What are the chances of passing a late fitness Test?

Will Coventy City FC new owners pass the ‘fit and proper test’?  Have the Football League and the government the will to fail them?

Will the expected takeover of CCFC Ltd by Otium Entertainment Group Ltd be an opportunity for the footballing authorities to finally flex their muscles and show the ‘football family’, other stakeholders, the Department of Culture, Media & Sport (DCMS) and the government that they are finally taking their responsibility as custodians of the great game seriously?  The DCMS report entitled ‘Football Governance follow–up’, published in 2013 was undertaken as a result of inaction from the governing bodies to the departments first report from 2012 which had expressed the need for radical reform in the governance of football.  In relation to the ownership of clubs, it recommended that

the introduction and consistent application of robust ownership rules as part of a new licence model … to create a consistently well-regulated and financially fair and stable professional game

 The second report stated that the response from the football authorities

 failed to engage with several of our key recommendations and disappointed, in particular, supporters’ groups.

The recommendations made in the summary are absolutely crystal clear.  Failure to act efficiently and effectively will be met with the most serious consequence.  The report states

We recommend that the DCMS make it clear to the football authorities that further progress on these issues is expected within twelve months. In the absence of significant progress, the Government should introduce legislation as soon as practically possible.

Are we on the cusp of a new era of transparent and accountable governance from the Football League?  Will significant progress be made so that the wishes and expectations of wider stakeholders and supporter groups are also finally taken into account in the process?  The recent events involving the ownership of the Sky Blues are certainly pushing the spirit of the laws as set down by the FL and Companies House.

CCFC Ltd was placed into administration in March 2013 by Arvo Master Fund, a company controlled by SISU, a Mayfair based hedge fund.  The Administrator, Paul Appleton, granted preferred bidder status to to take the company, and the club, out of administration to Otium, part of the Sky Blue Sports & Leisure Ltd group of companies also under the control of SISU, on Friday 14 June.  The process towards exiting administration needs the consent of the Football League and so continues.  Do these companies act in a way that is compliant with regulations set down?  As has been highlighted in previous posts, all of the most recent accounts for the companies in the group were due to be submitted to Companies House by the end of February 2013.   They remain outstanding, across the group, which according to Companies House is a criminal offence.  The accounts have been submitted late on three previous occasions in recent years.  The FL regulations on the ‘Owners and Directors Test’, more commonly known as the fit and proper test, are clear that disqualification can result from

(iv) committing a serious breach of any requirement under the 1985 [Companies] Act or 2006 [Companies] Act;

 Companies house state that

Failure to file accounts or annual returns is a criminal offence which can result in directors being fined personally in the criminal courts.

The key word here is ‘can’.  Not will.  Companies House statistics show in the year to March 2013, there were 77,161, late filing penalties  (2012; 83,547).  However, penalties can be in the form of fines.    The courts rarely bring criminal proceedings against directors, with official statistics as low as only 277 cases in 2006/2007 for example.  How many multiple offences can occur by the same companies and directors before being deemed serious?

However, these are not the only cases of Company Law being breached.  On appointment, the Administrator filed an updated version of the Memorandum of Association (MoA) for CCFC Ltd, accepted at Companies House on 28 March 2013.  The paperwork had been completed and signed off some fifteen months earlier, dated 16 December 2011.  Again this is an another example of an offence committed on behalf of the company by a former director.  Companies House states

if a company fails to file a special resolution with the registrar within 15 days after it is passed, the company and any officer who is in default commit an offence (section 30)

Under normal circumstances a fine is likely, if any sanctions are actually imposed.  But this is yet another case of regulations not being adhered to.  Company Law also requires that the directors ensure records are maintained with reasonable accuracy.  Are the accounts and financial reports kept to a sufficient standard?  The CEO of CCFC Ltd, Tim Fisher was quoted in the Coventry Telegraph that

“the accounts have been a mess; an absolute mess,” later adding: “You can trace mistakes back to 1995 – basically it was slovenly, long before Sisu came on the scene.”

The key words here is ‘have been a mess’.  The term ‘mess’ is perhaps deliberately vague and open to multiple interpretation.  It could relate to the finances in general, particularly in relation to the debts.  It could also refer to the state of the book-keeping, the fact that inter company balances do not always match across the group, or even the use of the shared bank account which CCFC Ltd and CCFC Holdings Ltd both apparently share and use.   Basically it could mean everything and anything.  However, it is suggests a historical element – the have been a mess.  Have things improved?

At the recent ‘fan forums’ arranged by the club and Fisher and the Financial Director, Steve Brookfield were questioned over three evenings.  An audience member directed a question at Brookfield regarding which company was acting as the football club and probed him for the detail as to which company collected income and paid the subsequent expenses.  More specifically, he was asked how declarations for VAT was administered.  Brookfield, as current finance director, stated that CCFC submit ‘group VAT returns’ that incorporates the trading activity of SBSL Ltd, CCFC Ltd and CCFC Holdings Ltd.  He stated that

Well, it’s a group VAT registration.  So, it covers Limited, Holdings and Sky Blue Sports & Leisure actually.

You tube – Fans Forum.  Episode 4: 1 min 15 sec. 

Although separate legal entities, a set of related companies can apply to register to submit VAT returns as a group. HMRC rules state, under Notice 700/2 Group and divisional registration that

When a VAT group is registered, any previous VAT registration numbers that individual members may have had will be cancelled and a new number will be issued to the group as a whole.

However, CCFC Ltd’s VAT number is 655 133 937 whilst CCFC Holdings Ltd is different – 708 79 738.  Both are currently valid VAT numbers [checked 13 June 2013].  This means that both would have to submit separate VAT returns, not as suggested by the head of finance, as a group.  I have received documents that show that season tickets and purchases from club shop display the VAT number of CCFC Ltd, whilst invoices for applications to the legends club season tickets display the VAT number registered to CCFC Holdings Ltd.  The Companies do not share a VAT number as required by law to submit a group return.  Either the FD is mistaken or the companies are in breach of further company legislation.  Either way, questions should be asked if he has the skills required to control the finances of a group of companies with such a complex structure.  Are control and checks sufficient?  Is this the man to take matters forward and sort out ‘the mess’?

Will the Football League take on the recommendations proposed by parliament through the select committee and look into these issues and offences committed? How many breaches of company law have to be conducted by directors and companies to be deemed serious?  If the DCMS were to apply pressure on Companies House to press for charges on the offences listed that are deemed criminal, then the football league would be forced to react accordingly.  Paradoxically, the state could act in order to force the football authorities to take action, which would then prevent the need for the state to take action later that would undermine the autonomy of the sports governing bodies.  What will the consequences be and what action will be taken should the FL fail to act in accordance with the wishes of parliament?