The new IFR approval process for club owners in English football

In its early days the Independent Football Regulator (IFR) has published draft rules and guidance for consultation, providing further detail to supplement the Football Governance Act on the new approval process that individuals will need to go through before they can become owners of a professional football club in England.

While most of the rules are based on the similar processes that have been applied by the Premier League (PL) and English Football League (EFL) to date, the IFR’s process will be more rigorous and more public.

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The consultation is open until 6 October, so time is limited for clubs and investors to take advantage of the opportunity to contribute to the way the IFR shapes its new regime. It is as yet unclear whether existing processes run by the PL and EFL will be ceded to the IFR or run in parallel. Irrespective of what happens, the IFR process will have to be complied with. The changes, whilst subtle, will likely introduce significant change.

‘Owner’ more broadly defined

The PL and EFL focus their ownership rules on those with an interest in a club’s shares that carry 10% or more of voting rights. The IFR, by contrast, takes its definition of “owner” from the Companies Act 2006. This includes not only those holding more than 25% of shares or voting rights in a club, but also those with a right to appoint or remove club officers, or who have some other “significant influence or control” over a club.

The concept of “significant influence or control” introduces a grey area into identifying club owners but is broader than the PL and EFL rules. The government is required to define the concept in guidance, and it would be surprising if it went beyond the Companies Act guidance on the same concept. That guidance goes so far as to include individuals who are consulted regularly on business decisions, for example.

The approval process

The process for seeking approval is not markedly different from that used by the PL and EFL. It must be triggered by notifying the IFR once there is a “reasonable prospect” of a person becoming a new club owner. The IFR’s draft rules set out the application form to be used and require detailed information on financial plans and sources of funding to be submitted.

Currently, PL and EFL rules require a similar submission to be made by a club to them for approval, in parallel to any application to the IFR. It is not yet clear if the PL and EFL will avoid this duplication by amending or removing their rules once the IFR’s process is up and running.

An important change in the IFR process is the introduction of a deadline for the IFR to conclude the approval process, in contrast to the open-ended approach taken by the PL and EFL. The government is consulting on the deadline, proposing that the IFR has a maximum of 90 days, with the option of extending it for a further 60 days if necessary.

While clubs and investors will welcome anything that can be done to avoid a long and protracted process, the downside to this deadline for investors is that there is an unchangeable ‘cut off’ date and a non-decision is treated as a rejection under the legislation.

This places significant pressure on them to be prompt, transparent and cooperative – but equally, the IFR can expect to face legal and political pressure itself if it undertakes an over-zealous quest for information and assurances that risks scuppering vital financial investments.

The owners test

There are three elements of the IFR’s owners suitability test:

• honesty, integrity, and financial soundness;
• sufficient financial resources;
• source of wealth not linked to serious crime.

The IFR’s draft rules and guidance indicate that it intends to apply these principles more strictly than the PL and EFL have done historically. For example, it will require more detail on an owner’s financial plans for a club, and negative factors that it will consider will include any incidents of non-cooperation with a regulator, or any links to another company in financial distress.

Impact on current club owners

While the IFR framework focusses primarily on the vetting of new club owners, the IFR does also have discretion to review incumbent club owners and take action to remove them if they do not meet its owners’ test. In future, disgruntled fans will not only be protesting against a club owner on match days – they can be expected to direct their protests to the IFR’s inbox as well.

The IFR’s draft guidance states that it will take a targeted approach to reviewing incumbent owners, in which it is “likely to prioritise cases where an owner …may be in breach of the regime and where this has the potential to impact the financial soundness of the club.”

Alongside this, the IFR issued a strongly-worded press release stating its intention to use its powers to tackle “rogue owners” – an indication that it views this as a priority area for action.

The impact of a different regulator

Although much of the IFR process compares with the EFL and PL rules, the mere fact that it will now be the IFR acting as regulator, either in isolation or in tandem with the leagues, will have a major impact in practice. The IFR has more extensive powers to obtain information about owners from banks, regulators and law enforcement agencies, so it will be more difficult for ‘rogue owners’ to hide from their past. The IFR also has robust legal powers backed by the courts to take action to remove club owners if it sees fit.

Another change is the greater transparency we will see in the IFR’s process and its decisions, with its draft guidance stating an aim of being as transparent as possible. While that will not extend to publishing confidential information submitted by an owner, the IFR emphasises that it will only refrain from publication if it agrees that the owner’s information is confidential in nature.

Any legal challenges to the IFR will also be in open court at the Competition Appeal Tribunal, in contrast to PL and EFL arbitration processes that take place behind closed doors. Owners will need to be prepared for the greater public, political and media scrutiny that will result from this greater transparency.

Launch date for the new approval process?

The IFR has not yet stated its intended start date for the new owner-approval regime. However, the speed with which it has moved to consult on the draft rules and guidance as one of its first acts, with a relatively short consultation period of 4 weeks, suggest it is anxious to get to work as soon as possible.

Once the government has carried out its own consultations to complete the picture, it is conceivable that the IFR could be ready to begin reviewing any ‘rogue owners’ it has its eye on before the end of the year.