Part 2 The fightback begins - Part
3 Return of the Mac - Results and
table - printer friendly
and aftermath - The Chronology
On 8 May 2001, Leeds United were in Valencia's Mestalla Stadium
tilting at a place in the Champions League final. Six years later
the club was relegated to the third tier of English football for
the first time and pitched into the maelstrom of financial administration;
it was an astonishing fall from grace.
At the end of a disastrous 2006/07
season, failure to beat Ipswich Town at Elland Road on 28
April had all but confirmed relegation. United had a game still
to play, but the vast inferiority of their goal difference made
the task of overtaking Hull City, even if they could eradicate
the three-point gap, a remote mathematical possibility.
With the club's financial position brittle to say the least,
United chairman Ken Bates saw his opportunity and the club opened
feverish discussions with the accountants, KPMG. By 4 May Leeds
United had been placed in administration and the business and
assets sold to Leeds United Football Club Limited, a new company
set up by Bates and his fellow directors.
The move smacked of opportunist manipulation, with the resultant
10-point penalty an irrelevance that served merely to formally
confirm the inevitable relegation. The numerous enemies that Bates
had made over the years were beside themselves with righteous
indignation, but the man himself was bullishly unrepentant, snapping,
"People in Leeds tell me they need a successful club. Well they
need to get off their backsides and come and support the club.
Show us your money. When we're back where we belong, we'll remember
the people who did support us and those who didn't support us.
Revenge will be a dish best eaten cold."
At the end of March, the club's balance sheet groaned under debts
of £35m, with a cash injection of £10m required to continue trading.
This position made administration inevitable, and provided the
club with an opportunity to develop a Company Voluntary Arrangement
(CVA), a legal procedure defined under the Insolvency Act, which
enables a company to settle its debts at a discounted rate, and
requires the approval of 75% of the voting creditors. The Football
League insists on a CVA as the only acceptable means for a club
to exit administration if it wishes to retain its League membership.
With Bates confidently claiming to have 75% of votes in the bag,
it seemed that the crippling liabilities that had dogged Leeds
United for years were to be eradicated in one fell swoop. But
the club's financial affairs have rarely been straightforward
and there was a summer of intrigue to come during which a football
club nearly disintegrated.
The crisis had been brought to a head by a pre-emptive move from
Her Majesty's Revenue and Customs (HMRC).
United had been paying £200,000 a month to clear a historic tax
liability, but cashflow problems led to a failure to meet the
payments in March and April, breaching the terms of a 'time to
pay' agreement. HMRC lost patience and served a winding up petition
on April 17, meaning that if the club could not clear its £5m
debt by 27 June, it could be forced into liquidation.
This came as something of a surprise. Bates had been boasting
for some months that the club was now trading profitably and the
crippling effects of exorbitant contracts with the likes of Danny
Mills were almost at an end. To underpin their position, in the
9 months to March United had raised £7.3m from the sale of players,
including Rob Hulse, Matthew Kilgallon and Simon Walton, and received
a settlement of around £4m from Chelsea for the tapping up of
two youth players. Additionally, Astor Investment Holdings had
loaned the club £11.3m between August 2005 and October 2006 and
the Forward Sports Fund had paid £2.5m for shares in the club.
Money was evidently still pouring out of Elland Road.
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On 14 May, KPMG wrote to creditors, summarising the state of
play, announcing the details of the creditors meeting planned
for 1 June and listing around 1,350 unsecured creditors totalling
£38,100,038. This was
summarised as follows:
- Astor, a British Virgin Islands-registered company £12,726,687
- Shortfall to football creditors £8,089, 955
- HMRC £6,866,516
- Trade creditors £3,216,496
- Krato Trust, another offshore company, registered at a PO
box in Charlestown, Nevis in the West Indies £2,492,761
- Forward Sports Fund, the Swiss-based main shareholders of
the club £2,419,000
- Compensation fees due to ex-players £631,595
- 20 year season ticket holders £625,163
- Agents fees £407,697
- Finance leases £257,600
- Deposits £127,089
- Unsecured element of employee claims £108,966
- Memberships and subscriptions £106,378
- Pensions £24,134
The deal put forward by Bates was for a payment to non-football
creditors of 1p in the pound, meaning that HMRC would receive
just £69,000 in settlement of the £6.9m debt.
There were two major barriers to Bates' scheme: the interest
of rival bidders and the taxman's intransigence.
Intense press speculation followed about potential bidders, including:
- former Sheffield United chairman Mike McDonald
- former Hull City chairman and United director Adam Pearson
- Yorkshire-based internet tycoon Peter Wilkinson
- Las Vegas-based billionaire Dominic Marrocco
- Microsoft co-founder Paul Allen
- former West Ham chairman Terry Brown
- Leeds United Supporters Trust
- a consortium headed by Dubai-based Sheikh Samir A S Mirdad,
chairman of the Linx Group
- Duncan Revie, the son of legendary
United manager Don.
Revie's family connection appealed to the fans and made him the
popular choice. He confided in the Mail on Sunday, "What is happening
to Leeds is a bloody disgrace. When things get this bad, I can't
ignore it. My feelings run too
deep. I am interested in trying to get Leeds back where they belong,
which is in the top six of the Premiership. I've held talks with
some influential people and the feedback has been good. I will
be holding more talks in the next few weeks. The money is not
a problem ... But that is not the point. I will not make any approach
until I am 100 per cent certain that I can find the management
team that will put Leeds United back on its feet."
Revie refused to commit himself to the timescales set by KPMG
and hinted that he would bide his time. That left the most tangible
hopes resting with Simon Franks' Redbus investment vehicle and
29-year-old Morris was the major investor in the
consortium that bought United in 2004. He was a property entrepreneur
and had recently been named among the top 10 richest Britons under
30, with a fortune estimated at £69m.
It was understood that a key element of his plans involved buying
back the Elland Road stadium and developing land around it into
an entertainment complex. Morris spoke of building a 50,000-seater
stadium as part of a £400m "world-class leisure venue". He also
claimed that he would provide a further £25m to bring financial
stability to Elland Road.
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At the end of May, Harry Harris wrote: "An attempted £1billion
business coup designed to discredit Leeds chairman Ken Bates,
remove him from power at Elland Road and buy up the stadium for
redevelopment, has been uncovered by the Daily Express. The plan,
commissioned by would-be Leeds buyer Simon Morris, entails compiling
a 'black book' on Bates and others involved in the ownership of
land adjacent to the club. Elland Road plus two other sites would
net £1bn according to a confidential memo.
"Code-named Project Peacock, the plan was drawn up last month.
The intention was to activate it as the club hit their lowest
ebb - once relegated and then wound up.
"The document outlines Project Peacock in 'The Brief'. It explains
that the 'target development area' consists of three sites adjacent
to one another - Elland Road (owned by Jacob Adler); a British
Road Haulage site owned by the Castle family and over which Stanley
Leisure has an option which expires on July 2; and a council-owned
"Project Peacock's objective is to acquire all three sites for
development, relocating Leeds United to a site nearby which would
be supported by retail outlets and a 50,000-seat arena."
The other major bidder, Simon Franks, was head of the Redbus
Group, a corporate fund that specialised in turning around ailing
The Redbus approach was lower key than the Morris plan, although
Franks was ardent in his pursuit of the opportunity. Redbus claimed
to have £35m at its disposal and, after paying off creditors,
would commit the remainder to player wages and transfer fees rather
than to the buyback of the freeholds at Elland Road and the Thorp
Arch training ground.
Even with so much interest in the club, there was still a shadow
on the horizon.
HMRC had long been fiercely opposed to the requirement for football
creditors to be treated as preferential creditors, thereby reducing
the money available to normal creditors. In 2004, HMRC took Wimbledon
to the High Court in an unsuccessful attempt to overturn the ruling.
Their failure only made them more determined to find another high
profile test case - Leeds United were the perfect candidates.
An HMRC insider told the Daily Telegraph: "We are furious at
the raw deal we have got out of this debacle. We are getting a
penny in the pound for £7 million of public money which should
be used to pay for hospitals and schools and other important public
But Ken Bates loved a fight and he had an ace in the hole, knowing
that Astor Investment Holdings could effectively veto any bid
as they held more than 25% of the voting powers. There was more,
as the Guardian reported: "Both Krato and Astor Investment have
told the administrator they have no connection to Bates, Forward
Sports Fund or any other director of Leeds. (KPMG) had made 'fairly
extensive inquiries' to confirm there was no legal connection
between them and said, in fact, the owners of Astor were unknown.
"Krato and Astor have stated that they have no connection with
Forward or Bates. Nevertheless they have agreed to the proposal
to sell the club to Forward for 1p in the pound, even agreeing
to reduce the amount they will receive. Astor has agreed to write
off half its claim if creditors approve the sale, while Krato
has agreed to accept nothing at all."
When KPMG were asked why the two anonymously-owned offshore entities
should agree to write off millions of pounds in return for a sale
to a new company in which they stated they have no interest, joint
administrator Richard Fleming said: "At the time we agreed it,
there were no other offers. Maybe they had football in their hearts
and wanted the club to survive."
And thereby hung the reason for the widespread criticism.
It was widely rumoured that both Astor and the Krato Trust were
inextricably linked with Bates. Astor was a British Virgin Islands-registered
but Guernsey-managed company. A Private Eye article in June claimed,
"A similar opaque arrangement for many years was said to lie behind
the Guernsey company Swan Management which controlled the largest
shareholding in Chelsea when Bates was chairman. Swan was linked
to Guernsey accountant Patrick Murrin, a one-time Chelsea director.
Interestingly, Krato shares the same Nevis address as Rivoli -
a company linked with Murrin, a long-time associate of Bates.
It now emerges that Rivoli had factored a debt due from Sheffield
United- paying a discounted amount up front and looking to make
the collection. Rivoli was owed £625,000 when the Leeds music
stopped. Murrin, like Astor, also had an interest in Forward Sports
Fund which is registered in the Cayman Islands."
Private Eye also drew attention to Astor's actions in seeking
a debenture in March, during the lead up to administration, implying
the move was a thinly veiled attempt to manipulate any future
vote of creditors.
Bates' offer and five other bids were put to the creditors on
- Consortium of UK businessmen backed by US fund - £109k to
unsecured element of employee claims, £3.2m to unsecured creditors
- US fund - Up to £3m to unsecured creditors, request to hold
discussions with investor creditors
- Private individual - £1.5m to unsecured creditors, £4.5m to
pay towards the club's running costs in May and June
- US fund - £109k to unsecured element of employee claims, £3.3m
to investor creditors, £1.2m to other unsecured creditors, plus
some conditional payments
- Consortium of UK businessmen backed by US fund - £1m to unsecured
creditors, £8m to Astor, plus a share in the gross development
profit following redevelopment of Elland Road
The meeting was held in the Banqueting Suite at Elland Road and
was attended by somewhere in the region of 200 people.
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KPMG stressed that Astor and the Krato Trust would only support
the Bates bid and held a sufficient share of votes to defeat any
other offer. As a consequence of this, little time was given to
elucidating on the merits of the other bids. Morris' offer was
the most generous, amounting to a settlement that would return
18p in the pound.
The Times: "The administrators' report to creditors said with
legal precision: 'The Forward Sports Fund are the only connected
creditors of the company as far as the administrators are currently
aware on the basis of the information provided to them to date.'
In other words, they found no connection between Bates, Astor
and Krato. Bates has signed a declaration denying any links to
Astor. So has Mark Taylor, who sat alongside him on the old Leeds
board and who is also involved in the new bid. Astor has written
a letter saying it has no link to Bates. But Friday's meeting
brought a bombshell revelation. Former Leeds chairman Gerald Krasner,
himself an insolvency expert, subjected KPMG's Richard Fleming
to more than an hour of forensic questioning. He taunted the administrators
with the fact - disclosed in Leeds' 2006 accounts - that Astor
had been linked to Bates' Forward Sports. Fleming said stiffly:
'It's the first time we have been made aware of it.'
"There was more trouble to come. Fleming had said flatly that
failure to secure a deal to rescue Leeds would automatically mean
it lost its League status. But up popped the League's solicitor,
Nick Craig, to point out it need not happen 'in exceptional circumstances'.
The League has more than a passing interest. It is owed £177,000.
"The agitating by Krasner and his allies did produce one small
victory. Mark Taylor promised an extra payout for creditors if
Leeds returns to the Premiership within five years. But as the
voting approached, there were murmurs of 'stitch-up' as the combined
might of the creditors backing Bates was assembled."
Mark Taylor accepted that there had been an association between
Astor and the Forward Sports Fund as of 30 June 2006, but then
asserted, "There isn't now."
After prolonged delays Fleming announced that Bates' offer had
received the necessary support, but, at 75.02%, by a very narrow
margin. He said that as a result of statements made during the
meeting that a Court challenge was possible and decided to adjourn
the meeting until 10am the following Monday, 4 June, to allow
a recount of the votes.
That recount showed a slightly larger vote in favour, 75.2%,
and Fleming confirmed that Bates' bid had been successful.
Among those voting against were HMRC, the Football League, Gerald
Krasner, Melvyn Levi, Simon Morris, Kevin Blackwell and David
Healy. The margin of success was £70,683 on a total vote of £36.1m
and it would have taken only a couple of parties to change their
vote for the deal to have been blocked.
Other points of contention were some of the rulings made by KPMG
as to allowable votes. Between them, Krasner, Morris, Levi and
Blackwell had claims of £21.2m, but only £6 was admitted to vote.
Further to this, as reported later by the Guardian, doubts were
raised about some of the value attached to votes. "The two specific
cases raised by MPs yesterday were that of Yorkshire Radio, which
declared no claim in the preliminary statement that was issued
to all creditors but whose demand in the final document circulated
at the vote was for £480,000. Four of the directors of Yorkshire
Radio also had board positions in the club. The second case related
to Mark Taylor & Company, whose principal, Mark Taylor, is a director
of both the club and the takeover consortium. The company's initial
claim rose from £59,756 to £273,615.32 in the final analysis.
'There was no point billing because I knew I wouldn't have got
paid,' said Taylor yesterday. 'I knew the club did not have a
lot of free cashflow. But the work had been done, so I was perfectly
entitled to do that.'"
Despite all the doubts, the only way that the Bates takeover
could now be blocked was by a formal legal challenge. KPMG: "There
is now a 28-day period which allows any creditor who wishes to
dispute the CVA to go to court, so the club will stay in administration
officially for a further 28 days."
HMRC quickly indicated that they would be challenging the decision,
though they waited until the very last moment, 4pm on Tuesday
3 July, to formally confirm this. Over the intervening month,
Bates had been locked in desperate negotiations with HMRC to avoid
a legal challenge, gradually increasing the value of his bid.
This was despite his bullish public utterances: "The Inland Revenue
acted extremely unreasonably. Over the last two-and-a-half years
Leeds have paid between £15m and £20m to the Revenue, but our
cash flow dried up and we asked for a holiday. The Revenue said
no and put forward the petition to wind up the club. I'm sorry
small creditors have lost money, but that is totally down to the
Revenue. We were happy to pay everyone over a period of time.
The fault for Leeds United creditors should be placed fairly and
squarely at the Revenue's door."
On 2 July, United issued the following statement: "After meetings
with the Inland Revenue the administrator has negotiated an improved
offer to the creditors of Leeds United, offering them a further
amount equal to approximately 7p in the pound ... The original
agreement also included provision for a further £5m payment to
creditors (approximately 30p in the pound) should the club reach
the Premier League within the next five years. This period of
time has now been extended to 10 years. This payment compares
favourably with dividends paid by other football clubs that have
been through the Administration process and with any offers that
the Administrators received prior to approval of the CVA.
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"This offer is unconditional, subject to there being no challenge
to the administration and the Football League transferring Leeds
United's share to the NewCo. This offer is better than any other
alleged offer that has been made, all of which were subject to
conditions and due diligence.
"If the CVA is challenged the consequence will be liquidation
and Leeds United will cease to exist and the loss of 500 jobs
would be a further drain on government resources with unemployment
and social security benefits.
"It is our view that any appeal now will not be made on commercial
grounds but is either politically or personally motivated."
Despite the improved offer, HMRC formally served notice of their
attention to appeal on 4 July. Two days later, it was announced
that the hearing would take place on 3 September. This left United's
chances of competing in the new season in doubt and KPMG responded
instantly, announcing, "We are putting the club up for sale and
offers must be in by 5pm on Monday (9 July) and we are interested
in talking to other parties."
The decision sparked another hasty round of activity, both among
the press and the preferred bidders, including Redbus and Simon
Simon Franks insisted he would fight "tooth and nail" to gain
control of the club and admitted he was considering joining forces
with Morris to block Bates, adding, "It is an absolute travesty.
KPMG have asked us to submit bids by 5pm on Monday, but they are
not giving us access to the management accounts. We have no idea
what we are bidding for. I am livid and it is a travesty."
Franks was heavily critical of KPMG. As well as the timetable,
he was angry that bidders were unable to gain assurances over
exactly what assets were on offer - particularly whether they
would be guaranteed to receive the money banked from 9,000 season
ticket sales. Describing the process as "crazy" and "gob-smacking",
he said: "We may be bidding for something we actually can't have,
so it's frustrating and a little bit scary. It's the first time
in the history of our company we've taken part in such a blind
auction, but there you have it ... Our bid is still higher than
Bates' last published bid, but it is lower than we originally
In the end, four bids were lodged with KPMG by the deadline and
a final decision was postponed until noon on 10 July to ensure
that bidders could demonstrate proof of funds. Eventually it was
announced that Bates' offer had been successful, but only because
of Astor's agreement to waive its right to a dividend from the
Bates deal. That reduced the value of the creditors to £12.6m,
as opposed to £30.2m for the other three offers, thus substantially
increasing Bates' pennies in the pound payment. It was later reported
that his deal was worth 11.2p in the pound, against the next best
deal of 10.3p. If not for Astor's waiver, Bates' package would
have been worth just 4.7p. The other bid offered £1.7m more in
cash than Bates.
Simon Franks was clearly gutted at missing out, saying, "Obviously
I'm very disappointed. It's been a tortuous process and we put
together what we thought was a very brave bid. We have to remember
that in the last bidding, almost a month ago now, that our bid
was significantly more than Mr Bates'. I think we provided proof
of funds of £10million against his £350,000 - and we still lost
by the vagaries of the process that we're in. I cannot believe
that anybody outbid us but, in administration, the process is
Redbus believed that despite Astor's waiver, theirs was ultimately
the biggest offer KPMG received for Leeds. In its documents the
administrator did not account for an additional £8m that would
have been paid by Redbus-Morris in the event of the transfer of
the Football Share which would allow the newly owned Leeds United
to kick off the new season. KPMG justified this by saying that
"the additional £8m was to be used to settle football creditors.
It is a condition of the League that such football creditors are
paid in full in the event of agreement to transfer the football
share. Therefore, all the offers must satisfy this requirement
and make such funds available. Accordingly, even if the above
offer had been capable of acceptance, it would not have changed
the administrators' decision to sell to [Bates]."
Redbus Chief Executive Dean Dorrell claimed that there had been
no such provisos set on the £8m payment. "The only condition we
put down on our £11.501m bid was that £8m of it would be paid
upon transfer of
the Football League and [Football] Association shares," he said.
"There was no condition whatever of where that £8m would be paid:
to the Football League, football creditors or other such."
Ken Bates was delighted to retain ownership of the club, saying,
"Leeds were in a mess when we took over ... But now we've got
a clean start and a clean sheet of paper. It's a big club ...
and we can take it forward. The delays have been annoying. Part
of the delay has been caused by people who've professed to love
this great club and done their damnedest to cause as much trouble
as they can."
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KPMG sent a letter out to creditors on 24 July detailing the
terms of the actual sale to Ken Bates and comparing it with the
other offers. Click
here to read the letter in full.
It was generally accepted that it would now be a mere formality
to regain the League Share that was required for United to start
life in League One, but getting agreement was soon found to represent
another serious obstacle.
The Football League's board was expected to rubber stamp the
CVA at their meeting on June 6 in Portugal. However, they refused
to do so, deciding instead to defer any decision until their following
meeting, on July 12, and issuing the following statement: "For
legal reasons, it will now take a further 28 days for the CVA
to be formalised. During that period, the League can make no further
comment. The League has also confirmed to the administrator the
conditions that must be satisfied before the League board can
consider transferring the club's share in the Football League
to the new company."
After the meeting on July 12 they issued the following statement:
"To date, no documentation regarding the sale has been submitted
to the League by the administrators. Notwithstanding this, the
board was asked by the reported purchasers to consider an application
to transfer Leeds United's share in the Football League to them.
The board was unable to consent to this request this morning.
Instead it has requested, from the administrators, certain required
documentation and assurances regarding the sale of the club. The
board also requires certainty on the current legal proceedings
surrounding the administration.
"The board had been expecting the administrators to attend today's
meeting, as KPMG originally requested. However, the League was
informed late yesterday afternoon that they would not be attending,
with no explanation provided. Additionally, the board expressed
concern at the handling of the whole process by the administrators
and the chairman was instructed to obtain legal advice in that
"Clearly any further delays in this process will be frustrating
for Leeds supporters. However, like the club's fans, the board
recognises the pressing need for certainty regarding the future
of League football in Leeds and has agreed to convene at the earliest
opportunity to reconsider the share transfer, once it has been
provided with all the relevant information.
"Also, for the avoidance of doubt, the League would like to make
it clear that there is nothing in its regulations to prevent a
club beginning a new playing season whilst in administration."
United and KPMG rushed the requested documentation through to
the League, but there was then silence for a couple of weeks.
Football League representatives met with officials from United
and KMPG on 31 July and spent hours trying to agree the return
of the Football Share.
The League insisted that United had to leave administration via
a CVA. Chairman Lord Mawhinney said, "I spoke personally at length
to the highest levels of KPMG and Leeds United 2007 on Monday
and we then had a four
hour meeting here on Tuesday. We all agreed that the best way
to proceed was to try and reconstitute the CVA. This is the normal
way we get clubs out of administration. We have had 41 previous
clubs who have been in administration and all of them have gone
down this route, and I expect to hear back from KPMG their considered
opinion by the end of the week."
By 2 August KPMG had responded, rejecting the calls to reconstitute
the CVA, arguing that the intransigence of HMRC meant such a move
was doomed to failure.
Then came a totally unexpected turn of events.
The Football League accepted there were "exceptional circumstances"
but decided they could not allow Leeds to operate in contravention
of their Insolvency Policy. "The Football League Board agreed
that, notwithstanding the manner in which this administration
has been conducted, the club should be permitted to continue in
the Football League," said a statement. "Consequently, the board
has decided to make use of the 'exceptional circumstances' provision
within the League's Insolvency Policy, for the first time, and
agreed to transfer the club's share in the Football League to
Leeds United 2007 Ltd. Accordingly, the club's share has now been
"However, it is acknowledged the club did go into administration
and has been unable to comply with the terms of the League's well-established
Insolvency Policy. As a result, the board determined this transfer
of membership should be subject to Leeds United having a 15-point
deduction applicable from the beginning of the 2007/08 season.
Leeds subsequently have lodged an appeal against this sanction,
which will be heard at a special meeting of all League clubs,
to be arranged in due course."
United appealed against the penalty, with the other 71 League
chairmen sitting in judgement. Ken Bates was incandescent about
these arrangements, pointing out the obvious conflict of interests.
His complaints fell on deaf ears and got Bates absolutely nowhere
- the chairmen supported the League's decision
by an overwhelming majority.
It was like a death knell for United's promotion hopes, but at
least they could finally start making preparations for the new
There was some good news on 30 August, with HMRC formally withdrawing
their legal challenge, due to be heard four days later. A spokeswoman
said it had become "academic" when the CVA was ditched in early
July. She would not be drawn on why it had taken the Revenue nearly
two months to formally kill off the case and nor would she elaborate
on what steps the taxman intended to take regarding the money
It had taken four months, but finally one of the most dramatic
periods in the intriguing history of Leeds United had drawn to
a close and attention could return to onfield affairs.
Part 2 The fightback begins - Part
3 Return of the Mac - Results and
table - printer friendly
and aftermath - The Chronology
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