There seems to be a certain déjà vu for Mr Gary Withey in his involvement with Rangers. For Mr Withey has previously become the Company Secretary of a company owning a football club, after a takeover by a man whose wealth is stated to be very large, with the team involved suffering from a financial “black hole”. These dealings resulted in court proceedings to disqualify allegedly errant company directors involved in the football club, and certain criticisms were voiced of Mr Withey in an effort by one of the Respondents to avoid or reduce his own blame.
It must be said that Mr Withey was not a party to the proceedings and did not in fact give evidence. If there had been any significant question of fault on him in his role as Company Secretary, then he would at least have been called as a witness.
No findings were therefore made in relation to him (nor could it have been, as he was not a party to the case). Nothing stated below should be taken as suggesting or implying any wrongdoing on his part.
Equally, there is no suggestion that the faults of Mr Goldberg below have any connection with the operation of Mr Whyte’s ownership of Rangers.
There is also an interesting Celtic connection arising from this case, although based on a piece by James Traynor in the Daily Record! See the bottom of this post for more!
Who Is Gary Withey?
Gary Withey is a highly respected solicitor, a partner in the blue chip London firm of Collyer Bristow. He was recognised as one of “The Lawyer” magazine’s Hot 100 Lawyers for 2010.
On 26th May 2011, he was recognised by The Times as “Lawyer of the Week” in connection with his work in the takeover of Rangers FC by Craig Whyte’s Wavetower vehicle.
He was appointed as Company Secretary of Rangers Football Club PLC when the takeover went through, and he has remained in that post since.
Mr Withey has a great deal of experience and expertise to bring to bear for the assistance of Mr Whyte. By various accounts the running of Rangers is now dealt with by Messrs Whyte and Withey and Ali Russell, the Commercial Director.
Gary Withey Has Been Here Before
In 1998 Crystal Palace FC was purchased by Allowclear Ltd. This company was a vehicle set up for the purpose by Mark Goldberg to buy Crystal Palace from Ron Noades.
The sorry history of the takeover is detailed in the decision of Mr Justice Lewison in the High Court action by the DTI to seek disqualification orders against Mr Goldberg and James McAvoy, a Chartered Accountant who was also a director of Crystal Palace after the deal.
The full judgment can be found here.
I am sure that the disastrous turn of events at Crystal Palace have taught Mr Withey many lessons which he is using to benefit his new team.
He will have seen close at hand a brash young millionaire taking ownership of a club with a long history, and promising the earth in terms of investments and progress.
He also saw the very quick demise of the club under the weight of debt brought about by mis-management, and an ethos of having few if any formal board meetings. A lack for proper accounting was also alleged.
Board minutes were prepared recording Board meetings which had not taken place.
As Company Secretary, Mr Withey would clearly not have been at the heart of the dealings of Messrs Goldberg and McAvoy, as shown below. I am sure that these experiences have helped him attain the present heights in his career and will help him, as far as possible, to avoid the pitfalls which trapped Mr Goldberg!
Mr Goldberg made his fortune in the recruitment industry. He was and was perceived as being a wealthy man. He took up a place on the board of Crystal Palace prior to his takeover concluding.
The court was told that:- he had been a lifelong supporter of Crystal Palace; he was a man of great drive and vision and an excellent salesman; he was a man who could inspire belief in his vision; he had boundless self-confidence and a belief that he could solve problems; and he had great energy and was always on the go.
The court noted that “One result of Mr Goldberg’s self-confidence was that he did not always take advice. As Mr Barnes (one of the witnesses) put it: “Mr Goldberg wanted his own way all the time, and whilst he sought advice he did not actually take it.” “
He was described to the court as always having a ready answer for any difficulty put to him by other board members, and plausible excuses for failure to adhere to previous decisions. Another witness described him as “an extremely difficult person to handle“.
Mr Goldberg’s companies had a complicated structure. Whilst not subsidiaries of each other, they were very much inter-related. Mr Goldberg’s vehicle purchased, coincidentally, 85% of the shares in Crystal Palace. One difference was that Mr Goldberg agreed a purchase price of £23 million for the takeover, rather more than the £1 paid by Mr Whyte.
In addition, whilst Mr Whyte acquired Ibrox Stadium and Murray Park for his pound (and taking over the bank debt), Mr Goldberg bought neither the ground nor the training facilities, these remaining in the hands of Ron Noades, the former owner. Bizarrely, after the takeover had taken place, Mr Goldberg briefly appointed Mr Noades as caretaker manager of the team! I can guarantee that Mr Whyte is not going to choose Sir David Murray to run the football side of Rangers FC, should Ally McCoist leave!
Mr Goldberg was a man with big ideas. He also appeared to be very wealthy. Not only had he just paid £23 million for his shareholding in Crystal Palace (albeit that £4 million was left outstanding on loan notes), he also had remaining shareholdings worth in the region of £10 million at that time, and other assets besides.
His Lordship found that “He gave the impression that he was willing to invest more of his personal wealth into Crystal Palace, although no binding commitments to that effect were ever given. “
Mr Goldberg’s “personal financial adviser” and a “specialist in structuring corporate transactions and in arranging asset finance and cash-flow finance for shipping fleets” were appointed to the Board with him.
Mr Goldberg told the board that he would pledge 400,000 shares in MSB to the bank in order to secure the team’s overdraft. At the same board meeting Mr Goldberg dealt with the future financing of Crystal Palace. He said that he was negotiating with a number of possible lenders, including individuals who would be prepared to lend money in return for becoming directors. He also mentioned a possible AIM flotation within 6 months to raise £15 million. He described these plans as “very much amorphous” but said that he would keep the board informed. Nothing appears to have been said at that meeting about sales of players.
At the first substantive board meeting after the takeover, on 26 June 1998, Mr Goldberg presented his vision to the board. He outlined his “five year plan” with a “mission” to have a club capable of competing in Europe and with a value of £100 million within five years. This was to be achieved by new sports medicine and skills development; a new playing structure and the latest technology and discipline. In the short term his ambition was to secure promotion to the Premier League at the earliest possible opportunity. Mr Gary Withey, a solicitor, was appointed as company secretary.
The court commented “During the period when Mr Noades was the chairman and majority shareholder the board met infrequently. Mr Goldberg proposed, and the board agreed, to changes in corporate governance. First, the full board was to meet quarterly, and an executive board was to meet monthly. Second, Mr Goldberg said that he wanted Crystal Palace to operate as if it were a publicly quoted company. The board thus appointed an audit committee and a remuneration committee. Mr Morley described the appointment of the two committees as “overkill” for a small private company… However, it seems that the board did not meet at quarterly intervals, nor did the executive board meet once a month. The audit committee does not seem to have met at all, and the remuneration committee met only once. Mr Morley said that Mr Goldberg genuinely wanted to run a model company, but it did not happen that way.”
Mr Goldberg lost his fortune and ended up personally bankrupt. After initially opposing the disqualification proceedings, he reached an agreement with the DTI to accept a disqualification, so the case proceeded to a conclusion as regards Mr McAvoy alone.
Mr Goldberg received a 10 year ban.
Bizarrely, Mr Goldberg is back in football, but not as an owner. He is on his third stint as manager of Bromley FC!
What Went Wrong at Crystal Palace? Some Examples
There were various, indeed numerous, problems. One related to the purchase of Neil Emblen from Wolves.
This lead to the “charge” against Mr McAvoy that “Mr Goldberg and Mr McAvoy caused or permitted Crystal Palace to agree to forego a payment of £400,000 due to it from Wolverhampton Wanderers in return for Wolves foregoing an equivalent sum due to it from Mr Goldberg personally”
Wolves wanted £1,800,000 as a transfer fee, but Crystal Palace was unwilling or unable to pay that. Mr Goldberg agreed to contribute £500,000 personally towards the transfer fee. On 12 August 1997 he entered into a written agreement with Crystal Palace under which he agreed to contribute £500,000 before 30 September 1997. The agreement stated: “The consideration for the £500,000 will be that if Crystal Palace Football Club at any time in the future sell the player then Mark Goldberg will receive 25% of the eventual sale price”.
Lewison J decided that the agreement, read as a whole, “certainly does not suggest that the £500,000 was a loan, which would have entitled Mr Goldberg to the return of his £500,000 in addition to 25 per cent of the eventual sale price.”
He rejected Mr McAvoy’s suggestion to that effect.
He went on “On 14 October 1997 MGI (one of Mr Goldberg’s companies) transferred £500,000 to Crystal Palace. Mr McAvoy suggested that this payment was a payment by MGI on account of wages whose liability was that of Crystal Palace and that the agreed payment for Mr Emblen came out of Mr Goldberg’s personal account. However, this was only an assumption on his part, and there was no evidence to back it. I bear in mind that there has not been disclosure of a full set of Crystal Palace’s bank accounts, which blunts the lack of documentary evidence. But even so, I reject the suggestion that there were two payments, and find that the £500,000 transferred by MGI to Crystal Palace was Mr Goldberg’s promised contribution to the purchase cost of Mr Emblen.”
By the following spring, the club wanted to sell Mr Emblen. Wolves were willing to buy him back at the lower price of £600,000. The profit in less than a year was great business by Wolves – less so for Crystal Palace. Eventually, on 25 March 1998, a deal was structured under which the nominal price for Mr Emblen’s transfer was £1,200,000 plus VAT payable in three stages. The first stage was a payment of £600,000 (plus the VAT) payable on registration of the player with the Football League. At this stage, no money was to change hands, as the payment was to be satisfied or “contra-ed” by bringing forward £810,000 of the remaining £900,000 still owed by Crystal Palace to Wolves under the terms of the original transfer.
However, in order to fund the remaining payments, Mr Goldberg, through MGI, was to pay £200,000 to Wolves on or before 25 April 1998 and £400,000 on or before 31 August 1998. The agreement between MGI and Wolves was signed on behalf of MGI by Mr McAvoy. The latter payment of £400,000 was not made.
I am sure the lessons of an owner failing to fulfil his financial promises have been taken on board by Mr Withey.
Mr McAvoy sought to argue that there was an off set of monies due to Mr Goldberg’s companies and by them. However, as the court decided, in fact what happened was that Mr McAvoy was party to a scheme “which effectively gave away £400,000 of Crystal Palace’s money to benefit MGI. Mr McAvoy’s two inconsistent justifications of this scheme do him no credit. Moreover, all this occurred at a time when Crystal Palace was in need of cash, as Mr McAvoy knew.”
His Lordship continued “It is an example of Mr McAvoy failing to respect the separate legal personalities and interests of the various companies in “the Goldberg empire” and, indeed, Mr Goldberg himself. It also demonstrates Mr McAvoy’s willingness to bypass the board.”
Fortunately no such concerns arise at Rangers.
He played for Juventus until November 1997, when he was transferred to Crystal Palace. He was one of two Italian players, the other being Attilio Lombardo. Mr Padovano entered into a written contract with Crystal Palace on 15 November 1997. At the date of this contract, Mr Goldberg was already a director of Crystal Palace, although Mr Noades, through his company Altonwood, was the majority shareholder. Three days before Mr Padovano signed with Crystal Palace, he entered into an agreement with Mr Goldberg and SMCG (another Goldberg company). The agreement with SMCG and Mr Goldberg supplemented the contract agreed with the team.
The court put the different terms into a table as follows:-
|Crystal Palace contract
i. 15.11.97 to 30.06.98: £321,000
ii. 01.07.98 to 30.06.99: £540,000
iii. 01.07.99 to 30.06.00: £540,000
i. 12.11.97 to 30.06.98: £189,000
ii. 01.07.98 to 30.06.99: £170,000
iii. 01.07.99 to 30.06.00: £170,000
||Loyalty bonus as at 30.06.00: £350,000
|Goal bonus for goals scored in FA Premier League Championship matches
||Goal bonus for goals scored in official matches instead of championship matches
|Contribution of £2,500 per month for living expenses for 6 months
||Contribution of £2,500 per month to living expenses from cessation of Crystal Palace’s contribution
||Provision of reasonable company car
||Provision of four return flights each year from London to Turin
Various witnesses referred to the “supplementary agreement” as an agreement relating to “image rights”. However, image rights were not mentioned in the agreement. The payments under the agreement with SMCG were to be made by SMCG and guaranteed by Mr Goldberg personally. Mr Goldberg undertook considerable liabilities towards Mr Padovano which the team were unable or unwilling to take.
Padovano was not a success at Crystal Palace. He rarely played for the first team, and was prone to injury. All the witnesses agreed that he would have been content to take his money and not appear on the pitch at all. He was clearly a bad buy.
Efforts were made to sell Padovano. At the same time, he took action against Mr Goldberg’s company for the monies he claimed he was still due over and above his contract with the team. As part of the settlement on his sale, his claim against Mr Goldberg’s company was dropped. It was argued by the DTI that Mr McAvoy was complicit in this, again putting the interests of Mr Goldberg over Crystal Palace.
As it was alleged “Mr Goldberg and Mr McAvoy caused or permitted Crystal Palace to incur a liability to Mr Padovano, a player who had been bought from Juventus, of £1,200,000 for the purpose of settling the personal liabilities of Mr Goldberg and an associated company of his, Sports Management Corporation Group Ltd (“SMCG”)”. This accusation was not made out against Mr McAvoy though.
The court’s findings are interesting as regards our topic of discussion however.
“On 30 June 1998 Mr Withey reported to Mr Goldberg that he had been approached by Padovano’s agent, Marcello Bonetto, with a proposal for combining his contract with Crystal Palace and his contract with SMCG. Mr McAvoy was copied in to this memo. A letter from Mr Bonetto set out the combined terms. It seems that Mr Withey prepared an amended schedule to be attached to Mr Padovano’s contract combining the terms of the two agreements, and also a draft letter under which Mr Padovano was to be paid £264,000 in settlement of his “image rights”. Both the amended schedule and the draft letter are dated 6 July 1998. But neither is signed.”
However Padovano’s two contracts had not been amalgamated. The court continued “That is not surprising as amalgamation of the contracts could not have been to Crystal Palace’s advantage. Mr McAvoy’s suggestion that amalgamation of the contracts would have been in Crystal Palace’s interest because it would have made Mr Padovano more amenable to a transfer was unconvincing, and is belied by what actually happened. Mr Padovano was quite happy to be transferred to Metz even though the contracts had not been amalgamated. However, no complaint is made in the case against Mr McAvoy that he participated in an amalgamation of the two contracts.
“Mr McAvoy said that his belief was that the two contracts had been amalgamated, because he had been told as much by Mr Goldberg and Mr Withey. Mr Goldberg and Mr Withey were the people within Crystal Palace who were dealing with the possibility of amending the contract with Mr Padovano. Mr McAvoy’s first step, if he had attempted to find out more, would have been to contact them. If the allegation of failing to make inquiries had been clearly made, one or both of them might have been called to give evidence. Neither was. Thus this is not a mere pleading point. In my judgment this allegation is not one on which the Secretary of State can rely.”
Interestingly, as a result of the DTI failing to make this allegation against Mr McAvoy clear (namely that he improperly failed to make proper inquiries into the amalgamated contract) Mr Withey was not called to give evidence in the case, which he might well have been if the allegation had been made timeously.
It is ironic that one of the matters reputed to be at the bottom of the “Big Tax Case” is the use of “side letters” running alongside employment contracts. As these are allegedly the fault of the ancien regime at Ibrox, I am sure that neither Mr Withey nor Mr Whyte would fall into the same errors, which, apparently, caught out Mr Goldberg at Crystal Palace and the Murray Board at Ibrox.
On a side note, Padovano was imprisoned for 8 years and 8 months for hashish smuggling recently.
The Padovano minute
It was further alleged that “Mr Goldberg and Mr McAvoy caused or permitted a board minute purporting to record a board resolution of Crystal Palace approving the payment of £1,200,000 to Mr Padovano to be produced, notwithstanding that no such resolution had been passed.”
Mr McAvoy’s response was that the minute was prepared by the company secretary, Mr Withey, who told Mr McAvoy that two members of the board, who had not been present at the meeting, had approved the payment by telephone. Mr Withey told Mr McAvoy that he was getting the minute signed.
Counsel for the DTI (Mr Newey) made a number of serious criticisms of the Padovano minute. First, despite what it said, the board meeting was not duly convened, since the members of the board were not given notice of the meeting. Second, neither Mr Barnes nor Mr Alexander was physically present. That in itself was not controversial; but Mr McAvoy said that he was told by Mr Withey (the company secretary) that both those gentlemen had been contacted by telephone and had given their consent. Mr Newey submitted that no such conversation took place, but that, even if there was a conversation, there was no conversation to which all three directors were party, and hence no collective discussion or consideration of the proposed agreement. Third, there was nothing in the minute to indicate that Mr Goldberg’s keen personal interest in the agreement was disclosed to the board. In consequence he says Mr McAvoy can have been under no illusion that entry into the settlement agreement had not been properly authorised by the board. Mr McAvoy agreed that there was no meeting, in the sense of him and Messrs Alexander and Barnes being physically present in the same room, or even participants in the same three-way telephone conversation. Indeed Mr McAvoy accepted that he did not speak to either Mr Alexander or Mr Barnes. But he said that he was told by Mr Withey, who prepared the minute, that he (Mr Withey) had spoken both to Mr Alexander and Mr Barnes, that they had approved the agreement and that they would be signing a minute. Although Mr Withey was interviewed, he was not asked about the circumstances in which this minute came to be produced. Nor was he called to give evidence. The judge noted that “I record here that Mr McAvoy was given permission to serve evidence from Mr Withey, but chose not to do so.”
The court noted “Mr Barnes said that he was not present at any meeting to discuss the Padovano settlement (because he was in London at the time having lunch with Mr Leon Angel) and he was not telephoned to give his consent. I accept his evidence. Mr Alexander gave evidence to the same effect, although it was not as firm as Mr Barnes’. I accept his evidence too.”
Lewison J continued “I find that the contents of the minute were probably prepared by Mr Withey or at his dictation. The minute was signed by Mr McAvoy. However, no meeting took place, either by the physical presence of the purported participants, or by telephone. I find that Mr McAvoy knew that no such meeting had taken place. He also knew that Mr Withey had not telephoned the other named directors. I am, however, prepared to accept that Mr McAvoy was told by Mr Withey that the other named directors would be signing the minute. But even if that had happened, the resolution would still not have been valid under article 29, because, as Mr McAvoy knew, not all directors had been given notice of the meeting… Mr McAvoy signed a minute that purported to record a board meeting that he knew had not taken place. However, I find that he did so without any intention of misleading the board of Crystal Palace. He signed the minute because Mr Padovano’s lawyers wanted a minute, and one had to be produced in a hurry. Nevertheless, this allegation is made out against Mr McAvoy.”
The court commented on the issue of fees payable to agents. Over £1 million was paid to agents for the various transfers which took place.
“One of the striking features of expenditure on players is the large amounts that Crystal Palace paid to agents. Perhaps the most striking example is that of Del Rio. In his case agents’ fees amounted to nearly £450,000 as against a transfer fee of £187,500.”
It was alleged that “Mr Goldberg and Mr McAvoy failed to ensure that the board of Crystal Palace was aware of the onerous terms on which Crystal Palace was to employ Mr Terry Venables as its head coach, but on the contrary caused or permitted the board to be misled as to such terms”.
In March 1998 Mr Goldberg personally entered into an agreement with Mr Venables, recorded in Heads of Terms, which were to be binding until a more formal contract was executed. The effect of the agreement was that Mr Venables would be employed as head coach for a three year term. Among the terms of the agreement were:
i. an option for Mr Venables to extend the contract for two years (making five years in all);
ii. a right for Mr Venables to break the contract after one year;
iii. a right for Crystal Palace to terminate the contract but only on payment of one year’s salary by Crystal Palace and £300,000 by Mr Goldberg;
iv. an annual salary of £750,000 payable annually in advance, plus a pension contribution of 10 per cent of salary;
v. a car to the value of £65,000;
vi. a right for Mr Venables to have sole power to select players and “complete control on the decision which players to buy and sell”;
vii. a budget for buying players of £10 million in 1998/9, indexed for the following two seasons. This sum excluded proceeds of sale of players, which were also to be made available to Mr Venables.
Here was a self made millionaire pledging huge sums (in 1998 terms) to be spent on improving his team. As it transpired however, such investment did not take place.
Mr Morley, one of the directors, said that, at the July 1998 meeting “Mr Goldberg stated that he had paid one year of Venables’ contract in advance and that if we weren’t happy, we could get rid of Venables after 1 year, as there were breaks in his contract after 1 and 3 years. We were told that the house being purchased for him was costing around £200,000. It turned out to be £600,000.”
The judge continued “Mr Hume-Kendall in his affidavit says that information about the contract was provided either by Mr Goldberg or Mr McAvoy. He does not mention Mr Barnes at all. Mr Grimes says in his affidavit that information about the contract was given either by Mr McAvoy or by Mr Barnes. He accepts that Mr Goldberg and Mr Withey said more than Mr McAvoy, but says that Mr McAvoy was present and did not correct anything that had been said. Mr Barnes does not deal with this meeting in his affidavit at all.”
Terry Venables’ employment was a disaster too. As the Independent recorded in 2003, he spent seven months at the club, and claimed almost £1 million per month for his time there! He was the biggest creditor in Mr Goldberg’s personal bankruptcy.
Ron Noades had warned Mr Goldberg against engaging Mr Venables, predicting that “he will eat you alive, and you will go bankrupt”; but Mr Goldberg had been confident that he could keep Mr Venables under control.
The Financial Black Hole
It was known and accepted that the team had what could be termed a “black hole” in its books.
Prior to the takeover Mr Noades was apparently told Mr Goldberg that there was “an £11 million hole” in the accounts.
Mr McAvoy recognised that the team needed to raise at least £9 million by selling players and cutting the wages bill. In his letter of 2 March 1999 Mr McAvoy said: “I want no one to be in any doubt that Mark was made fully aware of the cash position of the club before he bought and on the consequences of the purchase on his personal cash position and that of his other business interests and commitments. I presented a number of cash flows that consistently set out a clear deficit position on both counts e.g. Crystal Palace needed to find £9m from player disposals and wage reductions.”
It was alleged that “Mr Goldberg and Mr McAvoy took unwarranted risks with creditors’ money, in allowing Crystal Palace to continue to trade between 4 June 1998 and 30 March 1999” and “Mr Goldberg and Mr McAvoy failed to ensure that the affairs of Crystal Palace were subject to proper financial control.”
The Grimes Loan
It was alleged that “Mr Goldberg and Mr McAvoy caused or permitted a loan made by Mr Grimes for the benefit of Crystal Palace (which was paid into MGI bank account) to be used for other purposes although Mr Grimes was expressly assured by Mr Goldberg that the money would immediately be transferred to Crystal Palace.“
In October 1998 Mr Goldberg proposed to Mr Larry Grimes that he consider a “further investment” in Crystal Palace. The terms were that he would advance £200,000 to Allowclear, as the holding company for Crystal Palace, against the issue of a convertible loan note by Allowclear, convertible into shares in Crystal Palace within three years. Mr Grimes replied on 19 October to the effect that he was willing to make £205,000 available to Crystal Palace for 2 years, on the basis that the loan was convertible into shares during that period. On 22 October, Mr Grimes’ solicitors wrote to Mr Withey at MGI. Their letter set out the terms on which Mr Grimes was willing to make a loan. They began by saying that Mr Grimes would make a loan of £200,000 “available to Crystal Palace”. Mr Goldberg was to “guarantee the Crystal Palace loan”. Mr Grimes also wanted a warranty that there was nothing unusual going on at Crystal Palace which is material to “someone investing the amount LG has in Crystal Palace”.
£202,037 was transferred into MGI’s bank account on 28 October 1998. The account was overdrawn at the time. On the following day substantial sums of money were transferred out of the account. The transferees included Newcourt Leisure (£40,000) and SMCG (£118,000). In a letter to Mr McAvoy dated 2 November 1998 Mr Jeffreys, the senior manager at Lloyds Bank (who were MGI’s bankers) said: “My understanding was that the Grimes money received last week would well and truly restore order throughout the MG Investments group. This clearly has not been achieved and I have no knowledge of any debits which may be in the system and would worsen the picture.”
In his letter of 21 September 1999 Mr Grimes says that at first he demurred to paying MGI, but was assured by Mr Goldberg and Mr Mildwater that the funds would be immediately transferred to Crystal Palace. They never were.
Lewison J continued “I am prepared to accept that Mr McAvoy did not know of the specific assurances that Mr Goldberg had given Mr Grimes. However, in addition to having seen the letter, Mr McAvoy knew that there had been a sustained attempt to persuade others to invest in Crystal Palace. In Mr McAvoy’s graphic phrase, when Mr Goldberg put up £22 million to buy his shareholding in Crystal Palace: “he was happy to tell everybody that he had put his balls on the table and he was looking for other investors to follow him. Mr Grimes was one of those people I believe who followed Mr Goldberg’s vision.”
As Lewison J said regarding Mr McAvoy “He knew also that Mr Grimes had been persuaded to make his loan on the strength of a document entitled “Equity Investment and Post-Acquisition Strategy Document.” A fair reading of that document shows that it is all about Crystal Palace apart from one reference to the holding company. I agree with Mr Newey that the message conveyed by that document is “please support Crystal Palace and do so by taking a convertible loan note from Allowclear.” Mr McAvoy also knew that Mr Grimes was a director of Crystal Palace and had already made a substantial loan direct to Crystal Palace. He must also have known that Mr Grimes had no reason to lend money to other companies under Mr Goldberg‘s control. I find that Mr McAvoy knew that Mr Grimes’ intention was that his money would be used for the benefit of Crystal Palace. It was not, as Mr McAvoy also knew. He had clearly told the bank that the money from Mr Grimes would go to the MGI group, which did not include Crystal Palace. If it is necessary to find a breach of duty, it seems to me that, in his capacity as a director of Crystal Palace, Mr McAvoy owed it a duty (at least) to use his best efforts to ensure that money intended for it benefit was applied as intended. He was a director and chief executive of MGI (which had the bank account) and Crystal Palace(the intended beneficiary of the money); and a director of Allowclear (the nominal borrower). In my judgment he could and should have ensured that the money went to Crystal Palace. This allegation is made out against Mr McAvoy.”
Failure to Maintain Accounting Records
The allegation was: “Mr Goldberg and Mr McAvoy failed to ensure that Allowclear maintained and/or preserved adequate accounting records and/or they failed to deliver up such records.”
Mr McAvoy said initially that the records were handed to Mr Withey but that he does not know what became of them. In his second affidavit he said that the records may have disappeared as a result of a burglary in February 1999 in the course of which a server was stolen.
As regards Mr McAvoy’s oral evidence the Judge commented that “He seemed to me to resile from this, accepting that this information would not have been of any interest to a burglar. He initially said in his oral evidence that the dealings of Allowclear could be reconstructed from information in the primary documents underlying the few transactions into which it entered. He accepted that this information was not “entered into a record”. He agreed that Allowclear did not make entries from day to day of sums expended and received; but he said that the nature and number of the transactions in which it was involved justified that sort of day to day activity. But he went on to say that records were kept, in the form of a trial balance, but on no more than a couple of sheets of paper compiled in manuscript. He also says that the transactions into which Allowclear entered were all authorised by resolutions of the board. This last statement is not borne out by those resolutions that have survived.
“Correspondence from Mr Mildwater gives rise to a strong inference that Mr McAvoy’s first oral account, namely that there was information from which accounts could be prepared but no actual accounting records, is the correct one. Mr Marks, an insolvency practitioner who handled the liquidation of MGI, said in his affidavit that books papers and records of Allowclear were removed from the offices at 27/28 Albermarle Street. Those records, he says, were held by Mr Withey. Mr Marks did not become involved until late January 1999. He says the records were removed by Mr Mildwater in February 1999. So Mr Marks supports Mr McAvoy’s account to some extent. The liquidator of Allowclear made some investigations in the autumn of 1999 and he came to the conclusion that all Allowclear’s records were removed by Mr Goldberg from the company’s offices at Albermarle Street to his home. But he was not able to identify what the records consisted of.”
The judge considered that this allegation was made out against Mr McAvoy.
Failure to File Annual Returns
Mr McAvoy conceded that his failure to file accounts and annual returns, in connection with various other companies in the group, was unacceptable.
As the court commented “The making of annual returns, in particular, is not an onerous or time-consuming task.”
Lewison J and His Comments Regarding Disqualification
Mr Justice Lewison considered in detail the basis for disqualifying directors.
With a view to considering the general issue of disqualification, I would draw his comments about certain specific matters to the reader’s attention.
He quoted from In re Lo-Line Electric Motors Ltd.  Ch. 477, 486, where Sir Nicolas Browne-Wilkinson V.-C. said:
“Ordinary commercial misjudgment is in itself not sufficient to justify disqualification. In the normal case, the conduct complained of must display a lack of commercial probity, although I have no doubt in an extreme case of gross negligence or total incompetence disqualification could be appropriate.”
Then, at p. 492, he said that the director in question:
“has been shown to have behaved in a commercially culpable manner in trading through limited companies when he knew them to be insolvent and in using the unpaid Crown debts to finance such trading.”
In Secretary of State for Trade and Industry v. McTighe (No 2)  2 BCLC 477 the Court of Appeal accepted the Secretary of State’s submission that it was misconduct to pursue:
“the policy of not paying the debts of creditors who are not pressing when it is known that the company has insufficient reserves enabling it to trade except at the risk of such creditors.”
As Sir Martin Nourse put it in Secretary of State for Trade and Industry v. Creegan  1 BCLC 99:
“In general, it is not enough for the company to have been insolvent and for the director to have known it. It must also be shown that he knew or ought to have known that there was no reasonable prospect of meeting creditors’ claims.”
Lewison J in the McAvoy case commented:
“Section 226 of the Companies Act 1985 requires the directors to prepare a balance sheet and profit and loss account for each financial year. Section 234 requires them to prepare a report for each financial year. Section 242 requires the directors to deliver to the registrar of companies a copy of the company’s annual accounts together with a copy of the directors’ report and the auditors’ report on the accounts. Failure to comply with obligations as regards the filing of accounts and returns may also amount to unfitness.”
Nicholls V-C observed in Secretary of State for Trade and Industry v. Ettinger  BCLC 896:
“Those who take advantage of limited liability must conduct their companies with due regard to the ordinary standards of commercial morality. They must also be punctilious in observing the safeguards laid down by Parliament for the benefit of others who have dealings with their companies. They must maintain proper books of account and prepare annual accounts; they must file their accounts and returns promptly; and they must fully and frankly disclose information about deficiencies in accordance with the statutory provisions. Isolated lapses in filing documents are one thing and may be excusable. Not so persistent lapses which show overall a blatant disregard for this important aspect of accountability. Such lapses are serious and cannot be condoned even though, and it is right to have this firmly in mind, they need not involve any dishonest intent.”
“The seriousness with which such conduct is to be viewed is shown by the provisions of the Disqualification Act itself. The extent to which a director is responsible for any failure to comply with the statutory provisions regarding accounting records and the preparation of annual accounts is one of the matters to which the court is required to have regard in determining unfitness to be concerned in the management of a company. Those who persistently fail to discharge their statutory obligations in this respect can expect to be disqualified, for an appropriate period of time, from using limited liability as one of the tools of their trade. The business community should be left in no doubt on this score. It may be that, despite the disqualification provisions having been in operation for some years, there is still a lingering feeling in some quarters that a failure to file annual accounts and so forth is a venial sin. If this is still so, the sooner the attitude is corrected the better it will be. Judicial observations to this effect have been made before, but they bear repetition.”
All of the above brings us back to the issue I raised before where I pondered the reason for Mr Whyte’s own disqualification. Sadly, even in court, Mr Whyte failed to recall the reason for his own 7 year ban.
As I have mentioned however, I am sure that Mr Withey has learned many lessons from Mr Goldberg’s travails, and these will be put to good use by Mr Whyte at Ibrox.
The Result and a Possible Celtic Connection
As a consequence of the evidence heard, Lewison J disqualified Mr James Flannagan McAvoy from holding company directorships.
However, he has served his ban, and is now back in business.
Jim Traynor reported on January 9, 1999, that a consortium of Jim Kerr, Kenny Dalglish, and Mr McAvoy had been in touch with Dermot Desmond in connection with the possible purchase of some or all of Fergus McCann’s shares.
As the report continued “The consortium hope now to have further negotiations with Desmond who is not seeking to take hands- on control and will need the right people in place at Celtic Park if the club is to move forward. Dalglish, Kerr and McAvoy had said that their plan would have made available immediately pounds 20million for new players and also up to pounds 10million towards training facilities and a soccer youth academy. Dalglish said: “Our idea was not simply to give Fergus McCann money for his shares but to invest heavily in the playing side.
“We have put our cards on the table but so far as I am concerned while I understand the business side of a football club has to be strong and correct the most important thing is getting it absolutely right on the pitch. We hear so much about shares and directors and chief executives but this game is still about playing football.”
Ironic that, over 12 years later, Craig Whyte and his team said very similar things when they took over Rangers!