How do you want Dick Knight to vote on Leeds?

[Scotty Mac]

I think Knight should vote for the points deduction to disappear.

i think you are homosexual

 

[El Presidente]

Personally I would prefer no points deduction IF it meant the end of Bates. The man is a carbuncle on the face of football

 

[balloonboy]

Hang on a minute....Leeds have suddenly found the cash to offer SIX more players deals for the new season, including David Prutton. They have screwed Revenue & Customs out of £7m*, and screwed a whole load more deserving creditors out of even more dosh. And now they are miraculously throwing money at people like Prutton. The whole thing stinks, and in the circumstances a 15 point penalty seems a pathetically inadequate punishment. I cannot believe something VERY underhand has gone on here (although obviously I have no proof!)....Leeds should be very happy that they haven't been automatically relegated to League 2 (remember Swindon a few years ago?).

*By the way - Revenue & Customs = you and I

 

[Starry]

This is Mawhinney's letter to everyone.

Ref: AGWgcp9574

3rd August 2007

To All Club Chairmen

Dear Chairmen,
Leeds United
As you are aware, Leeds United A.F.C Ltd (OldCo) went into Administration on the eve of the last weekend of Season 2006/07. Following results that weekend the club was relegated to League One.

Throughout the close-season the League has been in touch with the Administrators and the club itself. As you will have seen in the media, the Administrators chose to re-market the club at the beginning of July following a challenge to the previously agreed Creditors Voluntary Arrangement by Her Majesty’s Revenue and Customs.

The club was brought by Leeds United 2007 Ltd (NewCo) whose directors are Ken Bates, Mark Taylor and Shaun Harvey.

Following extensive discussions with the various parties, including a four hour meeting with the Administrators and directors of NewCo on Tuesday of this week, the League has been advised by KPMG that they have decided not to proceed with a CVA and indeed to abort the CVA process altogether.

NewCo subsequently requested that we consider the application for the league share to be transferred from OldCo to them under the ‘exceptional circumstances’ provision instead of the normal requirement for a CVA.

At a meeting held by conference call this morning, the League’s Board agreed to this request but only on the basis that the club commenced Season 2007/09 with a fifteen point sanction. NewCo accepted this position provided that they could have the right to appeal to member clubs in order to have this sanction reviewed.

Accordingly, an agreement has been drawn up to reflect this position and the purpose of this letter is to advise you firstly that the League has transferred to NewCo the League’s share with a fifteen point sanction and secondly that a meeting has been called for next Thursday, 9th August 2007 in order to consider NewCo’s appeal against the sanction.

It is very important therefore, that all clubs are in attendance to consider this matter because this will represent a landmark decision which will, in effect, create a precedent fopr the future.

I will, of course, provide clubs with a full update at the meeting and NewCo will also outline the grounds for their appeal.

I should be grateful, therefore, if you could ensure that your club is represented at the meeting which will be held in London commencing at 10.30am at a venue to be advised.

A copy of the League’s news release confirming this position is attached for your information.,

Yours Sincerely,

Lord Brian Mawhinney
Chairman
The Football League

C.C Club Chief Executives and Club Secretaries.

 

[Starry]

And Bates' response.

Aug 8, 2007

Dear Chairmen,

Re: Leeds United

Lord Mawhinney was kind enough to send me a copy of his letter to you dated 3rd August.

As you know our appeal against the deduction of 15 points will be heard on Thursday and I felt compelled to write to all the Chairman of Football League Clubs to set out the true facts relating to the administration of Leeds United Association Football Club Limited and the subsequent purchase of its assets. I am disappointed but not surprised to have to say that the standard of reporting of the process has been appalling and in the main has been based on guesswork.

First of all let me confirm that the administration of the Club was not pre-planned. My staff at Leeds fought tooth and nail to get Leeds through to the start of the coming season when the last of the contracts that remained from the days of "living the dream" would have at last expired. We had procured external funding of approaching £25m in our attempts to keep the Club alive. We spent 9 months looking for external partners but as our playing fortunes declined during last season investors waited to see what would happen and this combined with falling gate receipts meant that by the end of the season funding had run out. We had paid HMRC some £25m during the period from January 2005 to April 2007 but the Revenue would not allow us more time to pay the outstanding arrears and whilst acknowledging our efforts issued a winding up petition due to be heard on 1st June 2007. Following the issue of the petition administration or liquidation was really the only option.

We approached one of the leading insolvency practices in the world, KPMG, to advise. They were concerned that with the close season upon us there would be no income to run the Club and advised that administration followed by a sale to a party willing to fund the Club during the Administration process was the best approach to adopt.

We have attracted some criticism for going into administration before the end of the 2006/07 season, and thus triggering the 10 point deduction during that season when we were almost certain of relegation. I think this criticism is unfair. Lord Mawhinney has stated publicly that the approach we took was completely within the rules. As directors of the Club we had a duty to act in the best interests of the Club and we believe that in taking the actions we did we discharged our obligations properly. The supporters of Leeds United would have rightly been appalled if we had been relegated and then have taken a ten point deduction that could have been taken during the 2006/07 season.

Lord Mawhinney's letter to you highlights the fact that the Football League have imposed, "a fifteen point sanction"

"Sanction" is defined in the Oxford English dictionary as meaning "a penalty for breaking the rules". We believe that Leeds have broken no rules and have complied with the regulations of the Football League to the absolute extent it was in their power and control to do so. We have no reason to think that KPMG have acted other than in accordance with the law of the land in conducting the administration. In these circumstances we believe that no "sanction" is appropriate.

KPMG put a Company Voluntary Arrangement (CVA) to creditors of the Company on 14th May and this was approved more than 75% of the creditors of the Company as required by the Insolvency Act 1986, only just, but a win is a win.

Following approval there is a 28 day period during which creditors can appeal against the conduct of the CVA. During this period various parties made threatening noises but did not appeal. I think the reason for this was that KPMG had sought the advice of two independent counsels before admitting any claim to vote in the CVA. It is difficult in such circumstances to see how the Administrators could be said to have acted unreasonably.
The Revenue however were still making demands and in an attempt to placate them we increased the sum payable under the CVA. Creditors were now being offered circa 8.5 pence upfront with a further 30 pence if the Club attained Premier League status within the next 10 years.

Despite the improved offer the Revenue appealed at approximately 15:00pm on the last day for appeals. Their appeal was based on the acceptance by the Administrator of three debts upon which the Administrator had taken independent advice.

In our view the appeal was a sham. The Revenue could have appealed against the admission of the debts on day one but it chose to wait until the 28th day to do so. It is our view that the decision of the Revenue was vexatious, and I think that this is confirmed by what happened next.

At a directions hearing for their appeal on the 6th July a representative of the Revenue told the Administrator's lawyer that they would withdraw what they described as a protective appeal provided Leeds put all sums into the CVA immediately and instead of paying "Football Creditors" paid the sum set aside for "Football Creditors" into the CVA for the benefit of the unsecured creditors generally. At last the true motive of the Revenue had been revealed. Their appeal was yet another attack on the "Football Creditor Rules" something the Revenue had sought to attack since their preferred status had been withdrawn in September 2003.

The Revenue knew we could not and indeed would not want to break the Football Creditors Rules, but I think they were surprised when we agreed to do the next best thing. We met their demands by increasing our payment into the CVA by an additional sum equal to the sum being set aside for Football Creditors. We put the unsecured creditors of the Company in the position that the Revenue had required, but we were still paying the Football Creditors, which was unacceptable to the Revenue.

The question of the Football Creditors Rules has been litigated to the Court of Appeal in the Wimbledon case. For the Revenue to over turn that position the case would have to go to the House of Lords and whilst the Revenue have our taxes to pay for that litigation, the Club could simply not afford it.

In these circumstances we approached the Administrator and offered to purchase the Club unconditionally and take our chances with the Football League, we felt that the Revenues position represented an attack on football generally and on Leeds in particular. The circumstances seemed to us to be the "exceptional circumstances" referred to in the Football League Insolvency Rules.

On Tuesday last week Leeds meet with the Administrators and the League. Initially the League expressed the view that "exceptional circumstances" did not exist, a position that frankly we found unbelievable.

The League did not dispute that the offer we had made was the best offer on the table but wanted it put to a new creditors meeting. Because we had paid the player’s wages and some players had moved on during the close season the "football debts" had reduced meaning the Revenues votes as a proportion of the whole had increased. The Administrators were of the view that the Revenue now represented 24.4% of the debt and this would enable them to block any CVA.

It was agreed to approach the Revenue to seek to persuade them to withdraw their objection. Their response was categoric. They stated on the record that if a revised CVA was presented "as a matter of policy, HMRC would vote against any CVA that resulted in Football Creditors being paid in full". If the CVA was passed they would appeal again and would litigate all the way. Their position means that unsecured creditors generally including themselves will get a lower payment than they would have done under the CVA.
In the face of this intransigence by the Revenue the Administrators said a further meeting was futile and the League eventually agreed that "exceptional circumstances" existed and agreed to transfer the League share subject to the sanction now under the appeal.

So exactly what rules have been broken?

1. Lord Mawhinney has acknowledged that going into administration as and when we did, broke no rules.

2. The League press release states:
"Notwithstanding the manner in which this administration has been conducted the Club should be permitted to continue in the Football League"

If that is a criticism of Leeds then it is misplaced. The Administration has been carried out by KPMG if the League have complaints about the process they should be addressing them to the Administrators not the Club. The Club could have had no influence over the Administrator who was independent.

3. Finally the CVA was approved by the requisite number of creditors but completion of it has been blocked by the Revenue for what can only be described as political reasons. Leeds should not be punished because the Revenue is intransigent.

We have broken no rules. The "exceptional circumstances" rules were introduced to cover exactly the situation that exists today. We can only speculate as to the reasoning behind the imposition of a sanction when no rules have been broken. We believe such a sanction is wholly unfair and a breach of natural justice.

On Thursday we will be asking you to overturn its imposition.

If we can clarify any aspect of the matter for you, please feel free to contact my fellow directors Shaun Harvey or Mark Taylor.

With Kind Regards

Yours sincerely,

K. W. BATES