It is a pleasure, Mr Havard, to serve under your chairmanship today.
This debate is focused on the case of Leeds United, but it is relevant to the governance of football in general and in particular to the rules regarding the insolvency of football clubs. I believe that the case of Leeds United should compel the Government to press the football authorities to provide greater clarity on the administration of the rules on club ownership. I also believe that a formal review should be conducted into the unanswered questions concerning the insolvency and administration of the club, and its ultimate takeover by Ken Bates.
The business failure of Leeds United was a cause of great distress to the fans of the club, costing millions of pounds in unpaid tax and leaving local businesses out of pocket. And yet former players, such as Danny Mills, were able to claim in full for more than £200,000 in unpaid wages while west Yorkshire’s ambulance authority received only a few pence in the pound for its debt, which was worth nearly £9,000. That is because of the football creditors’ rule, which even the chairman of the Football League says he cannot “defend the morality of”. Nevertheless, the rule continues to exist, and those of us who are members of the Select Committee on Culture, Media and Sport have pressed vigorously, as part of our report into the governance of football, for it to be reviewed and ultimately got rid of. It has no place in the modern game.
There is also the question whether it is right that a great football club, such as Leeds United, can be sold between two Nevis-registered offshore companies without anyone knowing how much money was paid, where the money came from and, in the case of one of the companies, who was actually selling the club. Despite the denials, however, there can be few people in football who privately do not believe that Ken Bates has effectively been in control of the club for most of the past six years. The answers given by the club to questions about its ownership during that period stretch credibility, to say the least.
Leeds United is a great football club, which only makes the story of the last eight years all the more distressing. A roll-call of its players contains many modern greats, from Johnny Giles and Billy Bremner to Eric Cantona and Rio Ferdinand. The club’s history includes great success under the incomparable Don Revie; the famously brief tenure of Brian Clough; and Howard Wilkinson’s champions of England in 1991-92, which was the last time the English title was won by an English manager. Now, in Simon Grayson, Leeds has one of the best-regarded young managers in England.
Like most fans of English football, I want to see Leeds back in the premier league, where the club belongs. The decline and fall of Leeds from being Champions League semi-finalists in 2001 to experiencing administration and relegation to the third tier of English football just seven years later contains many lessons for those in charge of the governance of English football. Leeds are not the only club to have had difficulties, but there remain many questions of legitimate public interest about its exit from administration and about the ownership of the club during the last four years. Although the identity of the club’s owner is now clear, no fans should ever be in the position that Leeds fans were in for some time, when they simply did not know who owned their club. That must never be allowed to happen again.
In fact, the Leeds United Supporters Trust issued a statement yesterday supporting this debate and my call for an inquiry into the ownership and administration of the club. The trust stated:
“We also hope that this inquiry is able to uncover the whole truth and provide the answers Leeds United supporters deserve for it is they who suffered the 15-point deduction hardest, they who have paid heavily to support the club through the turnstiles home and away during this time and it is they who will still be supporting the club with their hearts and their wallets in the years to come regardless of who owns the club.”
The statement continued:
“The Leeds United Supporters Trust welcomes knowing the whole truth for its members, for all Leeds United supporters and for the good of the future of our great club and we look forward to the findings of this inquiry providing that truth and allowing Leeds United to move forward on the pitch and in the hearts and minds of all those involved.”
It is very interesting to hear about the Leeds United Supporters Trust. Does my hon. Friend agree that such organisations, including Kidderminster Harriers Independent Supporters Trust, perform a very important function in holding the management and those in charge of the governance of clubs to account on behalf of the supporters?
I wholeheartedly agree with my hon. Friend. Supporters’ trusts play an incredibly valuable role in giving a voice to fans, particularly in clubs that are going through difficult times financially. We saw that at Kidderminster, which my hon. Friend has mentioned, and we have also seen it recently at Plymouth Argyle, which has a link to Leeds, in that Peter Ridsdale, the former chairman of Leeds, has been involved in advising Plymouth Argyle, although I am not entirely sure what on.
I want to comment on the events that led to Leeds entering administration. Following the collapse of the Monte Carlo or bust strategy pursued by Ridsdale, which saw the club try to sustain a massive increase in expenditure on playing staff, the club was sold in 2004 to the Yorkshire consortium of Gerald Krasner, Melvyn Levi and other business men. The consortium sold and leased back the Elland Road football ground and the Thorp Arch training ground, and it settled more than £95 million of debts, but the club was relegated from the premier league in May 2004 and the consortium could not keep it financially solvent.
Investors represented by Ken Bates, as the chairman, took over Leeds in January 2005. The ownership vehicle was Forward Sports Fund, which was registered in Nevis and administered from Geneva. From the beginning, it was said that it had no connection to Ken Bates and that he owned no shares, but FSF had appointed him as a director and as the chairman of the club. It is a curiosity that the record of FSF’s incorporation in Nevis shows it was incorporated on 27 January 2005—six days after the Leeds takeover. If the company had not even been formed, where did the £5 million to buy Leeds come from in the first place? That question has never been answered.
Bates and FSF could neither salvage Leeds financially, nor prevent its being relegated from the championship in 2007 and entering administration in May 2007. In administration—I hope colleagues will forgive me if I go through some technical numbers—FSF had an outstanding indebtedness of £2.4 million. Astor, another offshore company, claimed to have an outstanding indebtedness of £12.8 million, while Krato claimed to have an outstanding indebtedness of £2.5 million. Those last two debts were consolidated, and the total owed to Astor when the club was sold back to FSF in July 2007 was stated to be £17.6 million.
When Bates and his co-directors put Leeds into administration in May 2007, the total debts were said to be £37.5 million. The debt to HMRC was said to be £7 million, and HMRC opposed the company voluntary agreement under which FSF would buy the club back, because it disputed the debt claims made by Yorkshire Radio, which was owned by Leeds, and those made by Astor. However, the administrator sold Leeds directly to FSF, with Bates as the chairman, for £1.8 million. Leeds then had 25 points deducted by the Football League—10 for going into administration and 15 for emerging with no company voluntary arrangement.
The mystery here is Astor’s offer to waive its debt if FSF, with Bates as the chairman, was given control of the club, even though it was not connected to FSF or Bates. Astor insisted that its debt had to be included with that of the other creditors to be repaid by any other bidder if FSF and Bates were not given the club. Even though there was no connection, Astor would not waive its debt, unless Bates was given control of the club and FSF was made the owner.
At the time of the sale in July 2007, the total owed to creditors stood at £30 million. All other bids would have had to pay a proportion of that, but Astor’s decision to waive its £17 million meant that FSF and Bates had to pay only £12.5 million. Other bidders offered more money, but they lost to FSF. One offered £3.5 million immediately; one offered £7 million; and another offered £5 million, once Leeds’s participation in the Football League was assured. FSF offered only £1.8 million, but with Astor’s £17.6 million not included, the FSF bid was accepted as the highest proportionate dividend to creditors, giving l1p in the pound. The taxman therefore received about £750,000 of the approximately £7 million he was owed—a loss of £6 million. The administrator stated that Astor and Krato were “unconnected” to FSF. The significance of that was that Astor’s votes counted in the administration vote, where it had more than 50% of the vote, when 75% was required for a decision to be taken.
Ken Bates swears on oath that he does not know who the new owners—the FSF investors in the club—were at the time and that he has never known. In his affidavit to the Jersey court, he said:
“Having made due inquiry, neither I, Mark Taylor or Shaun Harvey are aware of the ultimate beneficial owners of the participating shares, save to say that each of us can confirm that we have no interest in the participating shares.”
The judge, Sir Charles Gray, referred to Astor, waiving the £17.6 million that it was owed and that it was not connected to FSF. He said, “I am exceedingly puzzled” about why Astor would “kiss goodbye” to so much money if it had no connection with Bates and FSF.
Bates replied that he could only “presume” that Astor wrote off its £17.6 million because
“there would be the option for business in the future”
if he and FSF remained in control of the club. It should be noted for the record that no such future business has ever been transacted between Astor and Leeds.
Moving on to the Select Committee inquiry, we looked at the unanswered question of the ownership of the club and the challenge that that gave to the football authorities. How could the FA and the Football League enforce their own rules on club ownership of the fit and proper person test, if they did not know who the ultimate owners of the club were? Following our evidence hearing with the Premier League, it was clear that it would require disclosure of this information if Leeds were to be allowed to compete in its competition. At the time of the hearing earlier in the year, there was still a possibility that Leeds United would be promoted. Lo and behold, on Tuesday 3 May, Leeds announced that Ken Bates had bought the club. The club statement said:
“The scaremongering arising out of the football governance inquiry has not been helpful and, whilst the board were always confident that there were no issues, they recognise the concern the unknown outcome of any Premier League questions may have on our members. To address this issue and in the hope that this brings an end to the speculation, the chairman Ken Bates has completed the purchase of FSF Limited for an undisclosed sum.”
Why would the company feel that it had to sell a club that was on the brink of being promoted to the premier league?
As a Leeds United supporter myself, I agree with my hon. Friend’s opening statement that Leeds United is a great football club and that the fans deserve answers. That is crucial, and it is welcome that he has secured today’s debate. Given what has happened with Leeds United, is not the problem the fact that there is not enough openness in the process and that too much is decided behind closed doors? Football clubs are part of the community, and the community deserves the answers that we are not getting at the moment.
My hon. Friend is absolutely right, which is why the issue of the rules concerning the ownership of clubs is so crucial here. Fans have the right to know who owns their clubs. It was incredible that the FA and the Football League maintained a situation in which they did not know who the ultimate owners were. Such information is the least that the football fans should expect. I have no objection to overseas investors bringing in money to English football, but we have a right to know who they are and where that money comes from.
I will give my hon. Friend a breather from all those murky statistics that he has been firing at us. As a Huddersfield Town fan, I feel lucky that our chairman, Dean Hoyle, is a self-made millionaire. He has been a Town fan all his life and is doing a fantastic job. Some businesses in my Colne Valley constituency, such as a balloon company down the road from me, suffered and were owed money when Leeds United went into administration. I have been working closely with the Huddersfield Town Supporters Trust, and we have been talking about having supporters’ representation on the boards of football clubs. Does my hon. Friend agree that that would be a good step forward, because it would allow more transparency, as my hon. Friend the Member for York Outer (Julian Sturdy) has mentioned?
Supporters’ representation on the boards of clubs can be a good thing. Clubs should create a model that works best for them. A template model may not be appropriate for all football clubs. At the heart of the problem that my hon. Friend raises is the football creditors’ rules on which I touched earlier in my remarks. Until those go, it does not matter how many supporters there are on the boards of clubs, because clubs are still free to run up debts. They have to pay back debts not to local businesses but to former players who may have left some years ago or to a football club at the other end of the country with which the community has no direct relationship. That is morally wrong, which is why the rule must go.
Moving on from the statistics of the Leeds transactions to the simple bread and butter issues around why FSF would seek to sell the club at a time when the club’s value was rising, why would there not be marketing around the world for such an asset and an opportunity for bidders to come in? Where indeed did the money come from for Ken Bates to buy the club from FSF? We do not know how much that sum was, but there must have been some sort of a transaction. If it was a nominal fee, it would bring into question the relation between Ken Bates and FSF. Those are questions that the club will not answer, so will the Minister ask his colleagues at Her Majesty’s Revenue and Customs to contact the authorities in Nevis to try to resolve these issues about where the supply of money came from for the purchase of Leeds United?
In the words of the judge, it remains “exceedingly puzzling” that Astor and FSF were unconnected. No rational explanation has ever been given for why Astor would waive its £17.6 million on condition that Bates and FSF, which were responsible for its losing all that money in the first place, were given the club back. FSF was not even incorporated when Bates took over as chairman of the club, so who were the investors and where did their money come from? Who were the owners of Leeds United for the six years in between? The identity of FSF’s beneficiaries has never been disclosed to the football authorities or anyone, not least to the club’s fans.
Ken Bates said on oath and to the football authorities that he did not know who the investors were and stated that they were not connected to him. The Government should satisfy themselves that no regulations regarding the payment of tax or the purchase of companies were compromised in the case of Leeds United. The football authorities need to review the administration of their rules on club ownership and how they best apply the fit and proper persons test.
That situation must never be allowed to happen again in relation to the purchase and ownership of a major English football club. We are critical of how FIFA has recently tried to enforce its own code of ethics and its own inquiries into its own people, and of the farce we saw yesterday, where the FIFA ethics committee dropped its case against Jack Warner in return for his agreeing to leave FIFA. There will be no investigation or declaration of all the serious allegations of corruption that were made against him.
We cannot truly have a voice of authority on all those issues around the world, as we should do considering that we are one of the world’s great footballing countries with some of the greatest football fans in the world, until we resolve all the domestic issues. The unanswered questions around Leeds United—both financial ones and those that affect the governance of football—are crucial to our setting our own house in order.
Thank you, Mr Havard. May I say how nice it is to be responding to the debate under the chairmanship of someone who has, throughout his parliamentary career, been a great fan and supporter of sport in the House?
I congratulate my hon. Friend the Member for Folkestone and Hythe (Damian Collins) on securing the debate and on his considerable research. Crucially, he and other members of the Culture, Media and Sport Committee have done invaluable work into football governance and the regulation of professional football clubs. Their work has proved invaluable in taking stock of a range of issues that affect the way that football is run and in ensuring that our national game is in the best possible place to make the most of its strengths and weaknesses and to address the challenges it faces.
With reference to this morning’s debate, it is worth reassuring my hon. Friend the Member for Folkestone and Hythe that a number of Culture, Media and Sport Committee members have approached me about a range of things that disturb them across football. I know about their experience at Leeds, where I understand that the Committee was unable to find out who the owner of the club was at that stage, which appalled people in a way that little else has.
I look forward to receiving the Committee’s report and recommendations next month, after which, within the statutory time period, I will set out the Government’s official response. Without prejudicing that too much, I am grateful to my hon. Friend for giving me the opportunity to outline the Government’s current thoughts on the regulation and governance of football clubs and specifically on the issues that he has raised around Leeds.
It is worth repeating—this is really important—that the starting point is that the Government do not want to run football or micro-manage its future. All sport, including football, is best run by sport governing bodies. However, those bodies must prove that they are strong, effective, independent, transparent and, crucially, accountable organisations. The Government’s role, and my role as Minister, is to challenge the FA and the organisations that run the leagues—the Premier League and the Football League—and to ensure that the game and its governance arrangements are capable of responding to the challenges and opportunities. Of course, that is the background to the current Select Committee investigation. It worth saying in that regard that I do not particularly want to legislate, but football should be in no doubt whatsoever that if it does not react to what the Government lay out after the Select Committee report, we are prepared to do so, if necessary.
Leeds fans will of course be pleased finally to know who owns their club. However, the whole episode signals the complete disconnect between the supporters’ legitimate expectation of knowing who owns their club and the requirement to publish that information. The football authorities deserve some credit for the rules that they introduced in recent years on financial regulation and club ownership. They include a new means and abilities test, which requires proof of funds of prospective new owners as well as strengthening the rules on owners and directors. However, the situation that my hon. Friend has outlined shows how much more needs to be done.
Touching on a point made earlier, football clubs are not investment banks. They are part and parcel of the community. I often refer to them as businesses with a social conscience. It is not unrealistic, therefore, for supporters to have higher corporate expectations of the owners of their club than they do of some local businesses. Supporters at every club have a right to know, with certainty, which person or people own their football club, whether they own it outright or in shares of less than 10%.
The football authorities need to work with the clubs to make full disclosure a priority and to ensure that appropriate inquiries about the identity and circumstances of potential buyers are always carried out with due diligence, and that needs to be done before ownership is allowed to change hands. This is not me, as a Minister, hammering football clubs once again; it is a requirement for all good businesses. Furthermore, the necessary checks should continue to be made throughout a director’s or owner’s tenure at a club. Club owners have a responsibility of stewardship. Supporters need to have trust in them and to know that they will not jeopardise the long-term future of the club. Under no circumstances should the owners take the fans for granted or deliberately or inadvertently misrepresent the position in relation to their club.
It is for the football authorities to take a hard look at whether they should tighten their rules. The inquiry with which my hon. Friend is involved will clearly play a big part in that. My preference is that the two should be done together—that the findings of the Culture, Media and Sport Committee are discussed with the football authorities, so that we can agree a way forward collaboratively. That should happen under the leadership and direction of the sport’s national governing body, the FA. It remains to be seen whether that is achievable, but I am encouraged by the strong statements made to the Committee by the chairman of the FA, David Bernstein, about the importance of transparency.
I do not wish to prejudice the Committee’s findings, but as my hon. Friend has mentioned the matter, it is worth saying a little about the football creditors’ rule and HMRC. I would rather not give an absolute answer on the creditors’ rule until I have seen the results of the Select Committee’s investigation. Indeed, I have tried not to provide a running commentary on it, as it would not help the Committee or the Government. However, it is clear that the football creditors’ rule has probably had its day. The moment when people in football said that it was morally indefensible was the moment when everyone felt that a considerable corner had been turned. I await the Committee’s findings with interest.
If my hon. Friend sends me the details I will happily pass them on to HMRC. However, he will know that although it is a governmental body, it is independent of Government. It would be worth the Committee Chair writing to HMRC on behalf of the Committee, given the strength of feeling that was evident following its investigation into Leeds.
With specific regard to the case of Leeds United and HMRC, based on the information that has been gathered and the unanswered questions that remain, particularly on the purchase of Leeds United from FSF by Ken Bates, is my hon. Friend prepared to write to ministerial colleagues suggesting that there may be grounds for HMRC considering the matter?
The simple answer is that I am perfectly happy to write, which my hon. Friend can do equally easily. The bigger point is that I have a sense that after the Select Committee’s visit to Leeds, the Committee was unusually disturbed by what it found. Normally speaking, that would be a good moment for the Chair of the Select Committee to write directly to HMRC on behalf of the Committee. That would be powerful, but I am also happy to write, if he wishes to do that through me to a Minister.
In conclusion, I understand my hon. Friend’s desire for an inquiry into what has happened in Leeds’s case. His speech was powerful and convincing. However, with a Select Committee report due in the next month, I would rather wait until then to decide what needs to be done, simply in order to achieve the best use of time and resources. The exact detail of what has happened is not clear, but the overall lessons most certainly are, and those lessons should inform what happens next. My intention, as part of the wider process of the inquiry’s recommendations, is that the FA will be able to make any changes to the issues highlighted by today’s debate. If not, the FA should be in no doubt that the Government will legislate to ensure that such things do not happen again.