First published on Keep Calm Talk Law in August 2020

Football has traditionally been perceived as a working-class sport but has also been a vehicle for those with wealth and influence to attain higher social standing within the local and broader community. Football clubs at all levels are primarily limited companies - in 1888 Birmingham City FC (then known as Small Heath FC) became the first to set up this way. Historically clubs were owned by wealthy local business people and provided those owners with elevated standing within the local community while providing clubs with much-needed investment.

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In the modern era, the ever-increasing commercialisation of football has attracted global audiences. which has attracted greater international investment into football clubs. In an attempt to regulate investment into English football clubs, the English Football League (EFL) and the FA Premier League (FAPL) introduced the ‘Fit and Proper Persons Test’ (FAPPT) in 2004 to cover the clubs in their competitions, with the Football Association introducing their own version in 2005 to cover non-league and women’s football.

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The Fit and Proper Persons Test has evolved into what is now the Owners and Directors Test (ODT), applying company law concepts about the eligibility of company directors onto aspiring club owners and directors. However, recent high-profile takeovers and scandals involving the likes of Newcastle United, Bury, and Charlton Athletic have called into question the efficacy of the ODT and the possible need for reform.

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The ODT and Its Evolution

The current regulatory environment has significantly evolved since the late 1800s when football experienced exponential growth in popularity in the United Kingdom. Many football club owners were local businesspeople re-investing in their local communities, and the ownership stakes of clubs were often family assets. Early football administrators were steeped in the Victorian concepts of philanthropy, mutuality, and community.

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In 1899 the FA introduced Rule 34, which stated that a director of a club could not take a salary, nor could they be remunerated more than 5% of the share’s face value. It also ensured that funds remaining after the liquidation of a club were shared among other local sports clubs, which prevented owners asset-stripping clubs. This meant owning a football club was not a financially rewarding investment.

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Owners eventually found ways around Rule 34, often by creating a holding company which ‘owned’ the football club as a subsidiary of the holding company. This meant the holding company was unfettered by Rule 34 and allowed owners to pay dividends. The FA eventually removed the restrictions on dividend payments in 1998 but retained the restriction on an owner being able to asset strip a club by selling the ground. This did not completely prevent controversial owners such as Douglas Craig at York City, who attempted to asset strip the club by selling the ground, or Ken Richardson at Doncaster Rovers who attempted to burn down the club’s ground in attempted insurance fraud.

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The ‘Fit and Proper Persons’ Test (FAPPT)

The first versions of the FAPPT in 2004 and 2005 introduced objective criteria that prospective owners and directors had to fulfil to own or join the board of a football club. The test was based on the basic company law duties of directors as set out in the Company Directors Disqualification Act 1986 (CDDA 1986) and the Companies Act 1985 (amended to include the Companies Act 2006). These included bars on those who have committed any indictable criminal offence in the UK or overseas relating to company law (S.2 CDDA 1986), bars on those who have committed fraud in winding up of a company (S.4 CDDA 1986), and provisions relating to bankruptcy and insolvency events (S.11 CDDA 1986). They also bar those with unspent convictions for a narrow range of other dishonesty-related criminal offences such as theft, false accounting and insider dealing among 24 offences in a five-page list at Appendix 12 of the FAPL ODT.

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It is notable that both versions primarily focused on financial and dishonesty offences rather than criminal offences more generally. This seemed to imply that a person with convictions for violent offences such as grievous bodily harm may be able to pass the test if they had not committed one of the specified offences in the Rules. The FAPL moved away from this prescriptive approach in 2009 following some controversial club purchases, such as former Thailand Prime Minister Thaksin Shinawatra’s purchase of Manchester City. Shinawatra had been accused of human rights abuses during his tenure as Prime Minister.

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The Current Version(s) of the ODT

The versions of the ODT in operation at the FA, FAPL, and EFL are broadly the same in what they require of a prospective club owner or director, but each version is only applicable to clubs who operate within their competition jurisdiction. The FA ODT applies to clubs in the non-league pyramid below the EFL and the professional Women’s game. The EFL ODT applies to clubs playing in the English Football League (the Championship, League One, and League Two), and the FAPL ODT applies only to those playing in the Premier League. This article will focus initially on the FA version, then look at how the FAPL and EFL differ in substance.

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Definitions

Section 1 of the FA ODT details the definition of a ‘dishonest act’. Under the FA ODT, it defines this as “any act which would be reasonably considered to be dishonest”. The regulations do not define this further but is presumed to include the civil law dishonesty standard outlined in Ivey v Genting Casinos.

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Ivey overruled the test for dishonesty set out in R v Ghosh. Ghosh stated the conduct must be dishonest by the standards of ordinary, reasonable and honest individuals (an objective limb), and the accused must have realised their conduct was dishonest by those standards (a subjective limb). In Ivey, the UK Supreme Court removed the subjective limb of Ghosh. This now means that if an act would be dishonest to an ordinary, reasonable individual, it will be dishonest.

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These ‘dishonest acts’ also include football-related offences such as betting on football matches, match-fixing and ticket touting. In effect, this creates a slightly higher bar for potential club owners and directors to overcome.

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The definition of ’director’ in the FA Handbook covers the statutory definition under the Companies Act 2006 and extends to persons considered ‘shadow directors’. A shadow director is anyone who has real influence in the company’s affairs even though they may not have an official position within the company, as per Section 251(1) Companies Act 2006. This could be someone like a club owner or an advisor to the club owners who act in a behind the scenes capacity.

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Likewise, an ‘Officer’ of a member club under the ODT is broadly defined – they may be a director, but could also be a member of senior management or a person exercising similar duties under whatever job title (or no job title at all), much like a shadow director.

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Disqualifying Conditions

Section 2 states that anyone subject to a ‘Disqualifying Condition’ from 1 August 2013 may not become an Officer within a member club. Prospective Officers must sign a declaration stating that they are not subject to any of the Disqualifying Conditions, which include:

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• Having an ownership stake of more than 5% in another member club

• Disqualification under the Company Directors Disqualification Act 1986

• Unspent criminal convictions resulting in more than 12 months’ imprisonment

• Unspent convictions for dishonesty offences

• Unspent convictions for football-related offences

• Undischarged bankruptcy or insolvency proceedings

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Section 2 also gives the FA the power to publish – in the press or online - its considerations and the outcomes of its considerations concerning the ODT Regulations.

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Section 3 states that a would-be officer must use their best endeavours to submit a completed declaration within 14 days of the date they anticipate to begin their role as an Officer, and cannot act in that capacity until they receive written confirmation declaring them fit to act in the role. It also places an obligation upon clubs to report when an Officer becomes subject to a Disqualifying Condition and to provide full details within three working days of becoming aware. The FA then have the power to instruct the club to remove that Officer within seven days of the date of the instruction being given by the FA.

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Penalties

Section 4 outlines the disciplinary provisions for contravention of the regulations. Offences relating to false or late submissions of Schedule one declarations face fixed fines relative to what league competition the club plays in, and how late the submission is. These are strict liability offences and provide no right of appeal.

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The FA also has the power under Section 4.3 to instigate disciplinary proceedings, where they have the power to impose additional sanctions if necessary. Under Section 5 the league has the power to suspend a club’s league membership if they fail to remove a disqualified officer. Section Six allows for narrowly defined avenues of appeal where the breach relates to the FA’s failure to provide confirmation of the receipt of the declaration under section 3.1.2, where the FA issues an order to remove an officer under section 3.2.2, or where the FA seeks to suspend a clubs membership under section 5.1. A club will only be successful if it can show that the Disqualifying Condition did not or no longer applies.

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Other Versions of the ODT

The English Football League (EFL) and FA Premier League (FAPL) ODTs are substantially similar to the FA ODT in what they ask of an aspiring owner or director, but the FAPL ODT contains one very significant difference. Rule F.1.6 gives the FAPL Board the right to disqualify an aspiring owner or director if they have engaged in conduct outside the UK that would constitute an offence like those listed in Schedule One of the FA ODT, regardless of whether that conduct resulted in a conviction or not.

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Whereas the FA ODT speaks only of ‘convictions’, Rule F.1.6 refers to ‘conduct’. This makes the test significantly broader than the FA ODT. This creates a more subjective element to the test than previously assumed, as it creates an obligation upon the Board to consider conduct that is not necessarily criminal in the jurisdiction where it takes place and to assess it under a different set of laws and jurisprudence and decide whether it would be illegal in England and Wales. This allows the Board a reasonable margin of discretion to use their own subjective judgment on issues like those surrounding Thaksin Shinawatra prior to his purchase of Manchester City, which was not covered under previous, more prescriptive policies.

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The ODT in Practice

Newcastle United

There was considerable controversy over the FAPL ODT after the collapse of Newcastle United’s recent proposed takeover headed by Saudi Arabia’s Public Investment Fund (PIF), along with Amanda Staveley’s PCP Capital and the Reuben Brothers.

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The primary reason for the deal collapsing was the Premier League’s concerns about the relationship between the PIF and the Saudi Arabian government, as the PIF is a sovereign wealth fund whose chairman is Mohammed bin Salman Abdulaziz Al-Saud, the Crown Prince of Saudi Arabia. The PIF is required under Saudi law to report directly to government ministers on the Council of Economic and Development Affairs (“CEDA”). CEDA is a sub-cabinet that oversees all economic and developmental affairs of the KSA and is headed by the Crown Prince.

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The Saudi government has been accused for many years of perpetrating human rights abuses and has also been accused of enabling the piracy of FAPL broadcasting rights held by Qatar-based television company beIN Sport, a complaint that was partially upheld by the World Trade Organisation in that the WTO held that the Saudi government failed to protect beIN Sports intellectual property, and actively prevented Qatari representatives from using Saudi law firms to enforce their rights. The WTO however found no solid evidence to demonstrate that the Saudi government were responsible for the piracy, although they found it was perpetrated by Saudi nationals.

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It is this proximity of relationship between the PIF and the state that concerned the FAPL Board, as well as the connection to piracy of FAPL broadcasting rights. Although the PIF is a separate legal entity they were unable to demonstrate to the FAPL’s satisfaction a suitable level of directorial independence. The normal ODT declaration process takes around 14 days to complete, but in the Newcastle case, it took around four months and had yet to be completed before the PIF withdrew from the process.

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It could be argued that this is an example of the ODT working as it should to weed out undesirable owners, but the likelihood is that the objection to the takeover was as much commercial as it was moral, due to the FAPL’s concerns about the theft of their intellectual property in Qatar. The FAPL made representations to this effect during the WTO arbitration panel during the proceedings. Many, such as Amnesty International, argue that this is the right result but for the wrong reasons.

 

Bury FC

A further example of the failings of the ODT would be the collapse and subsequent ejection from the EFL of Bury FC in 2019. The club collapsed following Steve Dale’s purchase of the club for £1 from previous owner Stewart Day. The club became insolvent during Day’s tenure due to the financial difficulties of Day’s property development business, Mederco, which was effectively used to fund the club. The club had also entered into several high-interest loans which used Gigg Lane, the club’s stadium, as security for the loan. The club was heavily dependent on injections of working capital from its owners, which left it vulnerable when Mederco collapsed in 2018.

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When he acquired the club from Day, Steve Dale failed to provide proof of funding as required by the EFL Future Financial Information (FFI) requirements. Where there is a proposed change in Control, the Club must submit 'up to date Future Financial Information' (meaning projected profit and loss accounts, cash flow data, balance sheets, and relevant explanatory notes), for the period covering the current season (or what remains of it) and all of the following season. In short, the new owner must prove that he or she has access to sufficient cash to fund the operations of the Club in accordance with a disclosed business plan for the current and following season.

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The crucial aspect of the FFI requirements is at 16.21.1, where it states that the FFI must be provided as far in advance of the change of Control as reasonably possible or, if such submission is not reasonably practicable prior to the change of Control, no later than 10 Normal Working Days thereafter'. However, there is no requirement in the ODT for proof of funding to be provided before that person or entity has acquired control of the club (nor did the ODT consider Mr Dale’s track record of businesses going bust), and the FFI itself is a loose restriction based on what is ‘reasonably practicable’.

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This creates an obvious loophole in insolvency cases such as Bury FC’s, where deals are done at speed. Dale was able to legally acquire Bury FC despite his continuing subsequent failure to demonstrate that he has the funding to run the club sustainably, and according to a report into Bury’s collapse by Jonathan Taylor QC, without even passing through the ODT until after he had already purchased the club.

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A similar situation threatened to develop at Charlton Athletic following the equally controversial purchase by East Street Investments (ESI), where ESI failed to demonstrate proof of funds and three potential directors were also rejected by the EFL. The club’s continued failure to provide the FFI information threatened their place in the EFL until Thomas Sangaard’s recent takeover of the club.

 

Conclusion

The ODT in its various forms suffers from the perception of ineffectiveness. This stems from its perceived inability to prevent bad or undesirable owners from successfully acquiring clubs. The previous controversies at clubs such as Portsmouth, Leeds United, Bury and Charlton Athletic raise difficult issues for football’s regulators.

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Jonathan Taylor QC’s review in the wake of Bury’s ejection from the EFL raised serious concerns with the ODT rules, particularly in relation to lower leagues (the Championship and Premier League have more stringent requirements), and said this about the Bury case:

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‘There is no doubt that the EFL applied the OAD Test properly in relation to Mr Day and Mr Dale. The question is whether the test as currently written is fit for purpose. In particular, it only looks at a narrow list of objective criteria, and does not take into account various other factors that speak to whether a new owner or director is a fit and proper person to own/run a member Club.’

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The review recommends taking a broader view of would-be Officers, including the amount of corporate insolvencies they have been involved with, and a more in-depth look at proof of funding and business plans before they take control of the club. It also recommends more fluid monitoring and compliance checks of at-risk clubs and those who have been subject to a change of ownership.

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These recommendations would be important additions, but the most important might be a more robust subjective element to the test which takes into account reputational issues that a potential club owner may have even if they were not subject to any kind of criminal or regulatory sanction. There would need to be safeguards to ensure that a potential new owner could not be rejected on discriminatory or malicious grounds, but there does seem to be a need – or at the very least a demand from fans – for some return to the original conception of club ownership, with a greater form of moral judgement on the part of the regulatory authorities to maintain the integrity of the game, and to ensure those who look after clubs on behalf of fans are those with the competence, knowledge, and ethical compass to ensure that those clubs are properly looked after for many years to come.