PL charge City for alleged breaches of financial rules

[Chris in London]

In your view, does the term "financial information" in this schedule of breaches refer solely to the signed, audited annual accounts, or to the signed, audited annual accounts and the supplementary financial information required by the PL taken as a whole?

I think that it must relate only to the accounts.

Our obligation is to provide the PL with financial information that gives a true and fair view of our financial circumstances. It is basically the same obligation as exists under company law. So the accounts we prepare and which are independently audited fulfil two purposes - one, we send them to Companies House every year, as the law requires, and two we send them to the PL every year, as PL rules require.

The requirement is currently set out in rule E3 which says

"Each Club shall by 1 March in each Season, submit to the Board a copy of its Annual Accounts in respect of its most recent financial year or if the Club considers it appropriate or the Board so requests the Group Accounts of the Group of which it is a member (in either case such accounts to be prepared and audited in accordance with applicable legal and regulatory requirements) together with a copy of the directors’ report for that year and a copy of the auditors’ report on those accounts."

The rules make further provision for the league to request supplementary financial information if the auditors throws up any queries, but otherwise the accounts should be final. That does not apply in our case because there were no queries from the auditors.

That said, as part of an investigation, or as a precursor to the investigation,
the PL may request that we should provide further financial information. Whilst as I understand it, there is no obligation on us to provide further information other than as part of an investigation. We do however have to provide further information if a formal investigation is opened, and if we fail to do so that justifies a 'failure to co-operate' charge. In this case the investigation was opened shortly after the Der Spiegel leaks were published. The Court of Appeal hearing a couple of years ago resulted to the complaint that as part of the Investigation we had failed to provide the material requested.

So (returning to your question) the actual charge of providing misleading financial information can only relate, I think, to an allegation that the accounts are misleading, because the audit was unqualified. Anything else that the PL is not satisfied with - whether the allegation is that we didn't provide anything or we provided misleading information - would be part of a 'failure to co-operate' charge.

 

[StillBluessinceHydeRoad]

The CAS judgement also questioned why MCFC did not provide the irrefutable evidence presented to CAS earlier, ie during the UEFA investigations. This must have been due to the legal advice given to MCFC. The CAS judgement stated the appeal process would have been unnecessary. However MCFC had lost faith in the process because UEFAs handling of the investigation was fundamentally flawed and prejudiced against them. The PL can NOT prove the sponsorship of MCFC by Etihad Airways was disguised equity funding because it wasn't. In the same way they can't prove the King Power sponsorship of the LCFC was disguised equity funding because it wasn't.

I suspect, although I don't know, that City refused to cooperate with the enquiry to the extent UEFA wished, because the club felt that UEFA were fishing for any evidence they could use against City. Similarly, I suspect that the PL "investigation" has dragged on for 4 years because the PL want anything they can use against the club. When nothing turned up (because the club wouldn't cooperate!) they were forced to rely on the risible UEFA "case".

 

[Chris in London]

I was replying to a guy who said "Makes sense to me. So we are breaking PL rules, not breaking the law. Is that correct." Which is an opinion I still hold

IF the club is guilty of the breaches of PL rules that is being alleged, that conduct would also amount to a criminal offence. So the PL are effectively accusing us of criminal conduct, even though the charges relate to breaches of PL rules.

Think of it this way. Imagine the rules of a golf club you are a member of say that you can't take a shit on the fairway. If you do take a shit on the fairway, you are breaching the golf club's rules. But you are also committing a criminal offence*.

(* Unless of course you are the manager of Manchester United.)

 

[halfcenturyup]

I think that it must relate only to the accounts.

Our obligation is to provide the PL with financial information that gives a true and fair view of our financial circumstances. It is basically the same obligation as exists under company law. So the accounts we prepare and which are independently audited fulfil two purposes - one, we send them to Companies House every year, as the law requires, and two we send them to the PL every year, as PL rules require.

The requirement is currently set out in rule E3 which says

"Each Club shall by 1 March in each Season, submit to the Board a copy of its Annual Accounts in respect of its most recent financial year or if the Club considers it appropriate or the Board so requests the Group Accounts of the Group of which it is a member (in either case such accounts to be prepared and audited in accordance with applicable legal and regulatory requirements) together with a copy of the directors’ report for that year and a copy of the auditors’ report on those accounts."

The rules make further provision for the league to request supplementary financial information if the auditors throws up any queries, but otherwise the accounts should be final. That does not apply in our case because there were no queries from the auditors.

That said, as part of an investigation, or as a precursor to the investigation,
the PL may request that we should provide further financial information. Whilst as I understand it, there is no obligation on us to provide further information other than as part of an investigation. We do however have to provide further information if a formal investigation is opened, and if we fail to do so that justifies a 'failure to co-operate' charge. In this case the investigation was opened shortly after the Der Spiegel leaks were published. The Court of Appeal hearing a couple of years ago resulted to the complaint that as part of the Investigation we had failed to provide the material requested.

So (returning to your question) the actual charge of providing misleading financial information can only relate, I think, to an allegation that the accounts are misleading, because the audit was unqualified. Anything else that the PL is not satisfied with - whether the allegation is that we didn't provide anything or we provided misleading information - would be part of a 'failure to co-operate' charge.

Ok thanks, but the club does have to provide supplementary financial information regularly: forecast information for one, and all the financial information needed annually to determine "true and fair" compliance with FFP which, of course, isn't in the annual accounts.

I think maybe my problem with all of this is that I can't imagine the PL would be stupid enough to set their charges at a level which makes it virtually impossible to get a favourable verdict, when I am pretty sure they could get the club on regulatory breaches. You could get any club on some regulatory breaches if you looked hard enough.

I am probably wrong. I often am :)

No need to reply. I don't want to burden all our legal experts.

 

[halfcenturyup]

IF the club is guilty of the breaches of PL rules that is being alleged, that conduct would also amount to a criminal offence. So the PL are effectively accusing us of criminal conduct, even though the charges relate to breaches of PL rules.

Think of it this way. Imagine the rules of a golf club you are a member of say that you can't take a shit on the fairway. If you do take a shit on the fairway, you are breaching the golf club's rules. But you are also committing a criminal offence*.

(* Unless of course you are the manager of Manchester United.)

Well yes, because defecating in public is a criminal offence I would imagine. What if you didn't disclose your marital status properly to the club when you registered, would that be breaking the law?

I am sorry. I should probably shut up again. I tried for a while but couldn't resist poking the hornet's nest again.

 

[cheekybids]

IF the club is guilty of the breaches of PL rules that is being alleged, that conduct would also amount to a criminal offence. So the PL are effectively accusing us of criminal conduct, even though the charges relate to breaches of PL rules.

Think of it this way. Imagine the rules of a golf club you are a member of say that you can't take a shit on the fairway. If you do take a shit on the fairway, you are breaching the golf club's rules. But you are also committing a criminal offence*.

(* Unless of course you are the manager of Manchester United.)

Would the best defence be that you had to shit on the fairway as someone was looking under the cubicle door ;)

 

[Centurions]

Ok thanks, but the club does have to provide supplementary financial information regularly: forecast information for one, and all the financial information needed annually to determine "true and fair" compliance with FFP which, of course, isn't in the annual accounts.

I think maybe my problem with all of this is that I can't imagine the PL would be stupid enough to set their charges at a level which makes it virtually impossible to get a favourable verdict, when I am pretty sure they could get the club on regulatory breaches. You could get any club on some regulatory breaches if you looked hard enough.

I am probably wrong. I often am :)

No need to reply. I don't want to burden all our legal experts.

It didn't stop UEFA did it?

 

[petrusha]

But as I have your exasperated attention, once again - one question. If you were the PL lawyer, and you know how things went at CAS, would you not recommend less serious charges of regulation breaches in the hope there is a better chance of a favourable verdict, or would you go all-out for fraudulent signed, audited annual accounts and implied criminal liability under the Companies Acts?

No problem over the use of the phrase or anything else. :)

Just to respond quickly to this last point while I'm between meetings: I actually appreciate the point that the charges are somewhat ridiculous in the light of our having received only a fair value sponsorship as the result of all this. Ask any of our detractors, and they'll suggest that the Etihad deal was ridiculously overvalued and Mansour pumped in the excess, but that wasn't the case. Any meaningful benefit from the alleged arrangement accrued to Etihad by way of paying an annual GBP 8 million for a sponsorship whose fair value, according to UEFA's experts, was anywhere between GBP 40 million and GBP 77 million.

City actually ran the argument before the Panel that they should reject the charges because the argument that we'd enter into an arrangement to receive GBP 8 million p.a. for the above sponsorship was commercially irrational. The Panel rejected that, saying in numbered paras 133 and 134 on page 42 that the rationale for MCFC would have been as follows:

133. Finally, and this is the most controversial part as MCFC maintains that it is flawed, the Panel finds that MCFC could also profit from such arrangement in that it could report more relevant income for monitoring purposes, i.e. it could, at least in theory, maximise equity funding up to the acceptable deviation and receive additional disguised equity funding through its sponsors as sponsorship contributions where it may have been difficult to obtain the same sponsorship deals with these sponsors without such disguised equity funding. Accordingly, under the arrangement, MCFC could in theory both maximise equity funding as well as sponsorship contributions. Indeed, the assumption that the sponsorship agreements between MCFC and Etihad and Etisalat were concluded at fair value, does not derogate from the fact that Etihad and Etisalat may not have been inclined to pay the same sponsorship contributions without the financial support of HHSM and/or ADUG.
134. The Panel therefore does not regard MCFC’s argument that UEFA’s overall case theory is commercially irrational as persuasive. To the contrary, the Panel finds that the implementation of the “arrangements” could have made commercial sense for all entities involved. The Panel considers that such alleged arrangement could be considered negotiated at arms’ length between all entities involved, so that no related party issue arises. Accordingly, the absence of any finding or assumption that these entities are related parties in the sense of Section F of Annex X CLFFPR does not prejudice MCFC’s case.

I find that incredibly tenuous. To be fari, I suppose they did have the grace to suggest twice that it was more a theoretical than a practical argument.

Anyway, in response to your question about what I'd advise if I were a lawyer acting for the PL, it would really depend on the evidence. If they actually have no more than UEFA put before the CAS, then I'd tell them that they really had no serious basis to be bringing charges of this nature. If they'd gathered more vidence in the long period that they'd been investigating, then maybe it'd be more reasonable to advise them to charge us, but it really depends on what the evodence is.

One thing I'd note is that, as a lawyer, you quite often find yourself telling people that you don't think a particular course of action is prudent, but they don't always listen. Here, it strikes me that the PL - whether with the encouragement of their legal advisers or otherwise - might possibly have two aims in bringing a case based on alleged conduct that would, if true, constitute a criminal offence;

The first is that the PL might want to throw enough shit that the Panel infers dubious conduct on our part and thus feels obliged to nail us for something even if the main charges aren't proven. I suspected that the CAS's GBP 10 million for non-cooperation fell into this category.

The second is that the PL might want to placate key stakeholders who are frothing at the mouth for City to be prosecuted. They therefore might be inclined to bring extremely serious charges whether or not the evidence justifies doing so.

Obviously, the above is speculative. It's just my conjecture aimed at showing how occasionally in such a situation a decision may be taken regarding how to proceed even if it's not one that the lawyers are particularly keen on.

Hope this makes some kind of sense. It's a bit rushed and I haven't proofread it.

 

[Chris in London]

Ok thanks, but the club does have to provide supplementary financial information regularly: forecast information for one, and all the financial information needed annually to determine "true and fair" compliance with FFP which, of course, isn't in the annual accounts.

Only in certain circumstances, none of which apply here (Rule E7)

https://resources.premierleague.com/premierleague/document/2022/07/19/40085fed-1e9e-4c33-9f14-0bcf57857da2/PL_Handbook_2022-23_DIGITAL_18.07.pdf

 

[halfcenturyup]

No problem over the use of the phrase or anything else. :)

Just to respond quickly to this last point while I'm between meetings: I actually appreciate the point that the charges are somewhat ridiculous in the light of our having received only a fair value sponsorship as the result of all this. Ask any of our detractors, and they'll suggest that the Etihad deal was ridiculously overvalued and Mansour pumped in the excess, but that wasn't the case. Any meaningful benefit from the alleged arrangement accrued to Etihad by way of paying an annual GBP 8 million for a sponsorship whose fair value, according to UEFA's experts, was anywhere between GBP 40 million and GBP 77 million.

City actually ran the argument before the Panel that they should reject the charges because the argument that we'd enter into an arrangement to receive GBP 8 million p.a. for the above sponsorship was commercially irrational. The Panel rejected that, saying in numbered paras 133 and 134 on page 42 that the rationale for MCFC would have been as follows:



I find that incredibly tenuous. To be fari, I suppose they did have the grace to suggest twice that it was more a theoretical than a practical argument.

Anyway, in response to your question about what I'd advise if I were a lawyer acting for the PL, it would really depend on the evidence. If they actually have no more than UEFA put before the CAS, then I'd tell them that they really had no serious basis to be bringing charges of this nature. If they'd gathered more vidence in the long period that they'd been investigating, then maybe it'd be more reasonable to advise them to charge us, but it really depends on what the evodence is.

One thing I'd note is that, as a lawyer, you quite often find yourself telling people that you don't think a particular course of action is prudent, but they don't always listen. Here, it strikes me that the PL - whether with the encouragement of their legal advisers or otherwise - might possibly have two aims in bringing a case based on alleged conduct that would, if true, constitute a criminal offence;

The first is that the PL might want to throw enough shit that the Panel infers dubious conduct on our part and thus feels obliged to nail us for something even if the main charges aren't proven. I suspected that the CAS's GBP 10 million for non-cooperation fell into this category.

The second is that the PL might want to placate key stakeholders who are frothing at the mouth for City to be prosecuted. They therefore might be inclined to bring extremely serious charges whether or not the evidence justifies doing so.

Obviously, the above is speculative. It's just my conjecture aimed at showing how occasionally in such a situation a decision may be taken regarding how to proceed even if it's not one that the lawyers are particularly keen on.

Hope this makes some kind of sense. It's a bit rushed and I haven't proofread it.

No, it's OK. I think we are all probably agreeing on most aspects but accountants and lawyers take different viewpoints on some things. As I said before, that's probably why so many accountants end up in jail. :)