Out-Law News 3 min. read

Prospective Leeds United owner Cellino becomes first man to fail Football League owners' and directors' test

The Football League in England has banned a prospective owner of Leeds United Football Club (Leeds) from completing a deal to takeover the club.

Massimo Cellino, who had agreed to buy a 75% stake in Leeds with the current owners of the club, was rejected permission to complete the deal by the Football League after the body ruled that Cellino had failed an eligibility test (4-page / 74KB PDF) for becoming a director of the club.

The Football League confirmed that its decision turned on the fact Cellino was recently found guilty of tax fraud in Italy. He was fined €600,000 by a court in the country as a penalty for the offence.

"Having fully considered the matter, the Board agreed unanimously that the decision of the Italian court does constitute a disqualifying condition under its owners' and directors' test," a statement issued by the Football League said. "The relevant disqualifying condition being that Massimo Cellino has been convicted of an offence involving acts that would reasonably be considered to be dishonest."

Cellino has 14 days from 24 March to appeal against the decision. It is the first time that a person has been banned from becoming an owner of a club since the Football League's owners' and directors' test was introduced.

Cellino has appealed against the Italian court's ruling and has outlined his intention to appeal against the Football League's decision, according to a report by the BBC.

Under those rules, the Football League can step in and prevent prospective or existing owners or directors at member clubs from holding such a position where the individuals concerned are subject to a 'disqualifying condition'.

The body has a defined list of disqualifying conditions that apply. The list covers cases where individuals have overseen insolvency events on two separate occasions previously within football, or where individuals have been found guilty of certain offences, such as corruption or perverting the course of justice, amongst other examples.

Leeds, reported to be experiencing financial problems, said it was disappointed at the Football League's decision.

"The Board and Executive Management of the club, will continue discussions with the Football League and [Cellino's company] Eleonora Sport to find a solution that is suitable to all parties," the club said in a statement. "Our shareholders continue to support the club directly or through additional investments as has always been the case. We would like to reassure the fans of the continuity of our great club."

Sports law specialist Trevor Watkins of Pinsent Masons, the law firm behind Out-Law.com, last month said the Football League's owners' and directors' test should be remodelled and made more robust.

Watkins has called for football authorities to give themselves more flexibility when assessing whether individuals are suitable people to own or run football clubs.

"This case provides a clear example of how a completely different system is necessary," Watkins said. "Leeds find themselves in the position of having an interested investor who they have relied on for months to inject funding but the decision on whether this potential owner is 'fit and proper' is only made at the end of a lengthy process. The ultimate decision to reject the application leads to considerable uncertainty both for the League, club and other member teams of the Championship at a critical point of the season. With Leeds openly admitting a need for cash on a month to month basis, a new approach to dealing with this type of situation could avoid this."

"We need a more robust, front loaded approach to deal with ownership testing. Football authorities should have a mechanism for investigating and pre-approving prospective new owners' or directors' eligibility when they first express an interest in investing in a member club, rather than waiting for a takeover deal to be agreed before looking into such matters," Watkins, a former chairman of AFC Bournemouth and divisional representative to the Board of the Football League, said.

"If prospective new owners or directors were required to pay an upfront bond as a way of detailing their commitment to a club then the football authorities could use some of this money to conduct a thorough, subjective investigation into that individuals' eligibility, rather than being forced to adhere to an inflexible 'yes/no' type checklist that does not provide sufficient control to the authorities to ensure clubs are being overseen properly," he added.

"In an environment where new regulations require clubs to manage their finances more closely, this change, allied to allowing unlimited equity injection by owners, could help clubs address financial problems earlier and not tackle the issues whilst on the back foot," Watkins said.

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