Football Management

Commentary on the management of over 160 English football clubs by Dr John Beech, winner of the FSF Writer of the Year Award 2009/10 Twitter: @JohnBeech Curator of! Football Finance

Inherited debt and fit-and-proper persons

Posted by John Beech on October 13, 2009

Bournemouth (see previous posting) is far from alone in suffering from debt inherited from previous owners/boards.  As Eddie Mitchell has just pointed out “The previous history is complicating the club going forward. If you do the crime, you’ve got to do the time and it’s no good whingeing about it” (1), the problem being that predecessors have ‘done the crime’ while it is the current board that has to ‘do the time’.

It strikes me that due diligence before buying the club should reveal the extent of the ‘crime’, and the new owner should vector in the requirement to ‘do the time’.  Sometimes, of course, it’s not quite as simple as that.

At Weymouth, for example, the club is in danger of implosion over inherited debt.  Barclays are looking for the immediate repayment of a reported £25,000 overdraft (2).  The overdraft is guaranteed by former Chairman and ex-majority shareholder Malcolm Curtis.  If the club does not clear the overdraft, there is talk of Curtis calling in a loan of £220,000 which he had made to the club.

Meanwhile, Chairman Ian Ridley has stood down because of serious health problems, and Acting Chairman Dave Higson has also stood down because of his other business commitments (3).  Remaining directors Shaun Hennessy and Paul Cocks, left with a can of worms, have announced that “the club has instructed lawyers to investigate the urgent commencement of legal proceedings against former chairman Malcolm Curtis on the grounds of gross negligence and misfeasance during his time at the Wessex Stadium“.

Only the lawyers will be rubbing their hands.

Over at Boston United, who famously entered a CVA during the final game of the 2006/07 season when relegation to the Conference was confirmed, only to be punished for this with a further demotion to the Conference North, the club, under new ownership, managed to exit the CVA, but were demoted to the Northern Premier league.  Chairman David Newton said yesterday that he almost quit the club when a loan of almost £200,000 (taken out by the previous owners) was called in.

Two lessons are clear from these examples (and there are many more).  New owners need to take on running a club with sufficient funding to withstand the servicing at least of inherited debt, and so-called ‘soft’ debt’ can rapidly become hard debt with a change of circumstances.

In overly simplistic terms, the ‘bad guys’ create the financial mayhem (and I emphasise that I’m referring to clubs in general rather than the clubs I’ve mentioned or indeed any specific clubs), and those trying to pick up the pieces (‘good’ or ‘bad’) are left on a hiding to nothing.

The only way these problems can be addressed is through an effective Fit and Proper Person test to ensure that ‘bad guys’ are not in a position to create financial time-bombs then cut and run.  The weakness of the present tests (the PL one, the FL one, and the FA one) is that they rely on a ‘tick box’ approach ensuring that directors have not been guilty of any of a long list of mainly UK offences.  They are the equivalent of the forms you have to fill in when taking out medical insurance, confirming that you haven’t suffered from a list of ailments.  The consequence of the ‘tick box’ approach is that it is very undiscriminatory and almost everybody passes – I would argue that there is a wealth of evidence is that this should not be the case.

Much more effective would be the equivalent of a medical.  In other sectors, Fit and Proper Person tests assess things like ability, honesty, integrity and appropriate knowledge of the particular sector.  Why not in football?  I accept that devising such a test would not be an easy task, but there are plenty of other such tests that could be drawn from – it’ s hardly a case of inventing the wheel.

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