Leeds United

Debate between Mark Garnier and Damian Collins

Tuesday 21st June 2011 Westminster Hall

[Damian Collins (Folkestone and Hythe) (Con)]

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.”

[Mark Garnier (Wyre Forest) (Con)]

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?

[Damian Collins]

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?