Wigan Athletic FC: Takeover to Administration
A statement by released by Wigan Athletic FC (“WAFC”) on 4 June 2020 stated that the ‘Wigan Athletic Group’ had been sold by International Entertainment Corporation (“IEC”) to the Next Leader Fund LP (“NLF”):
‘We can confirm that the sale of the majority shareholdings of the Wigan Athletic Group from [IEC] to [NLF] has now formally completed.
The transaction has been formally ratified and approved by the shareholders of IEC, the Hong Kong Stock Exchange and the [English Football League (“EFL”)].
[NLF] is a limited partnership and Mr. Au Yeung Wai Kay is the General Partner of the limited partnership. Mr. Au Yeung has many years of experience in business operations management and business leadership in Asia.
Mr. Au Yeung, Man Chun Szeto and Chun Kit Chan will join existing executive directors Darren Royle, Joe Royle, Jonathan Jackson and Thomas Chan on the board of directors of Wigan Athletic Football Club’.
Directors Kevin Roberts, Dr Michelle Chen, Chi Wai Lee, Wing Lam Leung and Cheung Tat Man have stepped down from the board of directors, following completion’.
27 days later a statement released by Begbies Traynor, an insolvency and restructuring firm, on behalf of WAFC on 1 July 2020 stated:
‘On Wednesday 1 July 2020, Paul Stanley, Gerald Krasner and Dean Watson of Begbies Taylor were appointed joint administrators of [WAFC].
…
“We understand that everybody connected with the club and the wider football world is seeking clarity on the future of Wigan Athletic. That's exactly what we are seeking to provide as we move through this process and we seek out interested parties to rescue this famous old club here in the region. It is a fast-moving situation and we will provide updates on key developments.”
…
“Our immediate objectives are to ensure the club completes all its fixtures this season and to urgently find interested parties to save Wigan Athletic FC and the jobs of the people who work for the club”
“Obviously the suspension of the Championship season due to Covid-19 has had a significant impact on the recent fortunes of the club…
Wigan Athletic was founded in 1932 and currently sit 14th in the EFL Championship, the second tier of professional football in England. Last night the team beat Stoke City 3-0 at the DW Stadium, its home ground’.
A statement released by the English Football League (“EFL”) on 1 July 2020 stated:
‘As a result of Wigan Athletic confirming they have entered into administration, the Club will be subject to a 12-point deduction and, in accordance with EFL Regulations, the timing of the sporting sanction can only be determined once final league placings in the Championship are determined.
If in the event the Club is relegated by virtue of their final position following the conclusion of the Championship season, then the deduction will apply in League One in 2020/21. However, if the Club is not in the relegation places following the final game of season, the sanction will be then be applied to their season 2019/20 total and final league standings amended as appropriate.
The EFL is awaiting formal notification from the Administrators and once the League has received this it will commence discussions with the relevant individuals with the aim of achieving a long-term future for the Club’.
This article will (i) explain how NLF’s takeover of the ‘Wigan Athletic Group’ occurred; (ii) consider some of the criticisms of the EFL following WAFC entering administration; and (iii) consider what awaits WAFC upon entering administration further to the EFL’s statement dated 1 July 2020.
NLF’s takeover of the Wigan Athletic Group
Each club in the EFL’s three leagues owns one share in the company entity behind the EFL, The Football League Limited (CN: 00080612) (“FLL”). The company entity that holds WAFC’s one share in FLL is Wigan Athletic A.F.C Limited (CN: 00270043) (“WAFCL”).
WAFCL is the relevant company entity for the purposes of the EFL’s Regulations, particularly regulations 12.3.1 and 12.3.2 which provide for the 12-point-deduction penalty following a club of the EFL or that club’s ‘Group Undertaking’ being subject to or suffering an insolvency event, and the EFL’s Owners’ and Directors’ Test (“ODT”). An explanation of the EFL’s structure and organisation is available in this overview.
The ‘Company Details’ page of WAFC’s website states currently the following:
‘The majority shareholder in [WAFCL] is Wigan Athletic Holdings Limited [(CN: 07283993) (“WAHL”)]. The ultimate parent company of [WAHL] is Newworth Ventures Limited [(“NVL”)] a company incorporated in the British Virgin Isles. [NVL] is wholly owned by [NLF]’.
The following is a timeline of how NLF came to be the owners of NVL and in turn WAHL and WAFCL:
31 July 2017: Hamsard 3467 Limited (CN: 10892240) is incorporated as a company in the UK, wholly owned by Squire Patton Boggs Directors Limited, and with the directors of the same being Jane Haxby, a solicitor at the law firm Squire Patton Boggs (UK) LLP, and Squire Patton Boggs Directors Limited.
14 February 2018: Hamsard 3483 Limited (CN: 11205092) is incorporated as a company in the UK, wholly owned by Squire Patton Boggs Directors Limited, and with the directors of the same being Jane Haxby, a solicitor at the law firm Squire Patton Boggs (UK) LLP, and Squire Patton Boggs Directors Limited.
15 February 2018: Jane Haxby and Squire Patton Boggs Directors Limited are removed, and Yan Min Zhang and Chun Yiu Thomas Chan are appointed, as directors of Hamsard 3467 Limited. Further, a completed form PSC01 filed with Companies House shows that Choi Chiu Fai Stanley became a person with significant control of Hamsard 3467 Limited.
28 February 2018: Yat Ming Lam is appointed as a director of Hamsard 3467 Limited.
11 April 2018: Jane Haxby and Squire Patton Boggs Directors Limited are removed, and Yan Min Zhang and Chun Yiu Thomas Chan are appointed, as directors of Hamsard 3483 Limited. Further, a completed form PSC02 filed with Companies House shows that Hamsard 3467 Limited became a person with significant control of Hamsard 3483 Limited.
21 May 2018: IEC released an announcement stating that Hamsard 3467 Limited (referred to as the ‘Buyer’ in the announcement), a company wholly owned by NVL (NVL at the time was wholly owned by IEC, not NLF) was to acquire:
The entire issued share capital of WAHL (54,780,254 ordinary shares of £0.01 each and 21,185,398 preference shares of £1.00 each);
Part of the issued share capital of WAFCL; and
Property adjacent to DW Stadium (part of title numbers GM875534 and GM875381) owned by Sharpe Investments (Wigan) Limited (CN: 07769325), a company which has now dissolved but was owned by David Whelan Sports Limited, a company wholly owned by Dave Whelan, Patricia Whelan and Jayne Best;
The Christopher Park Training Ground (title number MAN193806) owned by Dave Whelan; and
Euxton Lane Sports and Social Club) (title number LA789078) owned by Huron Property Investments Limited (CN: 10178688) (a company wholly owned by Jayne Best) (“Huron”).
The ‘capital commitment’ for those acquisitions was to be (a) £15.9m (representing an equity sum, and taking account of amounts paid for the above-stated properties, repayment of a £4m loan from Barclays Bank, and repayment of a loan from the Whelan family); and (b) £6.475m for working capital loans made to WAFCL by the sellers (Dave Whelan, Patricia Whelan and Jayne Best) and Huron.
The ‘Target Company’ for this acquisition was WAHL, which (i) as noted in the quotation above, was and is the majority shareholder of WAFCL, and (ii) is also the majority shareholder of Wigan Football Company Limited (CN: 03477413) (“WFCL”) (referred to as ‘Stadco’ in the announcement dated 21 May 2019). Wigan Council was and is the minority shareholder of WFCL. WFCL owns and operates DW Stadium. The company structure that would exist following completion of the acquisitions detailed in the announcement dated 21 May 2019 is illustrated in this diagram:
30 July 2018: a completed form CS01 filed with Companies House shows that NVL holds the entire issued share capital in Hamsard 3467 Limited.
9 October 2018: a circular and a notice from the board of IEC called for an extraordinary general meeting of IEC’s shareholders to be held on 2 November 2018 to vote on the acquisition detailed in the announcement made on 21 May 2018 and added to in the circular. For example, the circular adds details of (i) the proposed management of WAHL as ‘the Board or the management of [IEC] currently has no relevant experience or expertise in relation to [WAHL’s] business’, and (ii) an ‘Operational flow chart’:
2 November 2018: IEC released poll results from the extraordinary general meeting held on 2 November 2018 showing that the acquisitions detailed in the announcement dated 21 May 2018 and the circular dated 9 October 2018 were approved by IEC’s shareholders.
7 November 2018: Yat Ming Lam is removed as a director of Hamsard 3467 Limited and a completed form PSC07 filed with Companies House shows that Choi Chiu Fai Stanley ceased to be a person with significant control of Hamsard 3467 Limited. Further, a completed form PSC02 filed with Companies House shows that IEC became a person with significant control of Hamsard 3467 Limited. However, and strangely, (i) a completed form PSC07 filed with Companies House also shows that IEC ceased to be a person with significant control of Hamsard 3467 Limited and (ii) a completed form PSC01 filed with Companies House shows Choi Chiu Fai Stanley again became a person with significant control of Hamsard 3467 Limited. This backtracking could be due to some filing error and/or correction being made.
7 November 2018: Yan Min Zhang is removed, and Darren Henry Royle is appointed, as a director of Hamsard 3483 Limited.
7 November 2018: IEC released an announcement confirming that the acquisitions detailed in the announcement dated 21 May 2018 and the circular dated 9 October 2018 had taken place: ‘[WAHL] has become an indirect wholly-owned subsidiary of [IEC] and each of WAFCL and [WFCL] has become an indirect non-wholly owned subsidiary of [IEC]’. Documents filed with Companies House show Hamsard 3467 Limited now had significant control of WAHL, and that the proposed management detailed in the circular dated 9 October 2018 was actioned, with (i) David Whelan, Patricia Whelan and David James Sharpe removed as directors of WAHL and (ii) Joseph Royle and Darren Henry Royle being appointed as directors of WAHL, along with Chun Yiu Thomas Chan (also an executive director of IEC).
7 November 2018: a completed form SH01 filed with Companies House shows that 4,451 new ordinary shares in WAHL were issued.
7 November 2018: David James Sharpe, Matthew Joseph Sharpe and Gary John Cook are removed, and Joseph Royle, Darren Henry Royle and Chun Yiu Thomas are appointed, as directors of WAFCL. Further, two form PSC07 filed with Companies House shows that David Whelan and David James Sharpe ceased to be persons with significant control of WAFCL, and a completed form PSC05 filed with Companies House shows that WAHL became a person with significant control of WAFCL.
19 November 2018: a completed form NM01 filed with Companies House shows that WAHL is renamed IEC Wigan Athletic Holdings Limited (“IEC WAHL”).
19 November 2018: a completed form NM01 filed with Companies House shows that Hamsard 3467 Limited is renamed as IEC Sports Management Limited.
7 December 2018: IEC Wigan Property Holdings Limited become the registered owners of the properties that were part of the acquisition detailed in the announcement dated 21 May 2018.
19 December 2018: the auditors of IEC WAHL and WAFCL, Fairhurst, resign.
28 December 2018: a completed form NM01 filed with Companies House shows that Hamsard 3483 Limited is renamed as IEC Wigan Property Holdings Limited (see above at 7 December 2018).
1 March 2019: a ‘Group of companies’ accounts’ appear on Companies House showing that the group of companies – IEC WAHL, WAFCL and WFCL – made a net loss before tax of £17.6m for the financial year ending 31 May 2018 (i.e. before the acquisition by IEC).
29 March 2019: Kevin Roberts is appointed as a director of WAFCL.
29 May 2019: IEC’s ‘Interim Results Announcement for the Twelve Months Ended 31 March 2019’ show that ‘[since] the acquisition date, Wigan has contributed revenue of HK$57,365,000 and a profit after tax of HK$54,294,000 to the Group’.
14 June 2019: a completed form CS01 filed with Companies House shows that IEC Sports Management Limited holds the entire issued share capital in IEC WAHL, being: (i) 54,784,705 ordinary shares (indicating the 4,451 ordinary shares issued on 7 November 2018 were issued to IEC Sports Management Limited); and (ii) 21,185,938 preference shares.
30 June 2019: Yan Min Zhang is removed, and Chi Wai Less is appointed, as a director of IEC Sports Management Limited.
30 August 2019: Chi Wai Lee and Wing Lam Leung are appointed as directors of IEC WAHL.
30 August 2019: Chi Wai Lee is appointed as a director of IEC Wigan Property Holdings Limited.
17 October 2019: Chi Wai Lee, Tat Man Cheung, Wing Lam Leung and Xuemei Chen are appointed as directors of WAFCL.
18 November 2019: IEC released an announcement stating that IEC had entered a memorandum of understanding with ‘Next Leader Limited’ (“NLL”) for IEC’s possible sale of NVL to NLL. NVL is wholly owned by IEC. NVL is the owner of IEC Sports Management Limited and was the company entity (formerly named Hamsard 3467 Limited) used by IEC as the ‘Buyer’ in IEC’s acquisition of WAHL et al. The announcement also stated:
‘NLL intends to set up and manage a fund structure under the laws of the Cayman Islands (the ‘‘Fund’’) and act as the general partner of the Fund… It is the intention that Dr Choi Chiu Fai Stanley, the chairman of the Board, an executive Director and a controlling shareholder of [IEC], will subscribe for 51% interests of the Fund upon its establishment and act as the limited partner of the Fund’ (emphasis added).
NB. This is the first time the IEC documents refer to Choi Chiu Fai Stanley being the controlling shareholder of IEC, and this explains why he became a person with significant control of then-called Hamsard 3467 Limited on 15 February 2019 (with IEC owning NVL and NVL owning the entire issued share capital in then-called Hamsard 3467 Limited, as stated in form CS01 on 15 July 2019).
13 December 2019: IEC released an announcement stating that IEC and NLL had entered a supplemental memorandum of understanding, which identifies (i) the price of NLL’s acquisition of NVL shall be £17.5m; (ii) that NLL is to pay to IEC a refundable deposit of £3m; and (iii) pending completion of NLL’s acquisition of NVL, IEC is to continue providing funding to WAFCL to ‘maintain and continue its day-to-day business operations provided always that the aggregate amounts of the loans provided and to be provided by the Company to the Football Club and which shall be due and owing by the Football Club to the Company as at the date of completion… shall not… exceed GBP26,500,000’.
13 February 2020: a completed form CS01 filed with Companies House shows that NVL holds the entire issued share capital in IEC Wigan Property Holdings Limited.
14 February 2020: IEC released an announcement stating that IEC had agreed to sell and NLF (not NLL) had agreed to purchase the entire issued share capital of NVL for £17.5m. The announcement also stated that WAFCL owed a debt to IEC of £25.77m ‘as a result of the injection of daily working capital’ since 7 November 2018. As referred to in the announcement of the supplemental memorandum of understanding, this announcement also stated that pending completion of NLF’s acquisition of NVL, IEC is to continue providing funding to WAFCL to enable the football club to maintain and continue its day-to-day business operations ‘provided that (a) the amount provided or to be provided by [IEC] to [WAFCL] from the date of the Sale and Purchase Agreement to the date of Completion… shall not… exceed GBP28,770,000… and (b)… such funding shall form part of the Facility’. Further, the announcement dated 14 February 2020 identifies (the following is significant as there has been confusion as to ownership of NLF):
NLF ‘is a Cayman Islands exempted limited partnership established on 30 January 2020. As at the date of this announcement, NLL acts as the General Partner [of NLF] and will be responsible for making all investment decisions, while the Limited Partners are passive investors with no control on the investments of the Purchaser [NLF]’.
NLF ‘has 2 Limited Partners, namely, Head and Shoulders Direct Investment and Widespread Success Limited. Each of the General Partner, Head and Shoulders Direct Investment and Widespread Success Limited holds 1% , 51% and 48% interest in the Purchaser respectively’.
Au-Yeung Wai wholly owns both NLL and Widespread Success Limited.
Choi Chiu Fai Stanley ‘through Head and Shoulders Direct Investment, subscribed 51% of the limited partnership interest in the [NLF] and acts as one of the Limited Partners [of the NLF] ’.
‘[Save] for Head and Shoulders Direct Investment which is wholly-owned by Dr Choi, each of NLL, Widespread Success Limited and their respective ultimate beneficial owner is a third party independent of [IEC] and connected persons (as defined under the Listing Rules) of [IEC]’.
The ‘Facility’ quoted above refers to a ‘a loan facility of an aggregate principal amount of GBP28,770,000… made or to be made available to [WAFCL] by the [IEC] pursuant to the Loan Agreement’. Details of the Loan Agreement can be found here and is between IEC and WAFCL for IEC’s loan to WAFCL of £28.77m to be repaid within 12 months from 14 February 2020 (or sooner on 21 days’ notice) with interest at 8% per annum fixed for a period of six months. In the event of non-payment of the loan when due, then an interest rate of 20% per annum applies from the due date to the date of actual payment.
The company structure existing at the time of the announcements is illustrated in this diagram:
27 March 2020: a ‘Full accounts’ appear on Companies House showing that for the period 1 June 2018 to 30 June 2019 IEC WAHL made a loss of £24,651 before tax.
30 March 2020: a ‘Full accounts’ appear on Companies House showing that for the period 1 June 2018 to 30 June 2019 WAFCL made a loss of £9.22m before tax.
5 May 2020: IEC released a supplemental announcement stating, inter alia, that NLF had entered a deed of guarantee in respect of the ‘Loan Agreement’ between IEC and WAFCL explained above. Accordingly, NLF assumed the position of a guarantor of WAFCL in respect of WAFCL’s obligations under the Loan Agreement.
8 May 2020: a circular and a notice from the board of IEC called for an extraordinary general meeting of IEC’s shareholders to be held on 29 May 2020 to vote on the acquisition detailed in the announcement made on 14 February 2020.
29 May 2020: IEC released poll results from the extraordinary general meeting held on 29 May 2020 showing that the acquisitions detailed in the announcement dated 14 February 2020 and the circular dated 8 May 2020 were approved by IEC’s shareholders. An announcement made in respect of the same also indicated that (i) the final amount due under the Loan Agreement and/or NLF’s guarantee of the Loan Agreement was £24.36m; and (ii) £24.36m had been paid to IEC immediately and as a result WAFCL ‘is no longer indebted to [IEC]’.
29 May 2020: Chai Wai Lee and Wing Lam Leung are removed as directors of IEC WAHL, and Wai Kay Au and Xuemei Chen are appointed as directors of IEC WAHL.
29 May 2020: a completed form NM01 filed with Companies House shows that IEC WAHL is renamed back to WAHL.
29 May 2020: Xuemei Chan, Tat Man Cheung, Chai Wai Lee, Wing Lam Leung and Kevin John Roberts are removed as, and Man Chun Szeto, Wai Kay Au Yeung and Chun Kit Chan are appointed as, directors of WAFCL.
29 May 2020: a completed form NM01 filed with Companies House shows that IEC Sports Management Limited is renamed to Wigan Sports Management Limited.
29 May 2020: Chai Wai Lee is removed as, and Wai Kay Au Yeung is appointed as, a director of IEC Wigan Property Holdings Limited, and a completed form NM01 filed with Companies House shows that IEC Wigan Property Holdings Limited is renamed to Wigan Property Holdings Limited.
29 May 2020: a completed form PSC07 filed with Companies House shows that IEC ceased to have significant control of Wigan Sports Property Management Limited (although, there is no notification that Hamsard 3467 Limited/IEC Sports Management Limited/Wigan Sports Management ever ceased to have significant control of Wigan Sports Property Management Limited, but in any event Hamsard 3467 Limited was always owned by NVL who in turn was owned by IEC). Further, a completed form PSC01 filed with Companies House shows that Wai Kay Au Yeung became a person with significant control of Wigan Sports Property Management.
30 May 2020: Wai Kay Au Yeung is appointed as a director of Wigan Sports Management Limited.
4 June 2020: WAFC announce on its website that the ‘Wigan Athletic Group’ has been sold by IEC to the NLF (as quoted at the beginning of this article).
13 June 2020: Xuemei Chen is removed as a director of WAHL.
15 June 2020: Man Chun Szeto is appointed as a director of WAHL, Wigan Sports Management Limited and Wigan Property Holdings Limited.
16 June 2020: Tat Man Cheung is re-appointed as a director of WAFCL.
24 June 2020: a completed form PSC07 filed with Companies House shows that IEC Sports Management Limited ceased to have significant control of WAHL. Further, a completed form PSC01 filed with Companies House shows that Wai Kay Au Yeung became a person with significant control of WAHL.
24 June 2020: a completed form PSC07 filed with Companies House shows that IEC WAHL ceased to have significant control of WAFCL. Further, a completed form PSC01 filed with Companies House shows that Wai Kay Au Yeung became a person with significant control of WAFCL.
24 June 2020: a completed form PSC07 filed with Companies House shows that Choi Chiu Fai Stanley ceased to be a person with significant control of Wigan Sports Management Limited. Further, a completed form PSC01 filed with Companies House shows that Wai Kay Au Yeung became a person with significant control of Wigan Sports Management Limited.
26 June 2020: Chun Yiu Thomas is removed as a director of WAHL, WAFCL, Wigan Sports Management Limited and IEC Wigan Property Holdings Limited.
26 June 2020: Chun Kit Chan is removed as a directors of WAFCL.
29 June 2020: Tat Man Cheung is appointed as a director of WAHL, Wigan Sports Management Limited and IEC Wigan Property Holdings Limited.
1 July 2020: Paul Stanley, Gerald Krasner and Dean Watson of Begbies Taylor were appointed joint administrators of WAFC. It should be noted that the announcement from Begbies Taylor does not specify which company entity has entered administration. However, it is presumed that reference was being made to WAFCL.
Criticisms of the EFL
Criticisms have been made of the EFL in respect of the Loan Agreement that is explained above at dates 14 February 2020, 5 May 2020 and 29 May 2020 and why this was not picked up by the EFL’s Owners’ and Directors’ test when NLF acquired NVL. However, it should be noted:
As explained above, the £24.36m owed to IEC from WAFCL and/or NLF under the Loan Agreement and/or NLF’s guarantee of the same was paid. There is no indication that the Loan Agreement and/or NLF’s guarantee of the same was the cause of WAFCL entering administration. Moreover, it has been reported that Wai Kay Au Yeung paid this amount.
The EFL’s ODT, much like the FA Premier League’s Owners’ and Directors’ Test that has been considered previously by this author on Football Law, is an objective test that prevents a person becoming a ‘Relevant Person’ (i.e. an individual person operating the powers usually associated with those of a director of a company) when a ‘Disqualifying Condition’ subsists or arises (which includes having an unspent conviction for specified offences or being subject to some bankruptcy/insolvency proceedings or order). There is no evidence to suggest that those individuals that were directors of WAFCL at the time it entered administration had failed or had not disclosed information that would cause them to fail the EFL’s ODT. This was confirmed in a statement released by the EFL on 7 July 2020:
‘Under EFL Regulations, it is a requirement that the self-certification Owners’ and Directors’ Test is completed by every prospective new owner and relevant person seeking to gain control of a Club. The test sets out an objective set of Disqualifying Conditions. This process was completed during the recent change of control at Wigan Athletic, and Mr Au Yeung Wai Kay was not subject to any disqualifying conditions.
As previously stated, the EFL is aware of the public frustrations felt in respect to the current Owners’ and Directors’ Test and acknowledges that there is a requirement for ongoing adaptation and improvement but, from a legal perspective, it can only operate within existing parameters’.
That statement released by the EFL on 7 July 2020 also states that ‘evidence of the required source and sufficiency of funding to be invested in or otherwise made available to the Club, was provided as part of the recent change of control process’, which is required in accordance with the EFL’s Regulations, regulation 16.21. It is this process set out in EFL’s regulations and what evidence was presented and considered that should be receiving greater focus and criticism, not EFL’s ODT.
Criticisms have also been made of the EFL in respect of a rumoured bet made in the Philippines that WAFC would be relegated from the EFL Championship, and how this might be linked to WAFCL entering administration. A video of Rick Parry, chairman of the EFL, that was secretly recorded refers to this rumour. However, in an interview with Wigan Today, Rick Parry commented upon the same, and in this author’s opinion reasonably so, stating that the bet was ‘totally implausible, totally illogical’:
‘[The rumour of the bet] was really only gossip… An owner putting his own club into administration is a very good way of destroying your own value… And certainly to do it within a month of acquiring… You look at the circumstances...the club were getting results on the pitch, clearly looking they were going to be safe in the Championship, with all the revenues that brings, £2.5million due in a couple of weeks time [sic] from the Premier League, a number of quality young players, very saleable assets. Why would anyone not want to get through to the end of the season, and then take stock? When you get something so illogical, I think that tends to fuel rumours, and some wild rumours at that. So that was context… the worldwide betting market is an online market, information travels really quickly. So a large bet being placed in the Philippines...and because bookmakers lay their risks, to manage the risk... it would be picked up over here within half an hour… So it's very unlikely something like this wouldn't have been known about’.
An investigation is taking place to determine what caused WAFCL to enter administration, as Gerald Krasner of Begbies Taylor confirmed to the Guardian and as the EFL confirmed in its statement released on 7 July 2020.
In defence, and again in an interview with Wigan Today, Au Yeung Wai Kay states:
‘Unfortunately, the Covid-19 crisis has severely impacted people and businesses around the world - and Championship football clubs, which rely on fans coming through the turnstiles, are no exception.
This has fundamentally undermined our ability to fund Wigan Athletic and, after struggling to find a solution, in the end took the difficult decision to put the club into administration to ensure its survival’.
The EFL ‘fundamentally disagrees’ with Au Yeung Wai Kay’s comments considering the ‘evidence of the required source and sufficiency of funding to be invested in or otherwise made available to’ WAFCL provided when NLF acquired NVL and took control of WAFCL.
It is repeated here, as noted at 30 March 2020 above, that WAFCL’s full accounts for the period 1 June 2018 to 30 June 2019 (“full accounts 2019”) show that there was a £9.2m net loss for the period 1 June 2018 to 30 June 2019, and the previous year saw a net loss of £7.7m. These accounts also state:
‘… the directors have determined that additional funding will be required from the ultimate parent company [(then IEC)] to enable the company to continue in operational existence and the company is dependent on the support of the ultimate parent company in this regard’ (see pg. 6 of full accounts 2019)
‘The company is exposed to financial risk through its financial assets and liabilities. The key financial risk is the cash flow risk in that the proceeds from financial assets are not sufficient to fund the obligations arisings from liabilities as they fall due’ (see pg. 6 of full accounts 2019).
‘The company is dependent on financial support by way of loans from its ultimate parent company, International Entertainment Corporation Limited (IEC). Assurances have been given by way of a letter of support that financial support will be provided over the coming 18 months’ (see pg. 7 of full accounts 2019).
WAFCL’s independent auditors also stated in full accounts 2019:
‘… the ability of [WAFCL] to continue as a going concern is dependent on the continued financial support of the ultimate parent or, in the event of a sale, on the commitment to financial support of the new owners. At the time of signing these financial statements, no financial support is guaranteed. These events or conditions indicate that a material uncertainty exists that may cast significant doubt on the company’s ability to continue as a going concern’ (see pg. 9 of full accounts 2019).
It can also be seen from full accounts 2019 that salaries and wages of WAFCL’s employees and directors had increased from £10.33m to £17.52m between 2018 and 2019 (see pg. 19 of full accounts 2019). From that £17.52m, only £339,111 is for directors’ remuneration (see pg. 20 of full accounts 2019). Further, WAFCL had liabilities falling due within one year from the date of those accounts totalling £29.25m, up from £22.97m in 2018 (see pg. 23 of full accounts 2019).
Whilst there may be speculation about what caused WAFCL to enter administration, considering the above it is unavoidable that WAFCL was not in good financial health. Even at the time that IEC made the acquisition from David Whelan et al, WAFCL was still dependent on working capital loans made to WAFCL by the sellers (as detailed at date 21 May 2018 above). Further, WAFCL’s ‘Full accounts’ appearing on Companies House on 21 February 2018 show for the period ending 31 May 2017 (“full accounts 2017”) state:
‘Sustainability without significant shareholder funding has been an objective since relegation from the Premier League and the only way that this can be achieved in the future is by reducing player salary levels and other costs to be aligned to turnover and a strategy of successful player trading’ (see pg. 4 of full accounts 2017).
‘The 2017/18 season will be the first without Premier League parachute payments and for the past four years this has been [WAFCL’s] largest proportion of turnover. As a result, an increased level of externa funding from shareholders will be required if [WAFCL] aspires to compete in the higher levels of English football’ (see pg. 8 of full accounts 2017).
‘[WAFCL] addresses cash flow risk by carefully managing its working capital inflows and outflows and ensuring… that the necessary facilities are available to finance the working capital position from a combination of funding from its ultimate parent company, [WAHL], from funds under the control of Mr D Whelan… and his family, and from [WAHL’s] bank facility’ (see pg. 9 of full accounts 2017).
‘[WAFCL] is dependent on financial support by way of loans from its ultimate parent company, from various funds under the control of Mr D Whelan… and his family and from its bankers’ (see pg. 10 of full accounts 2017).
The same dependency is also explained in WAFCL’s ‘Full accounts’ appearing on Companies House on 1 March 2019 for the period ending 31 May 2018. It is safe to say that that WAFCL has not achieved the objective stated in full accounts 2017. A club, or a company, that was dependent upon parachute payments that have stopped, had not sourced alternative turnover, had increased expenditure on wages, had increased its liabilities and which is running as a going concern predominately on contributions being made by parent companies or otherwise is not a recipe for financial survival. People should not be so quick to side with speculation of a bet placed in the Philippines as the cause of or being linked to WAFCL entering administration. However, considering those aforementioned full accounts, Au Yeung Wai Kay’s comments reported in Wigan Today quoted above, and the EFL’s regulation 16.21, questions have to be answered in respect of what evidence was presented to the EFL when NLF acquired NVL and what, outside of Covid-19, affected WAFCL’s finances.
What next?
An appeal against the 12-point deduction
The EFL has confirmed, in accordance with EFL Regulations, regulation 12.3.4, that no point deduction will take place until the end of the 2019/2020 season. WAFC are currently 15th in the EFL Championship with six games remaining, 12 points from the bottom of the table. WAFC are therefore facing the likelihood of relegation to EFL League One.
WAFCL can appeal against the 12-point deduction under the EFL Regulations, regulation 12.3.10(b), but only on the basis that WAFCL entered administration ‘as a result of a Force Majeure event’. However, such an appeal must be made within seven days after EFL serves notice of the point deduction (EFL Regulations, regulation, 12.3.12). It is unclear whether notice has already been given or whether notice will take place when the 12-point deduction is made at the end of the 2019/2020 season. In any event, it is unlikely that WAFCL would be able to prove that WAFCL entered administration as a result of a force majeure event. A force majeure event is defined in the EFL Regulations, regulation 12.3.11 as:
‘… an event that, having regard to all of the circumstances, was caused by and resulted directly from circumstances, other than normal business risks, over which the Club and/or Group Undertaking (as the case may be) could not reasonably be expected to have control and its Officials had used all due diligence to avoid the happening of that event’.
Considering Au Yeung Wai Kay’s comments reported in Wigan Today and quoted above that place blame on Covid-19 for WAFCL entering administration, it is this author’s opinion that WAFCL would face difficulty in establishing that that was a force majeure event. NLF acquired NVL and took control of WAFCL as Covid-19 was happening. It is reasonable to have expected WAFCL’s officials (i.e. WAFCL’s directors, employees et al at the time of WAFCL entering administration) to have used due diligence to avoid WAFCL entering administration in such circumstances. Further, it would be difficult to argue that Covid-19 was ‘directly’ responsible for WAFCL entering administration considering the full accounts referred to above and the considerable ‘business risks’ they identify with WAFCL.*
The administrators
The role of the administrators is to do what is ‘necessary or expedient for the management of the affairs, business and property of the company’ (Insolvency Act 1986, Schedule B1, para. 59). WAFCL’s administration has just begun, but it is hoped for all the fans of WAFC and employees of WAFCL (despite reports of employees already being made redundant) that the administrators follow through on their objective of ensuring that WAFC completes its remaining 2019/2020 season fixtures and finding interested parties to save WAFCL.
9 July 2020
* On 4 August 2020 a statement released by the EFL stated that WAFC had been unsuccessful in their appeal against the 12-point deduction, which resulted in WAFC being relegated to League One.