“It isn’t that often that the sole shareholders of a business that isn’t technically in administration are forced to have their stakes sold without them being able to do much about it. Whilst all the hype and drama around one of the country’s most infamous football institutions makes for sensationalist reading, some have also wondered how the sale can legally be pushed through with the owner directors absent from the boardroom and resisting the process.
“The precise nature of Hicks’ and Gillets’ holdings in Liverpool FC is not immediately apparent as there are a string of other corporate vehicles in the way which trail off to the Cayman Islands.
“The Articles of Association of a company such as Liverpool FC which has a significant amount of debt outstanding will often provide that the directors are not able to decline any transfer which is in favour of or on behalf of a secured party, in this case the Royal Bank of Scotland which provided around £200m of refinancing.
“The Articles of a company serve as a contract between the shareholders and the company and govern the company’s actions and will bind its members and directors. In other words, subject to the terms of the security arrangements, the Articles will often allow a major lender like RBS to be able to dictate the terms of a sale to a certain extent notwithstanding any opposition from the board. There may also be similar rights under the Bank’s own facility documents.”
Hick and Gillet have also challenged the authority and constitution of the board to sell the club.
“This looks like an interesting battle given that Martin Broughton, as Chairman, has the power to appoint and remove directors and that in order to hold a quorate board meeting approving the sale, there would have needed to be at least three of the five directors present including the Chairman, which Broughton openly claims to have been the case.
“It’s a pretty unusual provision for a Chairman to have such authority over appointments to the board, but by no means illegal.
“There is always a possibility under the Companies Act for Hicks and Gillet as ultimate shareholders to amend the company Articles and remove Houghton and the other directors who approved the sale from the board, but this would almost certainly be in breach of their undertakings with RBS and unlikely to get them far. It is also worth noting the board duties extend beyond that to shareholders but also to creditors which are now enshrined in the Companies Act.”
Pending Broughton’s legal declaration for the sale to go through the courts next week, the question now has to be whether Hick and Gillet are going to appeal any decision that is not in their favour, and if so on what grounds, and ultimately whether a decision either way will really make much difference in the long run.
It seems unlikely either of them will find the required cash to hand to the bank or that any better offer for the club is going to be put on the table before October 15th which is apparently when RBS can put the club into ‘proper administration’ and push the sale through to NESV in any event.