RBS goes to High Court to force out Tom Hicks and George Gillett
Royal Bank of Scotland (RBS) will attempt to end Tom Hicks and George Gillett’s reign at Liverpool today with a High Court action intended to force the sale of the club against their wishes.
The start of a legal process that could drag on for weeks comes after a dramatic day on which Singapore-based billionaire Peter Lim was named as the rival to New England Sports Ventures (NESV), the American sports group that agreed a £300m deal with club chairman Martin Broughton last week.
It also emerged that Hicks and Gillett had technically been in default on their £237m loan to RBS since April, leaving the club’s holding company vulnerable to being declared insolvent and tipped into administration at any time since.
Tuesday’s RBS action, scheduled to be heard before Mr Justice Floyd at the Royal Courts of Justice, is the first step in a two-stage process that Broughton hopes will allow him to complete the sale to NESV. At the heart of the issue is the constitution of the Liverpool board, and whether he and his fellow non-owner directors have the right to agree to sell the club despite the objections of their majority shareholders.
Hicks and Gillett, who believe the NESV offer undervalues the club, attempted to block the sale last week by sacking Christian Purslow and Ian Ayre, who with Broughton formed a majority in favour of the deal.
Broughton rejected the Americans’ intervention and continued to make an agreement with NESV, arguing that the co-owners were in breach of legally binding undertakings they gave to RBS as a condition of the extension of their financing agreement with the bank in April.
At that time, according to Broughton and RBS, the Americans agreed that the chairman had the power to appoint the board and that they would not stand in the way of any reasonable sale.
The strength of those undertakings will be tested today by RBS, which, as the recipient of the undertakings, has to bring the case.
RBS was granted an interim injunction last Friday preventing Hicks and Gillett from changing the structure of the club board, and will seek to make that permanent by arguing that the Americans were in breach of contract when they sacked Ayre and Purslow.
In a separate, as-yet-unscheduled hearing Broughton, the Liverpool chairman, is expected to seek a “declaratory judgment” approving the sale, though this may not be necessary if RBS wins its action.
Legal experts said that the case would rest on the relative strength of the contractual assurances given to RBS, set against Hicks and Gillett’s rights as shareholders, secured under section 168 of the Companies Act, to constitute the board.
“If the High Court upholds the validity of the RBS undertakings then it is likely to grant an injunction preventing Hicks and Gillett from using their powers to remove directors from the boards of the relevant companies. Ayre and Purslow would then be reappointed to the boards and would be free to approve the sale,” said Ian Lynam, a partner specialising in the sports industry at Charles Russell LLP.
Hicks and Gillett are expected to fight hard to remain in control of the club, and have hired solicitors Peters and Peters, described by one legal commentator as “the most aggressive litigators in London”, to advise them.
Gillett remains a party to the legal action despite uncertainty over the status of his shareholding, which was used as security on a loan from Mill Financial that is now in default.
Should Hicks and Gillett win, or receive an equivocal judgment that encourages an appeal, the uncertainty over the club could last for weeks.
The emergence of Lim is good news for the Americans as it allows them to argue that there are buyers willing to pay more than NESV’s £300m. As NESV has binding sale agreements however, it is unlikely his offer would become relevant unless Hicks and Gillett win the case, or the club are in administration.
Administration remains a possibility, but RBS’s decision not to call in the co-owners’ loans for several months emphasises its reluctance to push the club over the edge. The repayment date for those loans remains Friday, though.
Who’s who in court?
Judge: Mr Justice Floyd
He specialises in company law cases and patents. Earlier this year he ruled that the English and Scottish football leagues could charge for the use of fixtures under the Copyright Act.
Solicitors: Freshfields Bruckhaus Deringer; Slaughter and May
Barrister: Richard Snowden QC, Erskine Chambers.Appointed a QC in 2003, Snowden is an expert in company law and commercial litigation. He has acted in some of the biggest corporate insolvencies of the past decade.
Hicks and Gillett
Solicitors: Peters and Peters
Barrister: Paul Girolami QC, Maitland Chambers. Expert in company law and technical issues surrounding shareholder disputes and directors’ duties.
Solicitors: Slaughter and May