Wonderful site called Chairmans Comment

There is a wonderful site called "Chairmans Comment" which is subtitled "The senile ramblings of Ken Bates" The site posts up the utterances of Chairman Ken particularly as printed in the Leeds match day programme. The latest offering is reproduced below. If anyone can actually understand what the message is other than "we are screwed" then please do let me know.

The Forward Sports Fund is a fund incorporated in the Cayman Islands.

The Fund’s UK representative is Ken Bates but the Fund is administered from Switzerland.

In January 2005, Mr Bates was approached by Leslie Grayling and John Owen and was informed that Adulant Force Limited, the ultimate holding company of Leeds United Association Football Club Limited was within days of going into liquidation.The Revenue was owed £1.2m that had to be paid by January 12.

It was agreed between Bates, Grayling and Owen that a New Co (LUFC) would be set up to acquire Adulant Force Ltd. FSF would hold 51 per cent of the equity of LUFC, with Grayling/Owen holding 26 per cent. The remainder of the equity (21 per cent) would be placed with investors to be introduced by Grayling / Owen. To date, no investors have been introduced.

Bates’ lawyer Mark Taylor, Gerald Krasner and Melvyn Levi of ‘the Yorkshire Consortium’ met on 17 January 2005 at Mark Taylor’s offices in London. The initial proposal was that LUFC would buy the whole of Adulant Force Limited for a nominal consideration but would make up to £5m available for future working capital for LUAFC, including the payment of the Revenue which was fundamental.

It was discovered that a change of control prior to May 2005 would trigger a payment of £5m by LUAFC to the Trustees of a bond previously issued by Leeds United plc. The requirement to make such payment would scupper the deal and so it was agreed that:
i) LUFC would purchase 50 per cent of Adulant Forces
ii) LUFC would purchase 50 per cent of LUAFC
iii) LUFC would gain board control of both Adulant Force and LUAFC
iv) LUFC would be granted a call option over the remaining 50 per cent of Adulant Force)

LUFC would procure a loan of £5m available to LUAFC.

There were loans due from Adulant Force Ltd to members of the Consortium as follows: Levi and Simon Morris were both paid sums in excess of £200,000 with the balance of the loans being discharged by the issue of secured loan notes. Loan notes were issued to Morris for in excess of £2m and Levi for £1,439,734. A loan note was also issued to David Richmond, who did not receive any payment on completion.

Since issue, the notes in favour of Morris and Richmond have been redeemed.

The 50 per cent shareholding in Adulant Force Limited was acquired for £81,000 in cash and £2m unsecured loan notes payable to £1m two years after issue and to £1m when the Club returns to the Premier League.

LUFC, via Mr Bates, took control of the Board on 21 January 2005. It was apparent from the outset that further injections of loans/equity would be required. Many millions of pounds were immediately made available to LUAFC by discounting future receipts such as Premier League revenues and transfer fee entitlement, Cash flows showed that the Club would need cash injections of £4.4m by August 2005 and a further £2.5m by September 2005.

In May 2005, LUFC exercised the call option in respect of the remaining 50 per cent of Adulant Force Limited. Melvyn Levi claimed that the option had been incorrectly exercised.

As a result of the failure of the Yorkshire Consortium to complete the option both Grayling and Owen refused to support the rights issue though both said they would have done if the option had been completed.

In such circumstances FSF felt unable to take up its rights. The Yorkshire Consortium has now received advice from leading counsel, which advises that the Trustees should not have opposed the exercise of the option. Despite this advice, no move was made by the Trustees to complete the option.

The real reason why the consortium refused to honour its obligations arises out of a dispute between Mr Levi and Mr Bates. He led most of the negotiations with Bates. During negotiations it was suggested that Levi may retain his position as a director of the club following the “Bates” takeover. However, the whole board felt his behaviour was such that he was an inappropriate person to have on the board.

Negotiations took place but at this time Robert Weston appeared on the scene. It appears that Weston may have acted as banker to Levi although Levi always claimed the funds invested in Leeds were his own.Weston saw the option as a way to gain advantage from Leeds. He made various demands but ended up demanding a payment of £250,000 plus 10 per cent of LUAFC to complete the option.

Without the injection of funds that were to be raised by the rights issue, LUAFC would have a negative balance of £2.453m as at the end of September.LUFC had no funds and Adulant Force’s only asset was its shares in LUAFC.

In the circumstances, the board of LUAFC decided to approach FSF to invite them to invest directly in the Club. FSF had already lent LUAFC £4.4m. It therefore had a major interest in seeing the Company survive. FSF offered to subscribe for 2.5m shares at a par (one pound each) and convert £2.m of FSF’s loan to equity.

The directors of all the Companies involved genuinely believe that the placing of the shares was the only realistic way to raise the required funding. If the YC had not delayed the completion of the option the LUFC rights issue could have been completed which would have raised more than adequate funds, to provide for both LUAFC and LUFC and a direct placing with FSF would not have been necessary.

The Advice of Leading Counsel was taken and he confirmed that the Directors had acted correctly.The issue of shares to FSF has diluted the shareholdings of LUFC and Adulant Force to about 6 per cent. That 3 per cent holding was the only asset of LUFC and it had no prospect of raising funds elsewhere.

The name of the Company was changed to Roman’s Heavies (RHL) on 2 December 2005 and Mr Bates and Jayne McGuinness resigned in the Spring of 2006.

Taylor met with insolvency practitioners to decide the best way to liquidate RHL. The liquidation was made when Levi presented his own petition to wind up the Company.The Company went into liquidation on 23 August 2006 with Astor its biggest creditor

The Official Receiver investigated the insolvency and said there was nothing adverse to report to the DTL.BKL were appointed as liquidators and are close to finalising the liquidation.It must be stressed that if the consortium had honoured the option then the rights issue would have proceeded. In trying to be greedy the consortium shot themselves in the foot.