Clause 38 - Disqualification orders

Football Governance Bill – in a Public Bill Committee am 2:30 pm ar 21 Mai 2024.

Danfonwch hysbysiad imi am ddadleuon fel hyn

Question proposed, That the clause stand part of the Bill.

Photo of Caroline Nokes Caroline Nokes Chair, Women and Equalities Committee, Chair, Women and Equalities Committee

With this it will be convenient to discuss clauses 39 to 44 stand part.

Photo of Stuart Andrew Stuart Andrew Assistant Whip, Parliamentary Under Secretary of State (Department for Culture, Media and Sport), Parliamentary Under Secretary of State (Department for Business and Trade) (Minister for Equalities)

The financial distress experienced by some of English football’s most historic clubs was partly down to unsuitable owners and directors. As discussed, the regulator will be able to conduct strengthened owners and directors tests to help to ensure that each club has suitable custodians.

Clause 38 ensures that when the regulator finds that someone is unsuitable to be an owner or officer of a particular club, it can disqualify that person from being an owner or an officer at any regulated club in future. In order to ensure sufficient protections, relevant parties will be allowed to express their views before the regulator makes its decision. Then, once the decision taking those views into account has been made, the regulator must publish a notice of the decision, including the rationale behind it. The process will help to ensure that key community assets have suitable custodians who run the club properly.

Clause 39 details the process that the regulator must begin to remove an owner from the club when it finds them to be unsuitable. In most cases, that will mean giving them a direction under the clause to take all reasonable steps to cease being an owner by a specified date. Those steps could include, for instance, selling their stake in the club. As I just mentioned, in order to ensure sufficient protections, the regulator must consult the unsuitable owner, the relevant club and the relevant league before issuing the direction.

Similarly, clause 40 ensures that when the regulator finds that someone is unsuitable to be an officer, it must either give the unsuitable officer a direction to take all reasonable steps to cease to be an officer of the club, give the relevant club a direction to take all reasonable steps to ensure that the unsuitable officer is no longer at the club, or both. Once more, to ensure that sufficient protections are in place, the regulator must consult the unsuitable officer, the relevant club and the league, as before.

Clause 41 ensures that when the regulator finds that someone is unsuitable, it can prohibit that person from undertaking certain activities or exercising certain rights of the club. That could include, for instance, the prohibition of the exercise of any right to vote on club matters, of the hiring or firing of employees at the club, of changing the corporate structure of the club, or of undertaking any specified actions without the regulator’s approval. The regulator can require both the unsuitable owner or officer and the club itself to ensure that the prohibition is respected. This will help to safeguard the club from any potential further damage while the unsuitable owner or officer is still there.

To take a step back for clause 42, as set out previously, the regulator can find a person unsuitable to be an owner or an officer of a club, direct them to leave the club in a specified timeframe, and prohibit them from undertaking certain activities at the club in the interim. However, there is a risk that in doing so the club will no longer be able to operate effectively—for instance, if the unsuitable officer was one of the few directors at the club. To mitigate or avoid that risk, clause 42 allows the regulator to appoint an individual as an interim officer at the club, or to require the club to redistribute responsibilities among its remaining suitable officers. When the regulator appoints an officer, the club, the owners and the other officers must co-operate with that appointed officer. This will help the regulator to ensure the continued effective operation of the club when an unsuitable owner or officer is being removed.

Clause 43 deals with the risk that an unsuitable owner does not comply with the directions from the regulator, which I mentioned earlier, to leave the club in a specified timeframe or prohibiting them from undertaking certain activities. For instance, they may refuse to leave the club or continue to use their position as owner to damage the club. In such situations, the regulator will need sufficient powers to directly remove the unsuitable owner from the club, which is why the clause gives the regulator broad discretion in such cases.

The regulator can make an order containing such provision as the regulator considers appropriate to secure the unsuitable owner’s removal. That could include, for example, appointing trustees, empowering the trustees to sell the club, or requiring the unsuitable owner or any other person to comply with the trustees’ decisions and directions. However, the regulator can use the power only against unsuitable owners who have demonstrated that they are willing to flout the regulatory requirements or have failed to comply with the directions that the regulator has made to protect the club from harm.

To ensure that sufficient safeguards are in place when the regulator makes an ownership removal order containing whatever provision is appropriate to ensure that an unsuitable owner leaves a club, clause 44 sets out the process that must be followed by the regulator. In particular, clause 44 sets out that before issuing an ownership removal order, the regulator must publish a notice that it intends to issue the order and allow a period for interested parties to express their views. After that, the regulator must decide whether to make the order and publish a notice of its decision, including its rationale. That will help to ensure that the views of those affected are taken into account in the decision-making process.

Separately, the regulator may make rules that require the unsuitable owner to pay costs associated with an ownership removal order. That could include costs incurred by a trustee appointed by an order. This power will help to ensure that costs are borne by the unsuitable owner. I commend the clauses to the Committee.

Photo of Stephanie Peacock Stephanie Peacock Shadow Minister (Digital, Culture, Media and Sport) 2:45, 21 Mai 2024

It is incredibly important that if the regulator is going to take on responsibility for conducting the owners and directors tests, it is also given the teeth to enforce the outcome of those tests. I am pleased to have reached the part of the Bill where we can discuss those powers.

I will speak to each clause in the group in turn, starting with clause 38, on disqualification orders. In some circumstances, a test may reveal that not only is the person in question unsuitable to be an owner or officer of a particular club, but their record is such that they should not be considered for such a role again. I agree with the principle of the clause, which is to ensure that tests are not unnecessarily duplicated and to protect multiple clubs from the same issue.

On clause 39, if the regulator has determined an owner of a club is not suitable, it is right that it is bound to give a direction requiring that person to take reasonable steps to cease being an owner. That binds the regulator to the outcome of its test, rather than giving it discretion over whether a negative determination results in the departure of an incumbent owner. I have a few questions about what that would mean in practice. I am curious to hear the Minister’s take on what taking “all reasonable steps” to cease ownership might involve. It surely implies that a person needs to sell their shares, but what if they are unable to find a buyer? Would they be required to give the club away if there was no willing purchaser? Furthermore, if there is a buyer but they offer a price below market value, or a value that would result in big losses for an owner, would the person still be forced to sell?

The answers to those questions, and a clear direction on the application of the clause, is important for two distinct reasons. First, it matters because this process may have a knock-on effect on people’s willingness to invest in football clubs. Secondly, it matters for the sustainability of the club and its fans. It is important that the club is in the right hands for the right price, or this entire part of the Bill on owners will be undermined. I hope the Minister can today, or in due course, provide some further information on how clause 39 will work in practice.

Clause 40 largely mirrors the removal directions for owners, but applies them to officers. How the clause will work in practice is less complex, as the removal of officers is less likely to hinge on the finances of an outside party. I am also satisfied that the alternative officer arrangements in clause 42, to appoint an interim officer, might mitigate any problems with an officer’s removal.

Clause 41 provides an important protection against unsuitable officers or owners carrying out activities that might negatively impact the club in the long term. When it comes to actions that have an impact on a club’s future, it is right that anyone who has been identified as a potential harm to a club can be limited in those areas if needed.

Finally, I welcome clause 43, which gives the regulator the ultimate power to ensure that a person ceases to be an owner when they have failed to comply with orders given under powers in this part. That power is complimented by the safeguards and notice provisions in clause 44.

Photo of Stuart Andrew Stuart Andrew Assistant Whip, Parliamentary Under Secretary of State (Department for Culture, Media and Sport), Parliamentary Under Secretary of State (Department for Business and Trade) (Minister for Equalities)

I thank the hon. Lady for her comments.

As I said, if the regulator deems that a current owner is unsuitable, it would first direct them to leave the club in the specified timeframe. During that period, the regulator will have available several powers to safeguard the club from further harm. However, as the hon. Lady rightly said, there is a risk that an unsuitable owner does not comply with the directions. For instance, they may refuse to leave the club or may continue to use their position as owner to damage the club. In those situations, the regulator will have the powers to directly remove the unsuitable owner from the club.

The hon. Lady makes a point about cases in which there is a failed incumbent owner but no new prospective buyer for the club. By conducting strong statutory tests on prospective owners, the regulator will ensure that clubs are run by suitable custodians and that unsuitable owners can be stopped at the point of entry. That will help to reduce the risk of unsuitable owners entering the industry.

The wider regulatory system of financial regulation and improved governance will further put clubs on a more sustainable footing, which should ensure that clubs are attractive as investments for prospective buyers. If an owner wishes to sell, or is required to sell by the regulator, the club should therefore be a much more attractive asset.

Photo of Clive Betts Clive Betts Chair, Levelling Up, Housing and Communities Committee, Chair, Levelling Up, Housing and Communities Committee, Chairman of the House of Commons Members' Fund

The Minister is almost assuming that the regulatory regime is going to make a perfect world, and that there are not going to be failures. The question being asked is: what happens when there are? When there is an owner who is required to sell, what happens to the club in those circumstances?

Photo of Stuart Andrew Stuart Andrew Assistant Whip, Parliamentary Under Secretary of State (Department for Culture, Media and Sport), Parliamentary Under Secretary of State (Department for Business and Trade) (Minister for Equalities)

The hon. Gentleman is right. I am not saying that this is going to be the panacea for all football clubs; they are businesses, and businesses go under at times. When the regulator is ensuring that the club has to be sold, its powers will minimise the risk of a bad owner further damaging the club, which adds to the pressure of finding a good new owner to take over. By having those powers, we are not drumming that club into the ground, as we have seen in other instances; it remains a positive and attractive prospect for investment. I hope that answers the hon. Gentleman’s question.

Question put and agreed to.

Clause 38 accordingly ordered to stand part of the Bill.

Clauses 39 to 44 ordered to stand part of the Bill.