The owners of Coventry City Football Club have failed in a judicial review of the local council’s decision to loan £14.4m to Arena Coventry Ltd (ACL), the freehold owner of the city’s Ricoh Arena stadium. A judge ruled that the loan was lawful and did not constitute state aid.
The League One side, which moved into the Ricoh Arena at the start of the 2005–06 season, controversially played its “home” games last season at Northampton Town’s Sixfields Stadium as a result of a rent dispute with ACL, which manages the stadium and is part-owned by the Council.
Companies in the SISU group, which owns the club, sought an order quashing the Council’s loan decision, and requiring the Council to recover the loan plus commercial interest from ACL, as well as damages.
Hickinbottom J found that the club has been “seriously mismanaged” by SISU and that, by April 2012, it was in a “truly parlous state”. He said: “CCFC was balance sheet insolvent, incurring regular substantial annual losses, and a loss of £5m on the annual turnover of £10m in 2011-12.
He said that SISU distressed the financial position of ACL by refusing to pay ACL any rent or licence fee, which made ACL commercially vulnerable because it could not service its Bank loan, and also had the effect of “reducing the value of the share in ACL that SISU coveted”.
He added: “SISU imposed more commercial pressure on ACL by indicating that they were prepared to see CCFC put into administration or liquidation, which (SISU believed) would have a cataclysmic effect on ACL because of ACL’s inability to service its loan without revenue from the Football Club. SISU’s strategy of distressing ACL’s financial position in these ways was quite deliberate. They considered this strategy was necessary if they were to recover their investment in the Football Club.”
In making the loan, he said: “The Council was driven by the need to protect its commercial interest in ACL. It saw that interest as long-term. It reasonably considered that SISU posed a commercial threat to that interest.”
“Until April 2012, ACL had been profitable: its balance sheet showed a profit every year. On the other hand, the SISU company CCFC had incurred substantial losses – regular losses of £4m-6m per year including, in 2011-12, a £5m loss on a turnover of £10m – and was clearly balance sheet insolvent. It appears to be common ground that poor management greatly contributed to these commercial problems of CCFC. SISU invested about £40m in CCFC until 2012, and, as I understand it, another approximately £10m from April 2012 until CCFC’s demise.
“SISU now seek to blame these financial woes on the rent for the Arena which they had to pay, which, they have been at pains to stress at every opportunity, was considerably higher than CCFC’s competitors in the Championship yet alone League Division One, but that is to look at only one small part of the whole canvas.”
Rejecting the state aid claim, he said: “I have firmly concluded that a rational private economic operator may have made the loan to ACL on the terms the loan was in fact made by the Council; and thus the loan was not state aid.
“The failure of CCFC/SISU to pay rent – and their refusal to consider paying any rent except on SISU’s terms – put the Council an invidious commercial position. As it was intended to do, it placed ACL in considerable financial distress, compounded by the indications that CCFC/SISU were unwilling to pay any rent unless and until a commercial deal was struck on their terms, including a significant (at least 50%) share in ACL; and by SISU’s indications that they were fully prepared to put CCFC into administration or even liquidation.
“Whilst I accept that the Council were put to some hard decision-making over this commercial enterprise in 2012, in all of the circumstances and given the wide margin properly allowed in such matters, I simply cannot say that the loan extended by the Council to ACL would not have been entered into, on the terms in fact agreed, by any rational private market operator in the circumstances of the case. In my judgment, the transaction fell within the wide ambit extended to public authorities in this area; and clearly so. It was not State aid.”
The judge rejected an additional claim that the Council’s decision was irrational.
In the background to the dispute, ACL served a statutory demand on leaseholder and SISU company Coventry City Football Club Ltd (CC Ltd) in December 2012 for £1.1m in what it claims are unpaid rent and licence fees.
Following the loan, ACL applied to put CCFC into administration and, in response, SISU company ARVO Master Fund put CCFC into administration on 21 March 2013.
The judge said: “The administrator sold the assets of the Football Club (including the ‘golden share’ in the Football League, which entitles the holder to have a team in that league) to another SISU company, Otium Entertainment Group Limited. That company currently owns the Football Club. “
Sky Blue Sports & Leisure Ltd and ors v Coventry City Council Administrative (Hickinbottom J) 30 June 2014
Rhodri Thompson QC, Christopher Brown and Nicholas Gibson (instructed by Speechly Bircham LLP) for the Claimants
James Goudie QC, Fenella Morris QC and Ronnie Dennis (instructed by the Solicitor, Coventry City Council) for the Defendant
Conor Quigley QC (instructed by Wragge Lawrence Graham & Co LLP)
for the First Interested Party
The owners of Coventry City Football Club have failed in a judicial review of the local council’s decision to loan £14.4m to Arena Coventry Ltd (ACL), the freehold owner of the city’s Ricoh Arena stadium. A judge ruled that the loan was lawful and did not constitute state aid. The League One side, which moved into the Ricoh Arena at the start of the 2005–06 season, controversially played its “home” games last season at Northampton Town’s Sixfields Stadium as a result of a rent dispute with ACL, which manages the stadium and is part-owned by the Council. Companies in the SISU group, which owns the club, sought an order quashing the Council’s loan decision, and requiring the Council to recover the loan plus commercial interest from ACL, as well as damages. Hickinbottom J found that the club has been “seriously mismanaged” by SISU and that, by April 2012, it was in a “truly parlous state”. He said: “CCFC was balance sheet insolvent, incurring regular substantial annual losses, and a loss of £5m on the annual turnover of £10m in 2011-12. He said that SISU distressed the financial position of ACL by refusing to pay ACL any rent or licence fee, which made ACL commercially vulnerable because it could not service its Bank loan, and also had the effect of “reducing the value of the share in ACL that SISU coveted”. He added: “SISU imposed more commercial pressure on ACL by indicating that they were prepared to see CCFC put into administration or liquidation, which (SISU believed) would have a cataclysmic effect on ACL because of ACL’s inability to service its loan without revenue from the Football Club. SISU’s strategy of distressing ACL’s financial position in these ways was quite deliberate. They considered this strategy was necessary if they were to recover their investment in the Football Club.” In making the loan, he said: “The Council was driven by the need to protect its commercial interest in ACL. It saw that interest as long-term. It reasonably considered that SISU posed a commercial threat to that interest.” “Until April 2012, ACL had been profitable: its balance sheet showed a profit every year. On the other hand, the SISU company CCFC had incurred substantial losses – regular losses of £4m-6m per year including, in 2011-12, a £5m loss on a turnover of £10m – and was clearly balance sheet insolvent. It appears to be common ground that poor management greatly contributed to these commercial problems of CCFC. SISU invested about £40m in CCFC until 2012, and, as I understand it, another approximately £10m from April 2012 until CCFC’s demise. “SISU now seek to blame these financial woes on the rent for the Arena which they had to pay, which, they have been at pains to stress at every opportunity, was considerably higher than CCFC’s competitors in the Championship yet alone League Division One, but that is to look at only one small part of the whole canvas.” Rejecting the state aid claim, he said: “I have firmly concluded that a rational private economic operator may have made the loan to ACL on the terms the loan was in fact made by the Council; and thus the loan was not state aid. “The failure of CCFC/SISU to pay rent – and their refusal to consider paying any rent except on SISU’s terms – put the Council an invidious commercial position. As it was intended to do, it placed ACL in considerable financial distress, compounded by the indications that CCFC/SISU were unwilling to pay any rent unless and until a commercial deal was struck on their terms, including a significant (at least 50%) share in ACL; and by SISU’s indications that they were fully prepared to put CCFC into administration or even liquidation. “Whilst I accept that the Council were put to some hard decision-making over this commercial enterprise in 2012, in all of the circumstances and given the wide margin properly allowed in such matters, I simply cannot say that the loan extended by the Council to ACL would not have been entered into, on the terms in fact agreed, by any rational private market operator in the circumstances of the case. In my judgment, the transaction fell within the wide ambit extended to public authorities in this area; and clearly so. It was not State aid.” The judge rejected an additional claim that the Council’s decision was irrational. In the background to the dispute, ACL served a statutory demand on leaseholder and SISU company Coventry City Football Club Ltd (CC Ltd) in December 2012 for £1.1m in what it claims are unpaid rent and licence fees. Following the loan, ACL applied to put CCFC into administration and, in response, SISU company ARVO Master Fund put CCFC into administration on 21 March 2013. The judge said: “The administrator sold the assets of the Football Club (including the ‘golden share’ in the Football League, which entitles the holder to have a team in that league) to another SISU company, Otium Entertainment Group Limited. That company currently owns the Football Club. “ Sky Blue Sports & Leisure Ltd and ors v Coventry City Council Administrative (Hickinbottom J) 30 June 2014Rhodri Thompson QC, Christopher Brown and Nicholas Gibson (instructed by Speechly Bircham LLP) for the ClaimantsJames Goudie QC, Fenella Morris QC and Ronnie Dennis (instructed by the Solicitor, Coventry City Council) for the DefendantConor Quigley QC (instructed by Wragge Lawrence Graham & Co LLP)for the First Interested Party