“What does ‘financial fair play’ really mean? UEFA’s explanation, in 2010, was that the concept would require clubs to balance their books over the medium term, not spend more than they earn, and operate within their financial means.
This is all seen as important for one key reason: because any club that is spending more on players than they can afford, is automatically gaining a sporting advantage over every other club it competes with. Whether the precise system of measurement used by UEFA is perfect is a moot point. But the logic behind the principle however is, I think, broadly sound. And it is this same principle that explains the position of the SPL.
To turn a blind eye, to allow clubs to continually fail to make prompt payments as they fall due, would be to allow those clubs to gain an unfair sporting advantage over all those other clubs that pay their players, the taxman and other clubs on time.”
Any club spending what it cannot afford is automatically gaining a sporting advantage.
To allow clubs to continually fail to make prompt payments gives an unfair advantage over all clubs that do.
However, Mr Doncaster and his members clubs appear not to feel that the present rules contain enough provisions to prevent the above offences.
Today the SPL announced that on 30 April 2012 the SPL Clubs will consider a range of proposals to amend the Articles and Rules of the SPL. A brief description of the effect of adopting the Resolutions is provided below. (I have added my comments below each proposed resolution. Until we see the full terms, there will be some speculation, but I will do what I can.)
Resolution 1 proposes an increase in the sporting sanction (points deduction) on any Club which suffers or is subject to an Insolvency Event from 10 points to the greater of 15 points and 1/3 of the Club’s SPL points in the preceding season.
The points deduction was introduced originally because of the sporting advantage seen to exist for clubs getting out from under their debt without paying it back. The idea of an increased penalty is unusual. It is reminiscent of the furore a few years ago when England brought in a system of fines in criminal cases where the penalty was tied not to the offence but to the income of the accused.
I assume that the text of Reg 1 will include a provision dealing with a team which was not in the SPL the previous year and what deduction should be made.
It is quite clear that such a sliding scale has the potential for injustice. Might it be better to leave the penalty to be imposed to an SPL panel? Perhaps so, but only if the SPL was trusted by clubs and fans. Today’s reaction suggests no-one entirely trusts the SPL.
Resolution 2A proposes further sporting sanctions in the event that any Club undergoes an Insolvency Transfer Event (i.e. transfers its share in the SPL to a new company where this occurs because of the insolvency of the transferor) of 10 points in each of two consecutive seasons from the Insolvency Transfer Event.
Resolution 2B proposes revisions to the fee payment arrangements i.e. SPL fees to any Club which has undergone an Insolvency Transfer Event will be reduced by 75% in each of three consecutive seasons from the Insolvency Transfer Event.
This Reg seems ripe for litigation. A newco is not in law the oldco. It might have acquired the assets of the oldco, including the stadium, name and colours, together even with players, but it is not the oldco. In law even if all the directors and shareholders were identical, the newco is not liable for the oldco debts. “Phoenix” rules now entitle HMRC to look for deposits towards tax due by phoenix companies. That does not however make the newco liable to pay the oldco’s debts.
A newco might argue that the penalties above are unfair and in breach of its human rights. (Yes, a limited company has legal rights. I won’t bore readers with the reasoning just now.) Even if the Regs are passed by the SPL that will not render them immune to challenge, especially where, by definition, no-one on whom the penalty has been imposed would have voted to accept the rule change.
It is quite permissible for a newco to face conditions upon its entry to the “club” but setting them down in this fashion would lead to an accusation that the SPL had “fettered its discretion” by a flat rate penalty being imposed.
Reg 2 seems to take for granted a transfer of the SPL share to a newco. The SPL rules on this are complex and it is not a straightforward issue.
What happens if the penalised team was relegated anyway in the year of insolvency? Or in the next year? Is it proposed that the penalty continue to the next season in the SFL, or would it sit there, waiting to be applied when the club made it back to the SPL?
What is the definition of SPL money? Does this include TV revenues? With-holding ¾ of the SPL money and a 10 point penalty might seem a recipe to keep the afflicted Club in trouble on and off the field.
As has been pointed out, after the innovation by Duff & Phelps of the “hybrid liquidation” we now have an “Insolvency Transfer Event”. The whole Rangers saga is creating neologisms at every turn!
Resolution 3 proposes extending sporting sanctions where an Insolvency Event is suffered by a Group Undertaking of a Member Club of the SPL (Group Undertaking is defined in Section 1161(5) of the Companies Act 2006).
The section quoted states:-
In the Companies Acts “group undertaking”, in relation to an undertaking, means an undertaking which is—
(a)a parent undertaking or subsidiary undertaking of that undertaking, or
(b)a subsidiary undertaking of any parent undertaking of that undertaking.
Therefore if a parent company of a football team has an Insolvency Event, the penalties referred to are inflicted on the Club. In addition, if a subsidiary of the Club enters insolvency, the same would apply. If, for example, Melchester Rovers FC owns a chain of Melchester Rovers Shops through a wholly owned subsidiary, and the collapse of the retail trade leads to insolvency, that would appear to mean that, under Reg 3 Roy Race’s team would suffer a 15 point or more deduction!
This Reg too I can see as being open to legal challenge.
Resolution 4 proposes updates and extensions to the definition of Insolvency Event in the SPL Rules.
I can’t comment until we see how much further the definition is to extend. It was pretty wide to start with. I suspect that it will venture into areas not classically described as “insolvency”.
Resolution 5 proposes updates and extensions to the definition of Insolvency Event in the SPL Articles and clarifies the process in the event that a Member which is the subject of an Insolvency Event is required to transfer its share in the Company.
“Clarifies the process” is a notable phrase. One wonders of it is a euphemism for “makes easier”.
Resolution 6 proposes a specific requirement in the SPL Rules that Clubs must pay their Players in terms of their Contracts of Service on due dates and places a duty on any Club to report any failure to pay its Players in a timely manner to the SPL. Failure to pay Players and / or to notify such failure to the SPL would be a breach of SPL Rules.
We have seen how the SPL dealt with this issue with Hearts under the “utmost good faith” rule. They were called for disciplinary action not for delaying paying players, but for not complying with their undertaking to the SPL.
Resolution 7 proposes a requirement in the SPL Rules that Clubs report to the SPL any failure to make payments to HMRC in respect of PAYE and NIC (a Default Event). Any Club suffering such a Default Event will be subject to a Player Registration Embargo. Any failure to report a Default Event shall be a breach of the SPL Rules.
Reg 7 might be called the “Craig Whyte” clause. However, it would not have covered the EBT’s, as they are under appeal just now, and have been for over four years. In addition, the definition of a “default event” will need to be very precise. Also it appears that VAT payments are not included, nor Corporation Tax (Although few if any SPL teams make a profit leading to that tax being payable.)
Who is going to check?
Will enforcement be a self checking system, as with the SFA’s “mythical” fit and proper person test?
If Melchester Rovers is taken over by unscrupulous businessman Joe Bloggs, who decides not to remit any PAYE or NIC, but to tell the SPL that he is, how will this be checked? Will the clubs have to give mandates to the SPL to make these enquiries directly with HMRC?
If Mr Bloggs does not make his monthly return to HMRC, then it won’t know till after the end of the tax year if the correct sums have been remitted.
Resolutions 2B and 5 require the support of a minimum of 11 Clubs to be adopted; all other Resolutions require the support of a minimum of 8 Clubs to be adopted.
As regards the membership vote needing the support of 11 clubs, would Dunfermline support the change now? Their Chairman knows that, unless Rangers go into liquidation at some point prior to next season’s fixtures being compiled, they will not be relegated. Why would Dunfermline vote for what would effectively be its own relegation?
If adopted the amendments to the Articles and Rules will have effect from and including 14 May 2012 (the day after the last day of Season 2011/2012).
No further comment will be made in respect of these proposals until after the General Meeting on 30 April at which they will be considered by the Clubs.
So much for clarity and open-ness!
The new Regs look to be a closing of the stable door after the blue horse has bolted, but been invited back into the best stall, with fresh hay and a new set of horse shoes!
On the other hand, the SPL might be able to say that the fact that everybody, Rangers and non-Rangers fan alike seems to think that the new Regs are biased shows they have the balance right!
I think it is likely that, if these changes get through, there could be further ongoing litigation whenever the sanctions are sought to be applied. Equally there would be more scope for a team to take action if it thought another team was “at it”.
The timing seems odd, especially as the rules do not seem to envisage the oft-mooted changes in financial distribution by the SPL.
Do these changes help or hinder Rangers? Despite what Duff & Phelps say, I think it is a help, as it makes more certain the position for a newco. But we must wait and see.
I will comment later on the fact that Duff & Phelps do not like the proposed Regs ands clearly view them as an attempt to sabotage the sale.
Posted by Paul McConville