First published on

Published on 14 February 2022

Doubts have recently been raised about the financial competence of those who manage the national finances on behalf of all of us. The Chancellor Rishi Sunak has – belatedly some would say – come under fire for the losses to fraud through his Bounce Back Loans scheme: the losses have been estimated at £4.9 billion.[1] Then we find that the British Business Bank, which comes under Kwasi Kwarteng at the Department of Business, Energy and Industrial Strategy, has made us an 8% owner of Bolton Wanderers Football Club.[2] Now we wait to find out whether HMRC will forgive the major part of the debt of Derby County Football Club to us, in order to pave the way for a takeover deal that would enable the club to remain in existence and play out its remaining fixtures in the English Football League (EFL).

The signs are not promising for the taxpayer given the competence shown by the various departments that come under the Chancellor, whether it be HMRC or the British Business Bank. This ‘bank’ is the fulcrum for the pay-outs under the Bounce Back Loans scheme, as well as under the ‘Future Fund’ which now owns shares in Bolton Wanderers (founded in 1874). A £5 million loan was made which was convertible at the borrower’s option. Convertible financial instruments are traditionally – in the stuffy old world of real banking – linked to shares that are quoted on a stock market, have diverse ownership, and are convertible at the lender’s/investor’s option. The lender or investor supplies funds at an interest rate lower than for an ordinary loan or bond, because the loan/bond has an option embedded in it, to exchange the loan/bond for a fixed number of shares determined by the loan/bond amount divided by a ‘strike price’. If the shares trade at £8 when the loan/bond is made, the ‘strike price’ might be agreed at £10, and then the £5 million loan/bond could be converted into 500,000 shares. The lender/investor has upside profit potential if the share price should rise above £10. If it went to £12, the lender/investor could exercise the conversion option, take ownership of the shares without further payment, and sell them across the stock market to realise the return of their capital (500,000 x £10 = £5 million) plus their profit (500,000 x £2 = £1 million).

In this case the option is for the borrower, and their motivation is the exact opposite: they will exercise the conversion option if the value of their business is falling, if their cashflow will be strained by making the loan/bond payments of capital and interest, and if they can strike out the debt and replace it with worthless shares that are not even quoted on a stock market. With 92%, the majority owner can easily outvote the 8% minority shareholder, who has no exit route and therefore no bargaining power. This is now what the British Business Bank has allowed to be done to them, or rather to us. It betokens utter incompetence at this supposed representative of the taxpayers’ interests that they have structured a scheme in this way and ended up with an 8% stake in an unquoted company, where one other owner has 92%.

Bolton Wanderers went into administration in 2019 and were taken out of it by Football Ventures (Whites) Limited, this being the company of which the British Business Bank now owns 8%.[3] This company’s loss for the year to 30 June 2020 was £3.8 million, and its equity at the same date was (£1.1 million).[4] The company was technically bankrupt. This means that the British Business Bank has exchanged an asset of £5 million of cash for one valued on paper at (£88,000), a book loss of £5,088,000 or 102% of our investment.

Derby County Football Club is in administration now, owing a reported £29 million to HMRC.[5] HMRC is Derby’s main source of Working Capital funding. This amount is composed of unpaid VAT, and PAYE deductions. Since the team is still playing its fixtures the amount is likely to be rising. As an aside this makes a mockery of ‘Making Tax Digital’, imposed by Sunak’s department on UK businesses generally and supposedly to avoid such arrears building up.

Derby’s administrator – Quantuma – are seeking a rescue package and have been given a date by the EFL around the start of February to prove that the club has the financial resources to complete its 2021-22 fixtures.

The takeover does not have to be complete by then, but the date focusses the mind: if Quantuma cannot convince the EFL, Derby loses its EFL status, as Bury did in 2019. Bury FC now plays in the Northwest Counties Football League.

The takeover package, when in place, must also meet another hurdle for Derby not to be expelled from the EFL: all so-called ‘football debts’ must be paid.

The debt to HMRC is a ‘non-football debt’, and these can remain unpaid and indeed be written off without that having any implications for Derby’s EFL status.

The ‘football debts’, which must be paid in full, will include:

  • Any unpaid wages of the playing staff and of Wayne Rooney, the player-manager
  • £6 million of compensation owed to the former manager, Philip Cocu, and his coaching team, from the Netherlands
  • £2.9 million of compensation owed to Richard Keogh, the former club captain, who was sacked after he was in a car crash following a night out with other players, and sustained a serious injury.[6] Keogh won his case for unfair dismissal and is due the entire remaining amount for his contract

The club owes £20 million to a company called MSD Holdings that is controlled by its former owner, Mel Morris.[7] This transaction is connected to the sale-and-usage of the Pride Park ground: any new owner of the club would not own the ground. This £20 million is unlikely to be classed as a ‘football debt’: this loan, along with Trade Creditors and HMRC, constitute the ‘non-football debts’.

The ‘non-football debts’ are thus in the order of £50 million, and the ‘football debts’ around £10 million, making £60 million of debts. The monthly running costs are £3 million. The club needs £60 million for its assets to equal its debts (the legal trigger for exit from administration). This would also enable continued usage of the Pride Park ground (unless Derby envisage borrowing a ground as clubs like Coventry City have done). It also needs £15 million to guarantee the completion of fixtures: £3 million of costs per month until May, unless the EFL is willing to view projected revenues of £2 million per month as offsetting this. The amount needed here would be between £5-15 million.

That leads to a requirement for a new owner to pay in between £65-75 million, depending upon the EFL’s willingness to offset projected revenue against running costs.

The administrator has received one offer for the club, of £28 million.[8] Deducting back the £5-15 million needed to complete fixtures, and £10 million for the ‘football debts’ that cannot be written down, one would be left with between £3-13 million to meet ‘non-football debts’ of £50 million.

Maybe Quantuma can negotiate a little more, or find another offer, but £28 million is the only price on the board now, and its acceptance would mean a write-down of 74-94% for the non-football creditors. With HMRC having the weaker bargaining position of the two major ‘non-football’ creditors, the forgiveness of Derby’s debt to the rest of us – through HMRC – can be expected to be at the higher end of this range, or perhaps even to be all but a token amount, so that the club can get a deal with MSD Holdings to continue to use the ground.

Already in December Quantuma announced that they had had ‘very positive’ discussions with HMRC.[9] Dame Margaret Beckett, a local MP, added her voice as a request for ‘leniency’ by HMRC.[10] Beckett’s line echoes that of Gary Neville, self-appointed voice of the ‘soccer family’.[11]

In amongst all this fervour it is hard to find a single voice speaking on behalf of all those people with no interest in football, and those interested in football who either have no sympathy with Derby’s position or who would indeed actively welcome a stake being put in the ground as to the limits of society’s tolerance for the excesses of this self-declared ‘national game’.

Society is under no compulsion to honour the EFL’s rule about ‘football debts’ needing to be paid in full. That is a private rule made amongst the EFL and its members for their own benefit and with no status in company law. In many legal systems, such as the German one, it could even be classed as a ‘contract to the detriment of others’, under which the interests of those not party to it are damaged. In that case it would be declared invalid.[12]

The commonsense approach is that, if Derby’s ‘football debts’ are to be paid in full, then so must Derby’s debt to HMRC be. The general public must rank equal (the ‘pari passu’ principle) with other creditors and not honour the false and self-accorded preferential status of ‘football debts’.

Derby owe HMRC £29 million+. The UK has 70 million inhabitants. If HMRC accepts a 74% write-off of £21 million, that is 30p each and in the midst of a cost of living crisis. If the write-off is 94%, it becomes 39p each.

There is no proper justification for a write-off even of 30p each to the detriment of taxpayers. At that level of write-off, other considerations come to the fore, namely to send a message to our ‘national game’ to put its financial house in order and not to expect any help in doing so from the general public.

Derby is unviable without a new owner willing to inject £65-£75 million. They are welcome to do that if they want to. If no-one comes forward, Derby should be put into liquidation, with HMRC ranking equal in the liquidation process with all other creditors and no preference given to ‘football debts’. This would have the further benefit of demonstrating that the status of ‘football debts’ is not binding upon third-party creditors. If the preferential status is nevertheless upheld in the courts, the law can be changed to eliminate it.

Taking a hard line and sticking to it, though, would require both understanding and backbone from those who represent the general public in these negotiations. Judging from the Bounce Back Loans scheme and the ‘Future Fund’, both qualities are completely absent in the offices of Rishi Sunak and Kwasi Kwarteng. Once again, the taxpayer will be the one taking the biggest loss, enabling funds to be unlocked to meet the claims of Mel Morris, Wayne Rooney, the current playing staff, Philip Cocu and his team, and Richard Keogh.

The resulting hole in the public finances is filled either by new taxes for all of us now, or by extra borrowing for our children and grandchildren to pay off, adding to the effect of rising inflation.

Why should we expect anything else when we have Rishi Sunak and Kwasi Kwarteng at the controls, two avatars of Tony Barber?

[1] accessed on 26 January 2022

[2]  accessed on 27 January 2022

[3] accessed on 26 January 2022

[4] Football Ventures (Whites) Ltd annual accounts to 30 June 2020, from Companies House, pp. 8-10

[5] accessed on 26 January 2022

[6] accessed on 26 January 2022

[7], accessed on 26 January 2022

[8] accessed on 27 January 2022

[9] accessed on 27 January 2022

[10] accessed on 27 January 2022

[11] accessed on 25 January 2022

[12] ‘Vertrag zu Lasten Dritter’ – ‘Contract to the detriment of third-parties’