Monday 24 June 2019

ESCAPE ARTIST SUPREME

NEWSMAKER OF THE WEEK: Ken Bates, quarry owner, football club collector and banker

KEN Bates's success in regaining control of Leeds United is merely the latest episode in the septuagenarian businessman's career.

As depositors of the former Irish Trust Bank, which went bust in 1976, can testify, dealing with Bates can be a costly business.

Last month, the 75-year old Bates pulled off what may yet turn out to be his greatest escape. In the face of fierce opposition from many of Leeds United's creditors, who between them were owed £35m, he regained control of the club despite the UK Revenue & Customs, which was owed £7.7m, coming out strongly against Bates.

To long-time Bates observers, his intricate corporate manoeuvres at Leeds would have come as no great surprise.

In a business career which has spanned seven decades Bates has left behind more than his fair share of unpaid bills, liquidated companies and disillusioned partners.

Ken Bates was born on December 4, 1931. He was abandoned by his parents as an infant and was brought up in a West London council estate by the parents of his father's second wife.

He was reconciled with his father in his late teens and started working in the elder Bates' quarrying business near Manchester, which was moderately successful

He branched out into property and construction, and in 1965 his company Howarth was floated on the Stock Exchange.

Bates's first experience at the helm of a public company was not a success. The company's accounts were dogged by controversy, and he was forced to resign from the company. In July 1969 the company revealed debts of £1.8m and a receiver was appointed.

By then Bates had moved on to greener pastures. In the early 1970s the Irish secondary banking sector was a regulatory free-for-all. Anyone, it seemed, could open their own bank.

Such an anything-goes environment was tailor-made for Bates. In June 1971 he bought an off-the-shelf company Kildare Bank.

Two months later, it was renamed Irish Trust Bank and Bates entered the banking business. Almost from the very beginning the operations of the Irish Trust Bank gave the bank regulators at the Central Bank sleepless nights. It lent IR£1.4m to the Manx-registered company International Trust Group.

Not alone was it bad banking practice for the fledgling bank to be lending such a large proportion of its resources to a single customer, International Trust Group was also a 20pc shareholder in Irish Trust Bank.

Several other loans made by the bank also raised concerns at the Central Bank.

Bernard Breen, then secretary of the Central Bank, wrote to James Keogh at the Bank of England on January 12, 1972, enquiring about Bates.

Keogh replied with devastating understatement that, while he could find nothing to Bates's "discredit" none of his former bankers in the UK "would be gladdened if he returned to them".

He then went on to state that if Bates applied for a banking licence in the UK "I would have no option but to reject his claim".

The Central Bank went to the High Court to remove Bates as a director of the bank.

Although the application to remove Bates failed on a technicality, he resigned as a director on April 17, 1972.

However, Bates' five children, who were all minors at the time, remained as shareholders of the Irish Trust Bank. He also continued to operate from the bank's Dawson Street offices.

By late 1975 the Irish Trust Bank was in serious trouble. It was stuffed to the gills with long-term property loans. This meant that it was badly hit by the sharp rise in interest rates which followed the 1973-4 oil price crisis.

In an effort to hide the full extent of its problems Irish Trust Bank began capitalising unpaid interest due from borrowers as an asset on its balance sheet. When the Central Bank discovered that scam, the game was up.

On February 19, 1976 the Central Bank applied to the High Court to wind up Irish Trust Bank and appoint a liquidator.

The application was heard on March 23. At the very moment of the High Court hearing, Bates and two other men, described as 'heavies' in contemporary newspaper accounts, entered the Irish Trust Bank offices and removed a sack of documents from the boardroom.

When a staff member challenged him saying "you can't do that", Bates responded: "See you in court."

The judge immediately issued a warrant for Bates's arrest. He appeared voluntarily before the High Court the same afternoon and was ordered him to return the documents, which he claimed were personal papers.

The judge also granted the application to shut down the bank and appointed Paddy Shorthall of Coopers & Lybrand as liquidator.

Eventually, the Irish taxpayer would have to pick up the tab.

Then Bates shifted his activities to the UK. By 1982 Chelsea Football Club was a shadow of its former self. Languishing in the old second division it was virtually bankrupt with debts of £600,000.

Bates bought the club and its debts for just £1. However, he lacked the funds to buy the freehold to the club's Stamford Bridge stadium. This would end up costing him a lot more more money in the years ahead.

Bates would spend most of the next two decades at Chelsea ducking and diving as he attempted to restore the club's fortunes on the field and keep it solvent off of it.

In 1993, in a scheme not dissimilar to his recent one at Leeds, Bates transferred the assets of Chelsea to a new company, Chelsea Village, while leaving the debts in the old company, which was then placed in receivership.

Bates easily defeated an attempt by the FA to investigate his restructuring of Chelsea. Despite the FA's earlier objections to his Chelsea Village manoeuvre, Bates was appointed as chairman of Wembley National Stadium, the company charged with redeveloping Wembley Stadium, in 1997.

The appointment was not a success. As the cost of the project soared Bates was removed from the position in December 2000.

Initially things went well at Chelsea Village. The company floated its shares on the Stock Exchange in 1996 and Sky TV bought a 9.9pc stake for £39.4m. Then things began to unravel.

Despite the huge inflow of TV money the company's debts soared. By early 2003 the company's debts had reached £97m and the bankers were demanding the immediate repayment of £23m.

However, just when all seemed lost, Bates managed to sell the club to the previously unknown Russian billionaire Roman Abramovich in July 2003.

Abramovich paid almost £60m and also assumed the club's debts of over £90m. Bates received over £17m for his 29.5pc stake in Chelsea.

Those who imagined that the sale of Chelsea to Abramovich would mark the end of Bates's career in soccer were in for a surprise.

Two years later Bates bought control of Leeds. Despite having reached the semi-finals of the Champions League in 2001 Leeds were in even worse financial condition than Chelsea had been when Bates first bought the club.

Leeds had been relegated from the Premiership in 2003 but were still tied into expensive contracts for under-performing players.

At one stage Leeds owed almost £80m. While this had been reduced by the sale and leaseback of its Elland Road stadium and Thorp Arch training facility, the club still owed £35m.

By early May this year Leeds were virtually certain to be relegated from the Championship to League One. On May 4 Bates struck, placing the club in administration. By doing so, he effectively side-stepped the Football League's rule that clubs going into administration are deducted ten points.

That was only the beginning of the controversy. Bates then proposed to buy back the club and pay creditors just one penny in the pound. While this was later increased to seven pence in the pound the controversy continued unabated.

Matters weren't helped when three offshore funds claiming to be owed £17.7m, about 45pc cent of Leeds' debts, voted in favour of the restructuring.

If it hadn't been for their support, the restructuring would have come nowhere near securing the votes of 75pc of creditors needed for the scheme to be approved.

As he enters into a season in League One Bates faces the challenge of restoring Leeds to something resembling their former glory.

Regardless of whether or not he succeeds Leeds fans be sure their club will never be far from controversy.

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