You'll Never Warp a Loan - High Court confirms RBS calls the shots at LFC

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13 October, 2010

The case over the planned sale of Liverpool Football Club goes to show that however glamorous its business and however famous some of its employees the law for sports businesses is often just the same as for everyone else warns sports experts Forbes Solicitors.

The Directors' decision to sell the club to NESV would have left the shareholders getting nothing back on their investment after the bank got paid. They tried to remove some directors and appoint others to change the composition of the Board of LFC to get the sale decision changed.

Daniel Milnes, Partner and a member of the Sports Law Group at Forbes Solicitors comments, "This is a harsh illustration of how a director's duty is usually easy to define in terms of what is good for the shareholders but can be changed by banking commitments and concerns over the future of the company. A director should normally act to promote the success of the company for the benefit of the members as a whole. LFC was under threat of possible administration with time to repay RBS running out and in some cases of potential insolvency directors have to consider what is best for the creditors because it is already too late for the shareholders, whatever they might think.

The relationships between directors and shareholders can be complicated and difficult. Banking documents frequently change how a company should be operated and bring another layer of obligations into play."

Normally shareholders control who can and can't be on the Board of a company however the Americans failed in this case as the Court ruled that the changes were invalid because, as is commonly the case, RBS as senior lender had imposed conditions in its funding documents on what the company could change without the bank's permission and that included directors.

RBS had a lot to gain from a sale to NESV, unlike the shareholders, so it wanted the Board as it was and supporting a sale.

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