"Caveat emptor" seems rather paradoxical when observing the plight of Bury FC.
The story so far
In August 2019 Bury became the first club since Maidstone United in 1992 to be expelled from the EFL. The 125-year old club faced severe financial difficulties from 2013, when Stewart Day saved it from bankruptcy. Debts were mounting in late 2018 when Day sold the club to Steve Dale for £1. Bury then faced a winding-up petition, dismissed by the High Court in July. Creditors then approved a CVA intended to settle some of their debts but left ‘non-football’ creditors (including HMRC) only 25 per cent of what they were owed. A CVA is a qualifying insolvency event; the league accordingly imposed a 12-point penalty and cancelled six fixtures. On 8 August the EFL gave Bury a 14-day ‘do or die’ deadline to formulate a repayment plan or be expelled. After Manchester Mayor Andy Burnham and Bury North MP James Frith implored the league for an extension, Dale brokered a deal with C&N Sporting Risk to sell the club; this collapsed. The EFL expelled Bury on 27 August 2019 and rejected its re-entry in the 2020-21 season. HMRC has since brought a winding-up petition against the club on 16 October.
What went wrong?
Poor governance by the owners and regulators drove Bury’s decline, but the vast financial inequalities in English football did not help. In 2017-18 Premier League clubs made combined operating profits before transfers of £900m; Championship and League One and League Two clubs sustained losses of £411m. Despite the palpably unequal playing field, Bury is the first club to be expelled from the league for 27 years; it was ultimately not the root cause of its fall.
There are strong arguments to support the notion that Bury was driven to expulsion due to the actions of its owners. In pursuit of promotion Bury’s penultimate owner purchased players through loaning money to the club from his property businesses, then converted the cash to shares. When these businesses became insolvent, Bury instantly could not afford to pay its players and staff. In a seemingly unthinkable move, Day also mortgaged Gigg Lane itself; the lender is owed £3.7m. This loan allegedly accrues interest at almost £1,500 per day – a heavy loss for a debt-ridden club and a critical sticking point for C&N during the takeover talks. A significant proportion of the many businesses that Steve Dale has been associated with have been liquidated or struck off by Companies House. Dale, who confessed that he “didn’t even know there was a football team called Bury”, bought the club for £1, insisting that he had proved to the EFL that he had sufficient funds. Within months Dale had helped to facilitate a heavily criticised insolvency process and asked fans to “chip in” to save the club. The EFL did not enforce its rule that owners must prove they have funds to sustain their clubs. These owners share a portion of the blame. They appear to have demonstrated a lack of responsibility and have exposed the existing rules’ fallibility. These acts indicate a flawed, cracked system that needs to be reinforced or reformed.
Day has largely remained quiet in the face of the media criticism, claiming that he never wanted “to rip anyone off”. Contrastingly Dale released a statement following Bury’s expulsion lashing out at the EFL. Here Dale apologised for failing to save Bury and heavily criticised the EFL and its Executive Chair Debbie Jevans for having an ulterior agenda and for causing Bury’s “devastation”.
Governance- need for an overhaul?
The EFL has come under sustained criticism by many, including Bury MP James Frith Bury’s potential rescuer C&N. The main governance criticisms are: • Enforcement of rules; • No independent regulation; and • Punishing the club, not the owners. The EFL’s first failing was to allow Dale to become owner with such limited evidence he could save the club. Former manager Neil Warnock described this as “criminal”, accusing the EFL of not carrying out the necessary due diligence (i.e. not knowing the extent of Bury’s debts). New owners are supposed to demonstrate “proof of funding”, yet there is no punishment for one who does not. Clubs, not owners, are sanctioned. Furthermore, EFL rules are supposed to restrict clubs’ spending to within their means. Stewart Day circumvented this by investing capital into shares, resulting in Bury being unable to repay its debts nor pay players and staff. The EFL’s allowance in response to C&N’s request for an extension to the rescue process was one working day; this usually takes weeks. The EFL has since committed to upgrade its regulations to ensure Bury’s fate is never repeated. Is this an admission of failure? Will the reforms go far enough? Despite the EFL commissioning an independent review into the rules regarding clubs’ financial sustainability, it has maintained that its rules are robust and do not require independent regulation; perhaps Bury’s example proves the opposite. The EFL penalising Bury by suspending games, deducting points and ultimate expulsion does not address the root problems. These sanctions impact players, staff and fans but allow the owners to escape unscathed.
MP select committee
MP Damian Collins damningly described the flaws in the EFL’s regulations as being ‘systematic…structural’ but “avoidable”, needing an ‘overhaul’. The committee demanded: • The EFL compensate Bury for loss of earnings due to its expulsion; • Government intervention if satisfactory reforms are not made; • An updated owners’ and directors’ test excluding buyers with unsatisfactory insolvency track records; • A supporters’ ombudsman for governance concerns; • A ban on clubs borrowing against fixed assets (such as Gigg Lane); and • The EFL apologise to Bury staff and fans for its failings.
At the heart of the tragic events at Bury lies a fundamental lack of good governance. The system in place allowed the owners to act how they did; inadequate regulation enabled the irresponsible ownership. Tighter regulation would surely protect clubs and communities from similar scenarios.
What's happened since?
December 2019: Robert Benwell, entrepreneur and football fan, proposed to “bring football back to Bury” by either: 1. Rescue Bury from administration; or 2. Repossess Gigg Lane’s ground and start a new club in the lower leagues, apparently for c. £600,000. Bury A.F.C., a fan-formed phoenix club, applied to the NWCL for membership The phoenix club stated that it has playing grounds available, meeting the criteria 11 February 2020: the CVA deadline. Bury defaulted on the arrangement, meaning that its future is now uncertain. Bury’s options? Steven Dale or Steven Wiseglass, the CVA Supervisor, could liquidate the club; this would be the end of Bury. , A creditor could bring a winding-up petition to court . Lastly, Bury could attempt to obtain a new CVA. The club’s current predicament, without both players and a league in which to play, stands in stark contrast to its promotion from League Two in 2019. 27 February 2020: the EFL-commissioned independent review was published. Whilst recommending changes to reinforce EFL governance procedures, it concluded that “a lack of owner funding” was the decisive blow for Bury’s . The review contains an EFL statement saying “any additional [EFL] action would not have made any difference to the eventual outcome, which was ultimately caused by a lack of owner funding."
Author: Tom Bruce, Partner at Farrer & Co