EFL v Rochdale - How not to comply with the EFL's Owners' and Directors' Test
On 27 October 2022 the written reasons of the EFL Disciplinary Commission were published in the case of The Football League Limited (“the EFL”) v (1) Andrew Curran; (2) Darrell Rose; (3) Faical Safouane; (4) David Bottomley; and (5) Rochdale Association Football Club Limited (“Rochdale”).[1]
The case related to charges brought by the EFL against the five respondents in March 2022 concerning whether Rochdale and/or any Official, Relevant Person or any other Person (as defined in the EFL Regulations 2021/22, reg. 1.1 and Appendix 3, rule. 1.1) complied with the requirements of the EFL Regulations relating to the acquisition of shares in Rochdale in July 2021.
The five respondents admitted the charges and ordinarily the only issue for the EFL Disciplinary Commission to then determine would be the appropriate sanction. However, as noted by the Disciplinary commission, there was a dispute between the EFL and the five respondents as to the factual basis upon which any such sanction should be based. [2] Accordingly, the Disciplinary Commission’s decision made findings of fact upon which the charges were admitted (although little turned upon those findings) and decided the appropriate sanction for the same.[3]
This article will set out the regulatory bases of the charges, summarise the factual background leading up to the charges, and then consider in turn the findings of fact made by the Disciplinary Commission and the consequent sanctions imposed for each of the five respondents.
Regulatory bases of the charges
Appendix 3 of the EFL Regulations 2021/22 is the EFL’s Owners’ and Directors’ Test (“OADT”). The following definitions are relevant to understanding the OADT and the charges brought against the five respondents:
‘“Club” means any Member Club and, for the purposes of this Appendix 3 only, includes any Associated Undertaking, Fellow Subsidiary Undertaking, Group Undertaking, Parent Undertaking or Subsidiary Undertaking of such Club’.[4]
‘“Official” means any Relevant Person, employee, (other than a Player) or duly authorised (express or implied) agent (other than an Intermediary) of a Club’.[5]
‘“Person” means any individual or where the context requires an Entity’.[6]
‘“Relevant Person” means in respect of any Club any individual Person (and not any Entity) operating the powers that are usually associated with the powers of a director of a company incorporated under the [Companies Act 2006] … Further, and without prejudice to the generality of the foregoing, the following individuals shall in any event be deemed to qualify as a Relevant Person:
(a) a director…
(b) a shadow director…
(c) a person registered as a director or secretary of the Club…
(d) a person for whom a Form AP01… has been completed in relation to the Club;
(e) a person who has been elected to become a director of the Club at a meeting of the board of directors of the Club;
(f) a person who has been elected to become a director of the Club at a meeting of the members of the Club;
(g) a person in accordance with whose directions or instructions the persons constituting the management of the Club are accustomed to act;
(h) any Authorised Signatory;
(i) any duly appointed signatory…
(j) any ‘chief executive officer’, ‘general manager’, ‘chief operating officer’ or any other person undertaking any duties which would objectively be considered to be equivalent to those roles;
(k) any person appointed by those with Control over the Club to represent the interests in the management of the Club;
(l) a person who has Control over the affairs of the Club’.[7]
‘“Control” means the power of a person to exercise , or to be able to exercise or acquire direct or indirect control over the policies, affairs and/or management of a Club, whether that power is constituted by rights or contracts (either separately or in combination) and having regard to the considerations of fact or law involved, and, without prejudice to the generality of the foregoing, Control shall be deemed to include:
(a) the power (whether directly or indirectly and whether by the ownership of the share capital, by the possession of voting power, by contract or otherwise including without limitation by way of membership of any Concert Party) to appoint and/or remove all or such of the members of the board of directors of the Club as are able to cast a majority of the votes capable of being cast by the members of that board; and or
(b) the holding and/or possession of the beneficial interest in, and/or the ability to exercise the voting rights applicable to, shares or other securities in the Club (whether directly, indirectly (by means of holding such interests in one or more other persons) or by contract or otherwise including without limitation by way of any Concert Party) which confer in aggregate on the holder(s) thereof 30 per cent or more of the total voting rights exercisable at general meetings of the Club’.[8]
A breach of one or more of the following rules from the OADT formed the bases of the charges against the five respondents, and such breaches permit the EFL to investigate and prosecute disciplinary proceedings [9]:
‘2.6 A person who proposes to be a Relevant Person may not do anything that brings them within the definition of a Relevant Person, and the Club may not permit them to do anything that brings them within that definition, unless and until the Club has received confirmation from The League in accordance with Rule [2.5.3] that as far as The League is aware the person is not subject to any Disqualifying Condition’.
‘3.1 If any Person proposed to acquire Control of a Club:
3.1.1 the Club and/or the Person shall, as far in advance of the acquisition of Control as reasonably possible and in any event no later than 10 Normal Working Days prior to the date on which it is anticipated that such acquisition of Control will take place:
(a) submit to the League a duly completed Declaration in respect of each Person who will become a Relevant Person upon the proposed acquisition of Control; and
(b) submit to the League up to date Future Financial Information (as defined in Regulation 16) prepared to take into account the consequences of the change of Control on the Club’s future financial position; …’
‘3.3 No Person may acquire Control of a Club and no Club may permit a Person to acquire Control of it until such time as:
3.3.1 The League provides confirmation that all Persons that are required to do so have complied with the process set out in Rule 3.1.1(a) and no such Persons are liable to be disqualified as a Relevant Person;
3.3.2 The League provides confirmation of its satisfaction with the information provided pursuant to Rule 3.1.1(b); and
3.3.3 The Club and any Person proposing to acquire Control have acceded to any powers and/or accepted any conditions imposed pursuant to Rule 3.2’.
It should also be noted that any failure by a Club or Official to provide information requested by the EFL also amounts to a separate breach of the EFL Regulations, and any Official that causes a Club to be in breach of the EFL Regulations will also amount to a separate breach of the EFL Regulations.[10]
Relevant background
In 2019, Rochdale explored proposals for external investment, with David Bottomley taking the lead on these explorations. David Bottomley had been a director of Rochdale since 2015, and in December 2018 had been appointed as Rochdale’s Chief Executive Officer.
Those explorations stopped during the COVID-19 pandemic but resumed in April 2021 with David Bottomley exchanging correspondence with an investment broker who communicated Andrew Curran’s interest in buying Rochdale and offer to buy a 51% shareholding in Rochdale.
On 19 April 2021, David Bottomley informed Rochdale’s board of directors of Andrew Curran’s interest and offer.
A special purpose vehicle had been incorporated for Andrew Curran to acquire Control of Rochdale, known as Morton House GMT and First Form Construction Limited (“Morton House”). On 1 May 2021 Darrell Rose acquired a 51% shareholding of Morton House. Further, on the same day, Faical Safouane was appointed as a director of Morton House.
On 4 May 2021, David Bottomley was informed by the same investment broker of a revised offer from Andrew Curran to acquire Control of Rochdale, and which explained that Andrew Curran was the ultimate beneficial owner of Morton House.
On 11 May 2021, the investment broker asked David Bottomley whether he had submitted to the EFL the Future Financial Information (pursuant to OADT, rule 3.1.1(b)) and whether there was a template for submitting the same. David Bottomley replied explaining that the Future Financial Information had not been submitted, and that any submission was to come via Rochdale rather than those acquiring Rochdale (although it should be noted that the wording of OADT, rule 3.1.1 expressly states that this information can be provided by the ‘Club and/or the Peron [proposing to acquire Control of a Club]’ (emphasis added)).
On the same day and in response, David Bottomley sent the investment broker the details of the OADT and an EFL document titled “Acquisition of Control Guidance” (a copy of which is not publicly available) and a template for submitting the required Future Financial Information.
On 14 May 2021, Andrew Curran and Darrell Rose signed Declarations (pursuant to OADT, rule 3.1.1(a)), which were then sent by the investment broker to David Bottomley together with proof of funding. The OADT Declaration includes several references to the OADT and agreement to be bound by the EFL Regulations.
On 7 June 2021, the investment broker also sent to David Bottomley information in attempted compliance with the Future Financial Information requirement under OADT, rule 3.1.1(b).
David Bottomley, in his position as director and CEO of Rochdale and in act of oversight, failed to submit those Declarations to the EFL.
Following Rochdale’s supporters’ actions and involvement and other circumstances, David Bottomley’s employment with Rochdale was ultimately terminated on or around 30 June 2021.
On 1 July 2021, Morton House entered share purchase agreements (SPAs) with six shareholders of Rochdale by which Morton House acquired 42.3% of Rochdale. The SPAs included terms that required the sellers to exercise their voting rights as directed by Morton House pending the registration of the share transfers to Morton House (giving Morton House Control within the definition provided above).
Accordingly, as of 1 July 2021 Andrew Curran and Darrell Rose (as ultimate beneficial owner and/or as shareholders of Morton House) had acquired Control of Rochdale without compliance with rules 2 and 3 of the OADT.
On 2 July 2021, Rochdale informed the EFL of Morton House’s acquisition of Control of the Club.
On 8 July 2021, Rochdale provided to the EFL the Declarations provided by Andrew Curran and Darrell Rose on 14 May 2021 but which had been dated 8 July 2021. On 15 July 2021, Andrew Curran and Darrell Rose produced and signed fresh Declarations which were sent by Rochdale to the EFL on the same day.
The EFL subsequently began its investigations into what had occurred and requested that David Bottomley, Andrew Curran, and Darrell Rose provide information. Further, pending the outcome of those investigations the EFL explained to Morton House that it was unable to provide confirmation to Morton House and others that Morton House’s acquisition of Control of Rochdale was approved pursuant to OADT, rule 3.3.
Consequently, on 20 August 2021 Morton House wrote to the EFL informing it that Morton House, its directors, and its representatives (including Andrew Curran and Darrell Rose) would be withdrawing from the EFL’s approval process and would not be cooperating with the EFL’s requests for information.
On the same day, Faical Safouane acquired 100% of the shareholding in Morton House, giving him Control of Rochdale within the definition of Control provided above.
(This relevant background is a summary of the Disciplinary Commissions explanation which can be found at [17]-[41] and [115]-[124] of their written reasons.)
Andrew Curran (“AC”)
AC was charged with breaches of OADT, rules 2.6 and 3.3, and EFL Regulations, reg. 83.5. AC admitted breaches of OADT, rule 3.3 and EFL Regulations, reg. 83.5, and the EFL ultimately dropped the charge for a breach of OADT, rule 2.6.
Despite his admission, AC’s mitigation clearly put blame upon Rochdale and David Bottomley for his failure to comply with the OADT, which the Disciplinary Commission considered to demonstrate an unwillingness of AC to take responsibility.[12] One paragraph of one of AC’s mitigation statements produced for the Disciplinary Commission summarises his position:
‘If [Rochdale] did have proper processes, then we would not be here and the EFL would not have been forced by the breaches of Regulations on the part of RAFC to initiate this process. All roads lead to RAFC being the party which has placed everyone in this unfortunate position’.[13]
It was recognised by the Disciplinary Commission that AC, via the investment broker, sought to engage with the OADT by sending completed Declarations and information in respect of the Future Financial Information requirement, and that he rightly placed trust in David Bottomley forwarding the same to the EFL.[14]
Nonetheless, the Disciplinary Commission noted that ‘a prudent investor would have taken their own independent advice on the regulatory requirements’.[15] Indeed, anyone who has ever been involved with a takeover process will know that in addition to completing due diligence of the target club advice is concurrently given to guide the purchaser through the regulatory requirements.
The Disciplinary Commission also noted that AC was fully aware of the requirements of the OADT (particularly considering AC’s completion of the Declaration) and that it was ‘astonishing that on 1 July 2021 share purchase agreements were concluded for the acquisition of shares in the Club and, worse, that those SPAs were not conditional on or subject to obtaining EFL approval’.[16]
The Disciplinary Commission also considered AC’s conduct on 20 August 2021 in resigning himself from the EFL’s investigatory process was ‘extremely ill-advised and entirely inconsistent with the OADT Declarations… [constituting] a clear and inexcusable breach of EFL Regulation 83.5’.[17]
Taking all those factors into account, the Disciplinary Commission sanctioned AC with a two-year ban from being a Relevant Person in relation to any EFL Club effective from 14 October 2022.[18]
Darrell Rose (“DR”)
DR was similarly charged with breaches of OADT, rules 2.6 and 3.3, and EFL Regulations, reg. 83.5. DR also admitted breaches of OADT, rule 3.3 and EFL Regulations, reg. 83.5, and the EFL again ultimately dropped the charge for a breach of OADT, rule 2.6.
Those factors considered in respect of AC similarly applied to DR and the Disciplinary Commission also sanctioned DR with a two-year ban from being a Relevant Person in relation to any EFL Club effective from 14 October 2022.[19]
Faical Safouane (“FS”)
FS was charged with breaches of OADT, rules 3.1 and 3.3. Save for some minor amendment to the date of the alleged breaches, FS admitted breaches of OADT, rules 3.1 and 3.3.
FS admitted that he acquired control of the Club on 20 August 2021 without written approval of the EFL.[20] However, in one of FS’s mitigation statements, FS stated that he ‘played no active role in the acquisition of a shareholding by Morton House of [Rochdale]’.[21]
While the Disciplinary Commission understood FS’s subordinate role, it was noted that ‘allowing yourself to be used in that way is itself a serious menace which undermines and obstructs compliance with the extremely important requirements of the OADT’.[22] FS’s ignorance or passivity provided him with no mitigation.
However, as FS did cooperate with the EFL’s investigative process, this was a differentiating factor between FS and AC and DR.[23]
Taking those factors into account, the Disciplinary Commission sanctioned FS with an 18-month ban from being a Relevant Person in relation to any EFL Club effective from 14 October 2022.[24]
David Bottomley (“DB”)
DB was charged with a breach of the EFL Regulations, reg. 21.2 for failing to submit to the EFL AC’s and DR’s OADT Declarations completed on 14 May 2021, causing the Club to be in breach of OADT, rules 3.1.1 and 3.3. DB admitted a breach of EFL Regulations, reg. 21.2.
The Disciplinary Commission took account of DB’s oversight for not submitting AC’s and DR’s Declarations to the EFL but noted that DB was unable to provide any explanation for the same.[25] Further, the Disciplinary Commission noted that DB was fully aware of the OADT requirements, not least because he was a member of the EFL’s Working Party Group that considered the OADT’s form and content.[26]
Taking all those factors into account, the Disciplinary Commission sanctioned AC with a two-year ban from being a Relevant Person in relation to any EFL Club effective from 14 October 2022.[27]
Rochdale
Rochdale was charged with a breach of OADT, rules 3.1 and 3.3. The Club admitted both charges but on the following limited basis:
‘i. The Club accepts that it is in breach of the Rules relevant to the charges as brought; however
ii. DB acted without Board authority;
iii. DB had been requested by the Board to refrain from his duties as CEO at all material times.
iv. The Club was therefore put in breach of the Relevant rules by virtue of DB’s acts and omissions alone’.[28]
The Disciplinary Commission noted the following, rightly reflecting long-established and basic principles of company law:
‘The overall responsibility for the management of the Club lies with its board of directors. The board may quite properly leave not only day-to-day management but often more significant matters in the hands of a CEO without interference or the need for the CEO to be constantly reporting to the board. However, all directors of any EFL club are expected know about the OADT and the vital importance of ensuring that their club fully complies. However much they may delegate to a CEO or other employees, they must take all reasonable steps to ensure that the club has the necessary systems and checks to comply with the OADT’.[29]
This was compounded by the Disciplinary Commission’s finding that Rochdale’s board of directors were fully aware of Morton House’s interest in acquiring Control of Rochdale [30] and noting Rochdale’s careless indifference to the OADT by releasing a statement on 27 May 2021 that stated ‘All of the parties that we are engaged in talks with [acquiring Control of Rochdale] fulfil… EFL requirements’.[31]
The Disciplinary Commission also took account of Rochdale’s failure to enquire about the state of Morton House’s acquisition of Control of Rochdale and to put in place a suitable replacement for DB following the end of DB’s employment on or around 30 June 2021.[32]
Taking those factors into account, the Disciplinary Commission sanctioned Rochdale with a six-point deduction suspended for two years from 14 October 2022 on condition that Rochdale commits no further breach of the OADT.[33]
Conclusion
The Disciplinary Commission’s decision serves as a forceful reminder of the need for strict compliance with the EFL’s OADT.
The Disciplinary Commission reminded potential investors ‘to be aware of, and take seriously, their regulatory requirements, and [that] there must be consequence for those who do not. Buying a football club is not an undertaking to be taken lightly. It should be done with due diligence, regulatory co-operation and general care’.’[34]
Further, the Disciplinary Commission emphasised that the OADT is a ‘crucial element of the EFL’s regulatory responsibilities in the interests of all its member clubs, their supporters and everyone else involved or interested in football’, and that ‘it will be rare that a failure to comply with the OADT can be regarded as only a technical breach’.[35]
Those reminders are welcome and help (albeit a little too late for some fans) emphasise the message that football clubs are community assets rather than mere investments.
Footnotes
[1] The Football League Limited v (1) Andrew Curran; (2) Darrell Rose; (3) Faical Safouane; (4) David Bottomley; and (5) Rochdale Association Football Club Limited, EFL Disciplinary Commission (Ch Nicholas Stewart KC), 14 October 2022.
[2] Ibid, [6].
[3] Ibid, [54].
[4] The EFL Regulations, Appendix 3, rule 1.1.
[5] The EFL Regulations, reg. 1.1.
[6] Ibid.
[7] (n4).
[8] (n5).
[9] The EFL Regulations, reg. 83; Appendix 3, rule 5.
[10] EFL Regulations, reg. 21.2, 83.5; see also definition of ‘Misconduct’ in EFL Regulations, reg. 1.1.
[11] (n1), [24].
[12] Ibid, [127].
[13] Ibid, [93].
[14] Ibid, [117]-[118].
[15] Ibid, [118].
[16] Ibid, [120].
[17] Ibid, [123].
[18] Ibid, [129].
[19] Ibid, [131].
[20] Ibid, [112].
[21] Ibid, [114].
[22] Ibid, [134].
[23] Ibid, [114] and [135].
[24] Ibid, [136].
[25] Ibid, [141 and [146].
[26] Ibid, [148].
[27] Ibid, [150].
[28] Ibid, [69].
[29] Ibid, [73]. See also [82].
[30] Ibid, [74].
[31] Ibid, [74]-[77].
[32] Ibid, [81].
[33] Ibid, [84]-[87] states that the sanction is suspended until 30 June 2024; Cf [157(1)] which states that the sanction is suspended for a ‘period of two years starting from the date of this order’.
[34] Ibid, [128].
[35] Ibid, [60]-[61].
28 October 2022