What Constitutes a ‘Director’? Part 2: The Pompey Angle

By on Oct 4, 2012 in Finance, Latest | 3 comments

The Football League’s Owners’ and Directors’ Test Rule Book must be looking a bit battered by now, what with the role of those called Chairman and those not called Directors being called into question. Yesterday Peter Ridsdale, despite being chairman in name, is claimed not to be one with any influence. The niceties of this position, keenly highlighted by news of his disqualification from directorship in court, have been discussed in detail by Ian King.

The reverse is more often the truth, with clubs being somewhat more covert about who is and is not the powerhouse in their affairs. Undeclared owners (a la Leeds until recently) and faceless corporations (Coventry), BVI registered companies (many and legion) and layers of holding companies obfuscate and confuse the League’s rules in their complexity. When Southampton went into administration in 2009 long and febrile were the debates as to whether it was really the club or their parent company, Southampton Leisure Holdings plc, that was actually insolvent. There are those who still feel the 10 point deduction in this case was against the rules as they stood.

After the first Premier League case of insolvency with Portsmouth’s 2010 period of Administration there was some revision of the Premier League ‘Fit and Proper Persons’ Test. Such was the complexity of the intertwining ownership connections at Pompey that in February 2010 it was taken over by people who had not, it seemed, passed the Fit and Proper Test before seizing control. Within three weeks Balram Chainrai and Levi Kushnir had placed Pompey in administration to ‘protect their own position’ as creditors of the club’s parent company, Falcondrone, to whom they claimed to have loaned £17m in exchange for which their BVI registered company Portpin held a fixed and floating charge on all assets of Portsmouth Football Club.

Interestingly, prior to this ownership, Portsmouth had been fined around £1m by the Premier League for operating with a convicted fraudster as a shadow director. Daniel Azougy had charge of Pompey’s finances during the ownership of the ever-absent Ali Al Faraj from October 09 to January 10. No one involved with either Falcondrone or PFC at the time has ever admitted to actually appointing him to the job.

A visit from fans’ protest group SOS Pompey to the Premier League in February 2010 revealed that the League were well aware of the complexity of the ownership situation. From the discussion with the group it seems the new Owners and Directors Test was born. In it was included the ‘double jeopardy rule’ wherein any director involved in two administrations of any football clubs would automatically fail the test. The purpose of the rule was to stop people benefiting more than once from putting a club into administration ‘to protect their own position.’ (See here: under Disqualifying Conditions – clause (m).) The Football League consequently adopted the same test.

In October 2010 Portpin bought Pompey out of administration and in June 2011 sold the club on to parent company CSI, owned mostly by the errant Vladimir Antonov. The deal for this sale was one of payment by instalments. Portpin held a £17m debenture over the club which it seems CSI were to clear when theyhad finally paid £17m to Portpin sometime in 2013. Antonov’s financial collapse  and alleged criminality stopped that in its tracks within six months. With Antonov’s assets frozen CSI, and consequently Pompey, were starved of funds. A payment to Portpin was missed. In return Portpin placed a charge on CSI for the money owing on PFC forcing CSI into administration. Many arguments were made for this being a different case to that of Southampton as quoted above, but the Football League have never formally ruled on the situation. They did not need to at the time as within three months Portsmouth Football Club were forced into administration, starved of the cash input that had been maintained by CSI. Portpin retained their fixed and floating charge on the club and in so doing became secured creditors and having protected position in that respect. Their charge on CSI also makes them the unsecured creditors of Pompey to the tune of the £10.5m owed by Pompey to CSI. It gives them a powerful amount of influence in respect to the CVA settlement of the club. Pompey are the greatest viable asset of CSI remaining in its portfolio.

In the December following CSI’s administration Portpin made a payment of £250,000 towards running costs of PFC. They were advised that their best option was to keep the club afloat and sell it as a going concern in the Championship for the best return on their debt. A sum of £2 – 2.5m would have achieved this. In January 2011 Portpin chose to withdraw from funding the club further in the full knowledge that the club would no longer be able to trade. As secured creditors of both the club and its parent company their position was safe.

Like Ridsdale’s real or unreal Chairmanship of PNE, this situation puts an undeniable strain on the Football League’s interpretation of who is and who is not a director of a football club. The regulations state in their definition of a ‘club director’ the following clauses:

(g) a person in accordance with whose directions or instructions the persons constituting the management of the Club are accustomed to act;

(h) a person who exercises or is able, legally or beneficially, to exercise Control over the affairs of the Club,

but excluding any legal or professional advisers acting in their legal or professional capacity without any interest (in excess of a 5% shareholding) in the Club other than as its advisers.

The question in Pompey’s case is ‘did the actions of Portpin exercise control over the affairs of the club?’ and was that control in effect the decision to place the club in administration ‘in order to protect their own position’? Were they in a position of ‘persons in accordance with whose directions the management of the club were accustomed to act’? It is highly likely that there is evidence in front of the Football League that suggests exactly that.

The Football League are placed in an unenviable position. Portpin have a bid on the table to become owners of PFC for the third time. PNE are claiming their chairman has no influence. Yet both fall under the umbrella of shadow director as outlined by the above clauses. The rules were deliberately kept broad enough to catch all eventualities of such control being exercised at League clubs. The rules are open to interpretation as a consequence.

No surprise then that the Football league replies to the queries of anxious Pompey fans with the statement that, ‘It is for the Administrator to select his preferred bidder for the club. The Administrator is aware that any such bidder must meet The Football League’s requirements including the terms of the Owners’ and Directors’ Test. Once the preferred bidder has been selected the matter will be considered formally by the League Board.’ It is difficult to avoid the thought that the buck is being passed somewhat.

The Football League have the opportunity to demonstrate real intent to improve the governance of ‘the worst governed sport in the UK.’ They need to seize the opportunity for action to back their words of intent.

By their fruits we shall know them.

 

The Pompey Supporters’ Trust is still taking pledges to help the bid. Details can be found here

You can follow SJ Maskell on Twitter by clicking here.

You can follow Twohundredpercent on Twitter by clicking here.

 

 

 

 

http://www.football-league.co.uk/regulations/20110629/appendix-4_2293633_2128219

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    3 Comments

  1. Surely if Trevor Birch reads this (and Micah Hall’s ongoing expose) it must be completely IMPOSSIBLE for him to select Portpin as the preferred buyer. It must be obvious to anyone that Portpin (Chainrai & Kushnir) do not qualify under the Football League’s current rules for “Owners and Directors” If he goes ahead and chooses them in these circumstances I would have thought that any other bidders would be adversely affected and PKF could be sued by them and also by any other creditors.

    Joe - Vancouver Canada

    October 4, 2012

  2. Sounds to me like the FL have fudged their opportunity to draw up up clear rules that are NOT open to interpretation. And the result of that fudge has come back to bite them on the backside before the ink has hardly had time to dry.
    In Formula 1, fans may not like the hyper-technical nature of the rules that govern the sport but govern they do. The participants know full well the consequences of straying outside those strict laws and as such, the sport functions successfully. In contrast, the paralympics got itself into a right tangle this summer with rules that were not tight or specific enough.
    Why do the rules need to be so tight? Because sport is a business first and an entertainment second. Notions of ‘sporting’ behaviour belong to a bygone era. If there is a loophole, not matter how small, exploit it, if there is a way to find an edge through a small technicality, use it. In other words, cheat if you can.
    With Portpin, we are dealing with a company who are not interested in sport anyway. So the delay in making a decision over Pompey is nothing to do with Birch. It is a problem that has been kicked down the road to land at the front door of the FL who are now faced with a huge problem of their own making.

    DINKSY

    October 4, 2012

  3. A nice piece. Hope that the PST have the money to take over.

    Saintsfan

    October 4, 2012

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