Not Always a Beautiful Game
It involved VB Football Assets, a company incorporated in Latvia, and a company called Segesta Limited which was latterly renamed as Blackpool Football Club (Properties) Limited.
Segesta owned various properties associated with the football club and also owned 95.36% of the shares of Blackpool Football Club Limited.
Segesta Limited was controlled by Mr Owen Oyston. Mr Oyston and his son, Karl, presented as two very different personalities: the father was urbane and charming in the witness box whereas the son was seemingly far more abrasive. They, together with supporting professionals, were the main witnesses for Segesta.
VB Football Assets was owned by Mr V Belokon, a Russian national, and his brother.
The Heart of the Dispute
In June 2006 VB Football Assets subscribed for shares in the football club which gave it a holding of 20% for consideration of £1.8 million. At the same time a loan for £1 million was made to Segesta and a further loan for £1.7 million followed some 9 months later.
Mr Belokon maintained that there was an unwritten agreement that VB Football Assets was to have the same stake as Segesta in the football club with each holding 47.68% of the equity. The only reason why this was not the situation in June 2006 was that Segesta needed to retain a 75% interest in the football club for the purposes of utilising tax losses using group relief. The loans were therefore little more than a convenient fiction; the truth underpinning the transactions was that VB Football Assets paid consideration totalling £4.8 million in exchange for a stake of 47.68%. The intention was that Segesta and VB Football Assets would run the club jointly.
The Oystons (both father and son) denied the existence of any such unwritten agreement.
The Nature of the Litigation
VB Football Asset brought a claim under section 994, Companies Act 2006 that large improper payments were made by the football club for the personal benefit of Mr Owen Oyston and Mr Karl Oyston without the approval of VB Football Assets. There was then a closely linked claim that the football club had not declared any dividends to shareholders.
The Factual Witnesses
Mr Belokon was described as giving his evidence honestly; he was also very clear when he could not remember something. He was supported by a subordinate, Mr Malnacs. The Judge gave a brief portrait: “He was an impressive witness, who gave his evidence clearly and honestly. He was in no sense in awe of his boss, although Mr. Malnacs obviously respected Mr. Belokon.”
The above comments can be contrasted with the Segesta witnesses. Judges do not generally engage in hyperbole and nor do they encrust their observations with unnecessary decoration. The comment made about Mr Karl Oyston is therefore very telling: “He was an argumentative witness, who gave speeches rather than answering questions. I found him generally incapable of answering a question straightforwardly.”
It is a matter of concern that four professionals who had worked closely with the Oystons over many years did not demonstrate objectivity in their evidence. It is even more troubling that the auditor to the football club “was effectively “in the pocket” of the Oyston side” according to the Judge.
The Judge also found that the auditor and another professional involved had made misrepresentations to HMRC regarding a very large payment of £11 million made to the Oyston family interests.
Telling Evidence and the Findings
Apart from the quality of the oral evidence, the Judge was heavily swayed by the reality that the loans made so little sense if viewed as separate transactions. The rights of repayment were long term and uncertain; the loans did not receive a commercial rate of interest.
The Judge found that the loans were advanced in contemplation of their conversion into equity, such that there would be a parity of shareholding between VB Football Assets and Segesta. In the meantime a quasi-partnership existed between these two entities. Decisions should have been made on the basis of unanimity.
The Experts onto the Pitch
Aswath Damodaran has commented that business valuation requires both the calculation of the relevant figures and also the narrative, describing the qualitative aspects of the business. It is both the telling of the story and the crunching of the numbers which are required components of the valuation.
One of the experts prepared a discounted cash flow analysis in order to derive value and it was on this aspect that the Judge commented. This therefore joins the growing list of valuations in Court which have been prepared using DCF.
The other expert considered the value of the Company on an impressionistic basis by reference to the prices at which League Division Two clubs commonly transacted.
The Judge commented that he was assisted by both of the experts each of whom was expert in his field. The differences in valuation were stark: one of the experts derived an enterprise value of £59.7 million and equity value of £48.1 million whereas the other considered that the value was some £5.5 million.
The Damage
The Oystons had made payments to their own benefit, without equivalent sums being paid to VB Football Assets. The most significant of these was the payment of remuneration in respect of Mr Owen Oyston of £11 million. There were in addition various other transfers to the Oyston family interests. The total was some £26.77 million. The Judge considered that these amounts were in the nature of dividends in which VB Football Assets had not participated.
The Judge set out the differences in income between the Premier League, the Championship and the other leagues: during the course of the four seasons that Blackpool played in the Championship (2011-2012; 2012-2013; 2013-2014; 2015-2016), it received (for each season) £3.55 million. During its one season in the Premier League (2010-2011), Blackpool received £42.995 million plus further payments of £48 million.
When the Whistle Went
The Judge did not use the valuations of either of the experts, but no criticism attaches to that. He found it impossible to ascribe a positive value to the football club due to the uncertainties as to its position in the League. He therefore computed the losses suffered by VB Football Assets as the amounts advanced for the shares and loans of £4.5 million, to which he added £26.77 million being the sums which the Oystons had taken in quasi dividends.
Andrew Strickland
