Wise move!

[Myles Francis]

Can't see the point in arguing which case is worse - Leeds or Tevez. Quite simply, both are examples of how morally bankrupt football has become.

[Mooro]

Can someone explain to me in simple terms how Bates warrants preferential status over any other bidders?

As far as I understand, going into administration means handing over the reigns to an independent body which makes decisions in the cumulative best interest of both creditors and the club. This in effect means getting the largest possible proportion of debts paid to creditors, while ensuring the club is left in the best hands to take it forward.
Also, a CVA is an option proposed by prospective future owners to reduce debts in order to facilitate a more viable future. Creditors generally (but not always) accept taking the view that it is a) the only offer on the table b) better than nothing and c) a means to get the club back on its feet under the new regime.

Now to my mind, having passed the club into the hands of the administrators, the former owners should not be entitled to any preferential status over any other potential bidders in terms of how the administrator handles the case, as their proposal cannot automatically assumed to be the best solution for the creditors.

Therefore at this stage, the administrators have an obligation to open the case up to any potential bidders to submit alternative proposals (with access to all appropriate documentation/financial information). Once bids are submitted, there is then a dual decision to be made between the administrators and the creditors as to which bid(s) are deemed acceptable in terms of meeting debts and providing a viable future for the club. Once 75% of creditors agree then that is the bid which will proceed.


As I see it, KPMG have failed to proceed in this manner twice, firstly when Bates bought the club back within minutes, then again when bids were invited but with a very short timescale and no clarity as to what exactly was to be included. This therefore compromises the interests of both creditors and club for the optimum outcome.

Earlier ResOx answered a previous question, saying that Bates ‘controls’ 75% of the creditors, which of course makes it likely that they will accept his offer over any other, but surely there is still an obligation on the administrators to establish whether his bid meets all of their requirements.

This raises more questions: Firstly how does Bates ‘control’ 75% of the creditors?

Are they all independent of him but are those who, in accepting that Bates had already succeeding in pulling a fast one, voted to accept the original CVA on the grounds that 1% is better than nothing as no other offers had been allowed?
Are they all nominally independent but ones over which Bates has some stranglehold when it comes such decisions?
Are they companies that Bates owns, hence ones in which the outstanding amounts can probably be spirited away using clever accounting (all no doubt entirely legal, if somewhat dubious to the man in the street)?
Are they Bates himself, with him effectively writing off amounts owed to himself?

In all but the latter, the administrators have a responsibility to ensure that such influence is not allowed to hold sway over other bids which are in the best interests of both the club and all creditors, including those outside of his influence.

Secondly, and subsequently, am I not right in remembering that there are rules to cover such cases stipulating that the 75% has to be of creditors not connected to the buyer (or something similar) and/or has to be 75% of the number of creditors as well as those representing 75% of the total amount owed ?

Whatever one thinks of Bates, I cannot see how this process can be deemed to have been handled in the best interests of all concerned, given that alternative options cannot be said to have been fully and fairly considered.


BTW - my view is that something does not have to illegal to stink!!! In fact, in many cases it is the flaws in the legal process involved that give off the worst stench.

[Resurrection Ox]

Sorry Mooro I gave a long answer to this but its been lost in the editing. I may come back again on this in a day or two.

[Myles Francis]

I doubt that anyone has definitive answers to the questions - particularly with regard to how Bates controls 75% of the creditors. It may well be simply that he has &quotloaned&quot the club money which accounts for that 75%.

I don't think anything with Bates is ever clear. If I recall correctly, there were a number of allegations flying around regarding whether or not he held certain shares with Chelsea (I think they were held in an offshore trust which he denied any involvement with, but there were suggestions that it was his trust).

[GodalmingYellow]

No. Tevez story is far more important. Prem has been grossly negligent at best. At worst they have been corrupt.

Bates is not being corrupt. He is applying the law. Your comparison with the dodgy plumber overcharging is plain wrong. How has Bates been guilty of 'overcharging'? He controls the insolvency and company law process re Leeds United. He is applying his rights. That's all.

Bates is not a nice bloke by all accounts but describing him as the arse end of society is a bit rich.

For better examples of that look at the old Donny chairman who burned the ground down for the insurance, Brian Hillier, who defrauded HMRC with his pal Macari by paying the players cash in hand or say Keith Haslam who has seemingly used Mansfield Town's cash flow as his own personal bank account.

We're not going to agree on this one.

Just because there are other bad club owners, doesn't mean Bates doesn't deserve the tag.

In my view the comparison with the dodgy builder is entirely justified, as Bates is ensuring that the other creditors are effectively overcharged. I would be delighted in the aftermath of this, if no supplier touches Bates' Leeds United with a very long barge pole.

This story is incredibly damaging to football and I'm surprised anyone wants to defend Bates' actions.

If Bates had simply said, OK I'll match the best offer and pay up the extra 9p in the £ to the other creditors (not forgetting that 75% of that goes straight back to himself so it isn't going to cost him much), then no one could have reasonably complained. He would still have got Leeds for a bargain, and the other creditors would have lost the least amount possible.

To repeat, application of the law alone is not always morally right.

[GodalmingYellow]

In reply to Mooro's last post.

Unfortunately, that isn't quite how it works.

The administrators' job is to find the best offer available for the creditors and the club, and put that offer to the creditors to vote yes or no. It is entirely down to the creditors which way they vote.

The administrators are obliged to accept a proposal when there is 75% in favour, the crux of this being that the Insolvency Act was written on the grounds that if 75% agree, then it must be the best offer available or they would not agree.

It is fairly unusual for 75% of the voting rights to be held by just one creditor and even when that happens, even rarer for that majority creditor to accept a proposal which is less than the maximum available. It is then very unusual (in fact I have only heard of this happening in football) that the majority creditor, who alone owns 75% of the voting rights, wants to buy the business back and might therefore be prepared to accept the lowest available offer too achieve that, in the knowledge that they will profit from the deal in the short and long term.

The Insolvency Act just wasn't intended for these type of circumstances, but it is the only law available.

The only other option that the administrators would have would be to say that they did not believe that the offer was in the best interests of the creditors and the business and therefore recommend winding up proceedings. I don't think anyone involved would consider that route as being suitable.

So here we have Mr Bates, refusing to pay HM Revenue and Customs, circa £8m in unpaid PAYE and VAT, as well as other creditors, because he knows he can call in the administrators, force their hand with his voting rights, and avoid paying what is rightfully due to the taxpayer and other creditors, and if that were not enough he can also force the hand of the administrators to accept the lowest available offer.

There is no getting away from the conclusion on this one, just because it is not illegal.

Oh and by the way for those who aregue BAtes has done nothign wrong, willfully withholding VAT and PAYE collected from customers and employees is illegal.

[Resurrection Ox]

In reply to Mooro's last post.

Unfortunately, that isn't quite how it works.

The administrators' job is to find the best offer available for the creditors and the club, and put that offer to the creditors to vote yes or no. It is entirely down to the creditors which way they vote.

The administrators are obliged to accept a proposal when there is 75% in favour, the crux of this being that the Insolvency Act was written on the grounds that if 75% agree, then it must be the best offer available or they would not agree.

It is fairly unusual for 75% of the voting rights to be held by just one creditor and even when that happens, even rarer for that majority creditor to accept a proposal which is less than the maximum available. It is then very unusual (in fact I have only heard of this happening in football) that the majority creditor, who alone owns 75% of the voting rights, wants to buy the business back and might therefore be prepared to accept the lowest available offer too achieve that, in the knowledge that they will profit from the deal in the short and long term.

The Insolvency Act just wasn't intended for these type of circumstances, but it is the only law available.

The only other option that the administrators would have would be to say that they did not believe that the offer was in the best interests of the creditors and the business and therefore recommend winding up proceedings. I don't think anyone involved would consider that route as being suitable.

So here we have Mr Bates, refusing to pay HM Revenue and Customs, circa £8m in unpaid PAYE and VAT, as well as other creditors, because he knows he can call in the administrators, force their hand with his voting rights, and avoid paying what is rightfully due to the taxpayer and other creditors, and if that were not enough he can also force the hand of the administrators to accept the lowest available offer.

There is no getting away from the conclusion on this one, just because it is not illegal.

Oh and by the way for those who aregue BAtes has done nothign wrong, willfully withholding VAT and PAYE collected from customers and employees is illegal.

What if the unpaid PAYE and VAT related to periods prior to Bates's tenure then? Its more complicated than you think.

[Mooro]

Right, I think I might have got this – is the following a very simplified version of what has gone on:

A few years back Leeds (LU) came up for sale with ‘x’ debts
A Ken Bates owned company (KBA) bought LU for £1.
KBA loans LU £25m over a period of time to run/pay off debts etc
LU meanwhile also builds up an £8m debt to HMRC
LU go into administration with £33m debt.

Two offers are made:
1) Another company (ANO) to buy LU for £1 (&amp offers a CVA @ 10p/£1)
HMRC would get £800k, KBA would get £2.5m.
=&gtANO owns LU, Bates has a £22.5m loss.

2) Another Bates company (KBB) buys LU for £1 (with CVA @ 1p/£1)
HMRC would get £80k, KBA would get £250k
=&gtBates has deficit of £24.75m but still owns a debt-free LU.

As the debt to KBA is &gt75% of total debt, they get to choose which offer is accepted &amp being a Bates owned operation, choose the KBB offer. HMRC are powerless to influence any decision.

The thinking on Bates behalf is that if KBB loan a further, say, £10m to LU to get them onto a firm footing, his total deficit would be around £35m.
However, as LU will be debt-free after the CVA, then he has a chance of re-establishing them as a stable entity on-going. As such he would then hope to be able to sell it to another buyer at some point in the future for an amount more in keeping with those seen recently for other sizeable clubs, and hopefully in excess of the £35m he is down.
Even if he does not get the big sale as hoped, as long as when he sells it on, the price is set higher than the £2.5m he would have got from ANO now &amp the deal includes full repayment of any loans to LU from KBB he will still be better off than he would be by accepting the ANO offer now.

If that is the case, then I guess it is not so much corrupt, rather just using typically sharp practice to crap on your debtors – still has a whiff about it though.

Two points: i) I’m sure I remember something from the past about any offer would need to satisfy not only enough creditors to represent 75% of the total debt, but also a flat proportion of the number of debtors (irrespective of the amount owed to each). If that was the case, then HMRC &amp other smaller debtors would have a chance of blocking the deal (although I imagine the KB loans would just come from a collection of companies, not just one, to get round it).
ii) It is the case that clubs can only go into administration once isn’t it, so at least he should not be able to repeat this stunt ad infinitum.

[GodalmingYellow]

In reply to Mooro's last post.

Unfortunately, that isn't quite how it works.

The administrators' job is to find the best offer available for the creditors and the club, and put that offer to the creditors to vote yes or no. It is entirely down to the creditors which way they vote.

The administrators are obliged to accept a proposal when there is 75% in favour, the crux of this being that the Insolvency Act was written on the grounds that if 75% agree, then it must be the best offer available or they would not agree.

It is fairly unusual for 75% of the voting rights to be held by just one creditor and even when that happens, even rarer for that majority creditor to accept a proposal which is less than the maximum available. It is then very unusual (in fact I have only heard of this happening in football) that the majority creditor, who alone owns 75% of the voting rights, wants to buy the business back and might therefore be prepared to accept the lowest available offer too achieve that, in the knowledge that they will profit from the deal in the short and long term.

The Insolvency Act just wasn't intended for these type of circumstances, but it is the only law available.

The only other option that the administrators would have would be to say that they did not believe that the offer was in the best interests of the creditors and the business and therefore recommend winding up proceedings. I don't think anyone involved would consider that route as being suitable.

So here we have Mr Bates, refusing to pay HM Revenue and Customs, circa £8m in unpaid PAYE and VAT, as well as other creditors, because he knows he can call in the administrators, force their hand with his voting rights, and avoid paying what is rightfully due to the taxpayer and other creditors, and if that were not enough he can also force the hand of the administrators to accept the lowest available offer.

There is no getting away from the conclusion on this one, just because it is not illegal.

Oh and by the way for those who aregue BAtes has done nothign wrong, willfully withholding VAT and PAYE collected from customers and employees is illegal.

What if the unpaid PAYE and VAT related to periods prior to Bates's tenure then? Its more complicated than you think.

That would make zero difference. He bought the shares, the creditors become his responsibility. Recognising unpaid VAT and PAYE would be the most basic of checks performed when buying shares. Even an idiot like Bates would be well aware of this.

[GodalmingYellow]

Right, I think I might have got this – is the following a very simplified version of what has gone on:

A few years back Leeds (LU) came up for sale with ‘x’ debts
A Ken Bates owned company (KBA) bought LU for £1.
KBA loans LU £25m over a period of time to run/pay off debts etc
LU meanwhile also builds up an £8m debt to HMRC
LU go into administration with £33m debt.

Two offers are made:
1) Another company (ANO) to buy LU for £1 (&amp offers a CVA @ 10p/£1)
HMRC would get £800k, KBA would get £2.5m.
=&gtANO owns LU, Bates has a £22.5m loss.

2) Another Bates company (KBB) buys LU for £1 (with CVA @ 1p/£1)
HMRC would get £80k, KBA would get £250k
=&gtBates has deficit of £24.75m but still owns a debt-free LU.

As the debt to KBA is &gt75% of total debt, they get to choose which offer is accepted &amp being a Bates owned operation, choose the KBB offer. HMRC are powerless to influence any decision.

The thinking on Bates behalf is that if KBB loan a further, say, £10m to LU to get them onto a firm footing, his total deficit would be around £35m.
However, as LU will be debt-free after the CVA, then he has a chance of re-establishing them as a stable entity on-going. As such he would then hope to be able to sell it to another buyer at some point in the future for an amount more in keeping with those seen recently for other sizeable clubs, and hopefully in excess of the £35m he is down.
Even if he does not get the big sale as hoped, as long as when he sells it on, the price is set higher than the £2.5m he would have got from ANO now &amp the deal includes full repayment of any loans to LU from KBB he will still be better off than he would be by accepting the ANO offer now.

If that is the case, then I guess it is not so much corrupt, rather just using typically sharp practice to crap on your debtors – still has a whiff about it though.

Two points: i) I’m sure I remember something from the past about any offer would need to satisfy not only enough creditors to represent 75% of the total debt, but also a flat proportion of the number of debtors (irrespective of the amount owed to each). If that was the case, then HMRC &amp other smaller debtors would have a chance of blocking the deal (although I imagine the KB loans would just come from a collection of companies, not just one, to get round it).
ii) It is the case that clubs can only go into administration once isn’t it, so at least he should not be able to repeat this stunt ad infinitum.

Your second example isn't right as the Bates wouldn't have £24.75m loss as the debt is only to himself and effectively represents the shares he owns. And given that he was the one who forced LU to spend that money, the debt is as a consequence of his own shite running of the club. so there is zero sympathy on that point.

As I understand it, the alternative offer was 17p in the £, so the creditors including HMRC lose out more than you have suggested.

As pointed out in reply to BW, HMRC should not even be a debt for VAT and PAYE purposes. That money is not Leeds United's money to spend. Busiensses act as tax collectors for the government for PAYE and VAT. The money never belongs to LU, they just handle it before passing it on. Spending PAYE and VAT receipts is fairly heinous and is no different to looking after someone's money and then spending it and not giving it back, except worse because it is yours and mine. We end up paying for Bates misdemeanours.

Another culprit in this is the Government for removing HMRC from preferred creditor status.

Clubs can go into administration many times. They can't do a cva more than once though (I think).

[Resurrection Ox]

I can confirm that in addition to 75% voting rule, on a separate basis 50% of non connected creditors also have to approve in an insolvency vote.

Bates has obviously got sway with some big, non connected creditors. The law therefore allows redress for non connected creditors if they feel they have been stiffed. Obviously not enough creditors feel that Bates is stiffing them. Their money. Their choice.

I think that some of the hot air in this thread misses the point. HMRC don't really have a massive beef with Bates per se.

They DO have a beef with the super creditor status of footballers in football related insolvencies. Put simply, when a normal business folds then the normal joe employees of that business can claim for fairly modest part of their contractual rights on a preferential basis.

But -er NOT footballers. I believe that the PFA negotiated a deal for their members such that in a footbal insolvency ALL of their unpaid contractual rights were preferential. Not knowing the full detail this presupposes that the likes of Robbie Fowler say , who is stilll owed money by Leeds from the Ridsdale era ranks ABOVE HMRC in the pecking order. Thats why HMRC brought the challenge, not because they particularly dislike Bates.

HMRC's grievances have increased since they lost their preferential creditor status in 2002 Enterprise Act . A move which was very much welcomed by the business commiunity at the time.

I don't think it is a bad thing that they lost this status. In many many restructurings I have worked on the poor old business supplier creditor used to miss out time and time again because HMRC ranked above them .

HMRC have a whole kitbag of rights and devices availabe to them if they have not been paid what is due irrespective of losing their pref status.
They also get involved a hell of a lot earlier now in insolvent situations. This often has the impact of stemming further losses and creditor claims.

There is no chance of them getting their pref status back.

[GodalmingYellow]

I can confirm that in addition to 75% voting rule, on a separate basis 50% of non connected creditors also have to approve in an insolvency vote.

Bates has obviously got sway with some big, non connected creditors. The law therefore allows redress for non connected creditors if they feel they have been stiffed. Obviously not enough creditors feel that Bates is stiffing them. Their money. Their choice.

I think that some of the hot air in this thread misses the point. HMRC don't really have a massive beef with Bates per se.

They DO have a beef with the super creditor status of footballers in football related insolvencies. Put simply, when a normal business folds then the normal joe employees of that business can claim for fairly modest part of their contractual rights on a preferential basis.

But -er NOT footballers. I believe that the PFA negotiated a deal for their members such that in a footbal insolvency ALL of their unpaid contractual rights were preferential. Not knowing the full detail this presupposes that the likes of Robbie Fowler say , who is stilll owed money by Leeds from the Ridsdale era ranks ABOVE HMRC in the pecking order. Thats why HMRC brought the challenge, not because they particularly dislike Bates.

HMRC's grievances have increased since they lost their preferential creditor status in 2002 Enterprise Act . A move which was very much welcomed by the business commiunity at the time.

I don't think it is a bad thing that they lost this status. In many many restructurings I have worked on the poor old business supplier creditor used to miss out time and time again because HMRC ranked above them .

HMRC have a whole kitbag of rights and devices availabe to them if they have not been paid what is due irrespective of losing their pref status.
They also get involved a hell of a lot earlier now in insolvent situations. This often has the impact of stemming further losses and creditor claims.

There is no chance of them getting their pref status back.

We are getting a little away from the debate here, but re the preferred creditor status, as i said above, the problem wasn't so much Joe Bloggs creditor not being paid (though obviously that was happening), the problem was companies spending money which didn't belong to them (ie PAYE and VAT largely). The companies collect this money from their employees and customers on behalf of the government. Therefore, they are in effect stealing by spending that money. That is why HMRC come down very heavily and very quickly on VAT and PAYE defaulters. In my view, company directors should be held personally responsible for their companies which do not pay over the money they have collected. there really is no excuse for spending this money.

In the Leeds case, doesn't Bates own a majority of the shares, which is why he doesn't need the other creditors.