Mark Murphy looks into the circumstances surrounding the takeover of Birmingham City, which aren’t necessarily as straightforward as you might have initially thought.

The smell of lawyers hangs heavy in the air. Former Birmingham City co-owner David Sullivan has apologised for some nasty things he’s said about successor Carson Yeung, and when someone like David Sullivan apologises it’s probably because there’s money to be lost otherwise. Recent attempts to close the tedious “war of words” between old and new regimes – an over-the-top mea culpa in letter form in the Birmingham Mail – reeked of litigation limitation. The natural reaction to most things Sullivan says is “why don’t you just shut up?”, but when he lambasted Carson Yeung and the new Birmingham regime over their allegations of financial impropriety at Birmingham since 2007 he, for once, had a point.

Miffed at finding unpaid bills worth enough to cover a bionic man in the 1970s, Yeung and his people have called in the West Midlands Police (who probably wouldn’t appreciate being reminded of the 1970s) and their ‘economic crime’ specialists to look at Birmingham’s books. These books are well-thumbed by the authorities. In May 2007, immediately prior to the period the new investigations are covering, a VAT tribunal found against Birmingham City over the issue of reclaiming VAT on agents’ fees, noting that they had been less than “truthful” with the football authorities and that “no reliance can be placed on (the club’s) declarations” on the issue. Also, the new investigations, led by Blues “vice-chairman (spondoolicks)” – or some such title – Peter Pannu, covered unpaid transfer and agents’ fees, as well as the better-publicised “golden goodbyes” to parting directors and certain advance consultancy fees which will probably be the main bone of contention.

As Sullivan rightly pointed out amid his various rants at the “former hairdresser”, though, transfer fees are rarely if ever paid up front on time, which Yeung “and his associates” should have discovered: “Is it my fault (they) failed to do full due diligence?” Sullivan asked. When Mike Ashley bought Newcastle, another club with less-than-favourable reviews from past VAT tribunals, he similarly failed to do due diligence – a sloppiness which has turned out to pervade his entire madcap reign of the club. He soon discovered that the players that he was watching were a waste of money which had largely not yet been paid.

“It’s a damn good job we’re not a bunch of criminals,” Sullivan noted. These words may or may not come back to haunt him. But unpaid transfer fees are a staple of football clubs’ financial results. As of June 2007, for example, Manchester United still owed £37m in transfer fees (Owen Hargreaves and Nani, predominantly) and were themselves owed £12.5m, £2.1m of which wasn’t due for over a year. Indeed, the Glazers were able to cover up a debt-driven cautious transfer policy by pointing to expenditure “that summer” which was, in reality, expenditure over a number of summers. There are fears that this ‘delayed-payments’ strategy could instigate the general football financial collapse that doom merchants have long been predicting. It is perhaps lucky that Portsmouth’s transfer embargo was imposed because of money due to Arsenal and Chelsea, who could cover such shortfalls by selling a flat on Highbury Square and tapping Abramovich for the equivalent of “a fiver ‘til Friday” respectively.

If Portsmouth themselves had been owed millions, there would have been plenty of times this year when payment delays could have finished them off, but the point to make in Sullivan’s defence is that such payments are commonplace and far from necessarily fraudulent. Sullivan did suggest that Yeung focusing attention on this £6m was designed to take attention away from promises of £40m transfer kitties for the next two transfer windows, an announcement Yeung made at his introductory press conference which appeared to take his colleagues by as much surprise as anyone (even Yeung himself had only promised £5m for transfers when he announced his bid in August). “Maybe they are having a few doubts about spending it and see this as a possible excuse,” Sullivan noted, mischievously, but if focus needs diverting, it is from the club’s current ownership structure which, while hardly Notts County, has become steadily less clear since Yeung was erroneously announced as Birmingham’s new owner.

These days, he’s club president, and his mate Pannu, the Hong Kong cop-turned-barrister-turned-financial whizz, has spent more time than he’d wish insisting that Yeung is “not a front man, he is the main man”. The shareholdings in the company which now formally runs Birmingham City suggest otherwise, something which even the previously “laissez-faire” Premier League have been moved to question. Grandtop International Holdings has been Yeung’s “investment vehicle” since he bought 29.9% of the club two-and-a-bit years ago. But his shareholding has never been reported as higher than 16% and Grandtop funded its bid through a mixture of bridging loan (£57m of newsworthy, “shrouded in mystery” borrowings in itself) and company share issue, which means that Yeung’s own holding will have been further diluted.

Under Hong Kong stock exchange rules, only holdings of 5% or more have to be made public and no new names have emerged from the new share issue since it was completed over a month ago. So Yeung has his diluted shareholding, new club chairman Vico Hui has what’s left of his previous 6%. Since then, however, Grandtop, soon to be renamed Birmingham International Holdings, has had two new family additions which, between them, own 42% of the company. These entities are, as is almost compulsory for a modern takeover of a football club, registered in the BVI – an acronym for “what’s it got to do with you?” as much as it is for the British Virgin Islands. And this shareholding seems rather more of a controlling one than anything in Yeung’s name. The club claim that individual bond holders cannot own more than 5% of Grandtop’s total share capital. They claim the deal will provide a new revenue stream, as it funded Grandtop’s takeover of Peace International Creation Limited, who have undertaken to provide the club with £54m over three years. This will, presumably, be via its newly-acquired Chinese media interests rather than its current, loss-making portfolio.

The change of Grandtop’s name will require an Extraordinary General Meeting, however. All, presumably, will be revealed there.Whoever is running the business, though, and on whoever’s behalf, these days, it isn’t David Sullivan’s, or David Gold’s, business, though both continue to act like it was. Both have said “It’s not for me to tell Yeung how to run the club” before doing just that, whether it’s Sullivan telling them to “concentrate on January” or Gold arguing that if Yeung cuts admission prices “he will get relegated,” and offering the faintly threatening ‘advice’ that “football is a very small family and what goes around, comes around,” before suggesting that “maybe these people hold grudges” (about this, at least, he should know). Sullivan and Gold have, however, been destroyed in their PR-battle with the new regime. Hence Sullivan’s epistle to the Mail – from which you do get the sense that financial investigations may not be entirely superfluous.

Pannu is clear that there is at the very least a case to answer over “management consultancy service payments” of £560,000 made to companies owned by Sullivan and the Gold brothers for 2010 – half-a-million quid, even when they were no longer the management that needed to consult, and Sullivan very unwisely took on former barrister Pannu on the propriety of pursuing criminal action. Indeed, Pannu systematically destroyed all of Sullivan’s arguments. For example where Sullivan said: “This (dispute over management fees) should be a civil dispute not a criminal one” Pannu countered: “Whether it is perceived theft or fraud and is thus a criminal act is not for the club or any layman to decide but the authorities”.

As Birmingham Mail readers commented: “I think Sullivan is realising that he has taken on not only the public face of Carson Yeung but also his backers, who buy and sell bigger fish than him every day”. Sullivan’s sycophantic missive to the paper replaced snide comments about Yeung’s background with gushing praise for “the remarkable things the club are already achieving under the Yeung regime”, contradicting all his previous statements, until the sick bag flowed over. However, the letter also read as a plea to stop the police investigation. “No more dirty washing aired in public…genuinely there is nothing to hide…there is nothing illegal…this is a civil matter…it could cost us all time and money arguing via lawyers…What do you want to propose to settle this argument?”.

Yeung’s people have responded positively to this, while reserving the right to continue their investigations and deflecting praise for the “remarkable things” onto Alex McLeish and his improving team – a PR masterstroke, which has outflanked Sullivan again, and rightly so. The West Midlands Police and the Premier League need to thoroughly investigate the way-too-many areas of murk surrounding Birmingham’s immediate past and present off the field. Pannu said, “We want clarity and transparency in the way the club is run and curtains lifted as to the way it was run. That is it”. Exactly. It’s not too much to ask, is it?