HMRC officials have for some years been outraged by the rule that footballers get paid in full while the PAYE tax on those salaries can be left unpaid. HMRC votes as a policy against any such football club CVA, so where tax and VAT form 25% or more of a club's debts achieving a CVA is likely to be impossible.
Those Leeds fans who want to believe that the League somehow had it in for them should realise that their club's insolvency is the first the League has faced where a CVA was not agreed. The judgment makes it clear the League wanted to retain Leeds as a member and to allow them to join League One, but was determined to preserve a meaningful insolvency policy.
Ultimately, the League board - whose members represent all three divisions - decided on 15 points. Leeds agreed, accepting in the signed agreement that a CVA, which they failed to achieve, is: "A reasonable ... requirement having regard to the public perception and credibility of the League, the creditworthiness of the member clubs and the integrity of the League's competition."
Leeds vowed not to appeal legally, then did so. Following the judgment the club stated it had only signed the agreement because otherwise it faced expulsion from the League. Last week, while Bates raged, the League was hugely pleased that its rules were upheld. The tribunal recommended that the League should introduce more specific provisions for when a CVA is not achieved, and agreed with Bates that it is "unsatisfactory" for a club to have to appeal to the other clubs, recommending there should be a right of appeal within seven days to an independent tribunal. The League's board is meeting tomorrow to begin to review those rules.
The real scandal of this whole affair is not that Leeds lost 15 points, but that our beloved professional football clubs still overspend, collapse and leave trails of creditors unpaid in the wreckage.
League sets 25-point penalty benchmark for insolvency
• David Conn
• The Guardian,
Football League clubs which fall into insolvency and then fail to exit via a Company Voluntary Arrangement (CVA) can now expect to be deducted 25 points in total, following the upholding last week of a similar sanction imposed on Leeds United. Clubs are expected to encounter this problem increasingly because Her Majesty's Revenue & Customs, always a substantial creditor where football clubs go into administration, is routinely voting against CVAs.
The Football League requires clubs coming out of insolvency to agree a CVA, a settlement which requires acceptance by 75% of creditors. HMRC has long refused to agree to be paid only a proportion of the tax and VAT it is owed while under the League's "football creditors' rule" players' wages, and any money owed to other clubs, are being paid in full.
Leeds incurred the automatic 10-point penalty when the club went into administration last May, then accepted a further 15-point deduction in League One when they failed to achieve a CVA. Having promised in writing not to take legal action, Leeds then initiated proceedings in the high court, seeking to have the 15 points reinstated, and the action was referred to arbitration.
Last week a three-man arbitration panel upheld the 15-point penalty as "reasonable and proportionate" in the circumstances, because Leeds had been seeking to join League One without complying with the rule that they had to achieve a CVA after going into administration.
Lord Mawhinney, the Football League's chairman, said of the ruling that he was very satisfied that the League's authority and rules had been upheld, and that the insolvency policy would continue to apply to the League's clubs.
Mawhinney added that while the League did not want to be bound strictly by the precedent of 25 points having been deducted from Leeds, that sanction is now "an established fact".
Each case will be judged on its merits, but Leeds' 15-point deduction on top the automatic 10-point penalty sets the bar for clubs which go into insolvency and fail to agree a CVA.
A simple reason behind the defeat of Leeds' appeal
The club had agreed not to seek legal redress over their 15-point penalty. Then they did regardless.
• David Conn
• The Guardian,
• Wednesday May 7 2008
• Article history
Ken Bates' futile call for Lord Mawhinney, the Football League chairman, to resign after last week's decision over Leeds United's 15-point deduction somewhat deflected attention from the prime reason why Leeds resoundingly lost: the club had given a signed, written agreement that they would not mount a legal challenge, then went back on their word. Last February Leeds did issue high court proceedings against the League, which were referred to arbitration under Football Association rules.
The three-man arbitration panel found that when Leeds emerged from a £35m insolvency last summer Bates agreed to the League's imposition of a 15-point penalty, which was in fact lenient because Leeds could have been expelled or relegated to League Two. Leeds agreed in writing to accept the penalty and promised that while they could appeal to the League's clubs, they would not mount a legal action. Mark Taylor, Bates' solicitor, signed the agreement on Leeds' behalf. "Leeds hereby covenants," said the crucial clause, "that it shall not... commence... any proceedings... before any court [or] arbitration body... against [the League]."
The panel hearing Leeds' appeal therefore decided it was being asked to determine proceedings that the club had promised not to bring. In its ruling, the panel wrote: "The case begins and ends with [the agreement]. There is no basis to allow [the club] not to honour that covenant."
Mawhinney, far from resigning, feels wholly vindicated, and the League has been significantly strengthened. The judgment stated that the League did have the right to impose conditions when Leeds failed to agree a company voluntary arrangement (CVA) after going into administration, and that the 15-point penalty was "reasonable and proportionate". On Leeds' conduct in bringing the case, and Bates' comments, Mawhinney was scathing:
"The fact that Ken Bates personalised it on me was a distraction from the fact they had comprehensively lost every argument," he said. "Leeds agreed to accept 15 points as a condition of playing in League One. They signed the agreement, gave their word, then immediately reneged on it. The arbitration panel were singularly unimpressed with Leeds' behaviour."
The judgment is important beyond the battlements of Elland Road, because it reinforces the League's authority to maintain sanctions for clubs which fail to pay their bills then cut them wholesale when declaring themselves insolvent. Clubs which do that, then fail to exit via a CVA, which requires 75% of creditors to agree, now have as a standard possible sanction the deduction of 25 points - 10 for going into administration, 15 more for failing to agree a CVA. The League argued it did not want the Leeds case to be a binding precedent but Mawhinney acknowledged that 25 points is now "an established fact" and so has set a bar.
In any consideration of the fairness of this, the context has to be remembered. English football, in its greatest boom-time, is leaving millions of pounds unpaid to HM Revenue & Customs, public bodies and utilities, local businesses and, always, St John Ambulance when clubs go bust. The League pointed out that 40 clubs, over half its 72 members, have declared insolvency in recent years. This season Bournemouth, Rotherham and Luton fell into administration and after a sober period following ITV Digital's 2002 collapse, several other clubs' finances are far from pretty.
The League introduced its 10-point automatic penalty for clubs declaring insolvency partly to show that it disapproves and also as a "sporting sanction" so that clubs which cut their debts in this way cannot benefit at the expense of those paying every penny they owe. Many League chairmen who strive to keep their clubs solvent feel vehemently that administration is dishonourable. Several resent Leeds' spending this season on wages and new players - including Neil Kilkenny, signed from Birmingham City for a reported £150,000 - after slashing their debts last summer.
The League's moral compass in negotiating this landscape is skewed by its rule that in any insolvency "football creditors" must be paid in full - meaning, mostly, players' wages to the end of their contracts and transfer fees to other clubs. The League justifies this in terms of "sporting integrity", so that clubs cannot recklessly sign quality players whose wages they cannot realistically afford, then lay them off unpaid when "living the dream" unravels. The rule leads, however, to the deeply unappealing spectacle of multi-millionaire footballers being paid their outlandish salaries in full while "ordinary" creditors must settle for a fraction of what they are owed. In Leeds' administration Danny Mills, who played his final game for the club in May 2003, four years later was still owed £216,667 under his contract and was required to be fully paid. The West Yorkshire Ambulance Service, owed £8,997, was among the creditors whose debts were cut.
The League has survived legal challenges to this rule but understands how appalling it looks. This partly lies behind its insistence that if a club does declare insolvency, it must exit via a CVA agreed by at least 75% of creditors.
Leeds went into administration owing £35m and initially the administrator, Richard Fleming of KPMG, agreed to sell the club back to a consortium fronted by Bates for just 1p in every £1 owed to ordinary creditors. That offer eventually rose to 52.9p in the pound, but Leeds encountered an obstacle which all insolvent clubs can now expect: HMRC, owed almost £7m in unpaid tax and VAT, voted against it.
HMRC officials have for some years been outraged by the rule that footballers get paid in full while the PAYE tax on those salaries can be left unpaid. HMRC votes as a policy against any such football club CVA, so where tax and VAT form 25% or more of a club's debts achieving a CVA is likely to be impossible.
Those Leeds fans who want to believe that the League somehow had it in for them should realise that their club's insolvency is the first the League has faced where a CVA was not agreed. The judgment makes it clear the League wanted to retain Leeds as a member and to allow them to join League One, but was determined to preserve a meaningful insolvency policy.
Ultimately, the League board - whose members represent all three divisions - decided on 15 points. Leeds agreed, accepting in the signed agreement that a CVA, which they failed to achieve, is: "A reasonable ... requirement having regard to the public perception and credibility of the League, the creditworthiness of the member clubs and the integrity of the League's competition."
Leeds vowed not to appeal legally, then did so. Following the judgment the club stated it had only signed the agreement because otherwise it faced expulsion from the League. Last week, while Bates raged, the League was hugely pleased that its rules were upheld. The tribunal recommended that the League should introduce more specific provisions for when a CVA is not achieved, and agreed with Bates that it is "unsatisfactory" for a club to have to appeal to the other clubs, recommending there should be a right of appeal within seven days to an independent tribunal. The League's board is meeting tomorrow to begin to review those rules.
The real scandal of this whole affair is not that Leeds lost 15 points, but that our beloved professional football clubs still overspend, collapse and leave trails of creditors unpaid in the wreckage.
League sets 25-point penalty benchmark for insolvency
• David Conn
• The Guardian,
Football League clubs which fall into insolvency and then fail to exit via a Company Voluntary Arrangement (CVA) can now expect to be deducted 25 points in total, following the upholding last week of a similar sanction imposed on Leeds United. Clubs are expected to encounter this problem increasingly because Her Majesty's Revenue & Customs, always a substantial creditor where football clubs go into administration, is routinely voting against CVAs.
The Football League requires clubs coming out of insolvency to agree a CVA, a settlement which requires acceptance by 75% of creditors. HMRC has long refused to agree to be paid only a proportion of the tax and VAT it is owed while under the League's "football creditors' rule" players' wages, and any money owed to other clubs, are being paid in full.
Leeds incurred the automatic 10-point penalty when the club went into administration last May, then accepted a further 15-point deduction in League One when they failed to achieve a CVA. Having promised in writing not to take legal action, Leeds then initiated proceedings in the high court, seeking to have the 15 points reinstated, and the action was referred to arbitration.
Last week a three-man arbitration panel upheld the 15-point penalty as "reasonable and proportionate" in the circumstances, because Leeds had been seeking to join League One without complying with the rule that they had to achieve a CVA after going into administration.
Lord Mawhinney, the Football League's chairman, said of the ruling that he was very satisfied that the League's authority and rules had been upheld, and that the insolvency policy would continue to apply to the League's clubs.
Mawhinney added that while the League did not want to be bound strictly by the precedent of 25 points having been deducted from Leeds, that sanction is now "an established fact".
Each case will be judged on its merits, but Leeds' 15-point deduction on top the automatic 10-point penalty sets the bar for clubs which go into insolvency and fail to agree a CVA.
