Two Slaughter and May partners on guiding Liverpool FC through its 2010 buyout
October was an eventful month for Liverpool FC. The club had been bought by Americans Tom Hicks and George Gillett in 2007 with debt secured against the club's assets. By mid-2009, attempts were being made to refinance that debt, and in April 2010, the banks involved gave the club until October 15 for repayment in return for a number of concessions regarding governance of the club, which was effectively put up for sale.
Various bids were considered by the club over the summer, but just as the board convened in early October to select which one to go for, news came through that Hicks and Gillett had purported to change the club's constitutional documents in their favour. The next ten days were busy ones: a battle was fought across English and Texas courts for control of the club as frantic attempts were made to get a sale through to prevent Liverpool F.C. from defaulting on its loan, going into administration and, of paramount importance to the club's loyal fans, being subject to a nine point deduction by the FA Premier League.
The Gateway spoke to litigation partner Efstathios Michael and corporate partner Mark Zerdin to get an inside account of how they scored a great result for the club.
MZ: Slaughter and May first started advising the club earlier this year. I personally got involved over the summer, and continued to work on the matter as things built up.
EM: My role kicked in when Hicks and Gillett sent across documents shortly before the October 5 meeting saying that they'd changed the members of the board. We had to ask whether what they had done was valid from a corporate perspective - even though it may well have been contrary to the undertakings given to the banks at the time of the extension, a breach of contract doesn't mean that changes to a board or constitutional documents aren't allowable. We then had to decide whether the board could be constituted as had been intended. Mark and his team took the view that the existing board could sign a sale deal, but it would be contingent upon determining the validity of that board.
MZ: We had the deadline, and had to do everything we could to ensure that the club was able to repay its debts on October 15 while trying to ensure the validity of the underlying documents. But we didn't have the time to do things sequentially - it had to be a dual-track process.
EM: There are lots of matters that draw on expertise from both sides. What was unusual here was having both running at once. Usually a deal's done, and if disputes arise afterwards, we'll work together because the corporate department would have been involved in the original transaction. But collaborating to get a deal done in such a short time span is really quite unique.
MZ: As a corporate lawyer, it is highly unusual to be going through a process which is the subject of court proceedings at the same time. In the worst case scenario, you work on something and months or years later someone picks over it, but to be drafting something on a Tuesday that you're then discussing in court on Friday is a bit alarming!
EM: In Europe, if one European court is dealing with a matter, no other European court is allowed to do so. But that doesn't apply outside Europe, and so one party to a dispute may say that they want it dealt with in London, while another party argues for, say, the US, or Australia. As a litigation lawyer, you sometimes try to persuade a court that they're the most appropriate one to hear a particular dispute. Hicks is based in Dallas, and so his lawyers would have been saying that the matter was something that should be dealt with in his home court. It isn't always possible to persuade either court to back down - you can end up with parallel proceedings in different countries.
MZ: This kind of timeframe isn't unusual, that is, spending six months doing research, and then making a decision a couple of weeks before the deadline. But what was highly unusual here was the fact that the owners didn't have the ability to decide to whom they sold.
MZ: The banks could have enforced their rights over the club much earlier and conducted the sale process themselves. But because it's a football club, doing so would have probably resulted in a Premier League points deduction and so reduced the club's value. So it was against their interests to do what a bank normally does in these circumstances, which I think is an interesting point for banks lending against football clubs going forward. A lot of them will have looked at this situation and thought that the next time somebody comes to them looking to borrow a lot of money to buy a football club, they will think very carefully about it because you can't enforce your rights in the normal way. And there's the risk of terrible PR if you do.
EM: I had two junior associates helping me from the evening of October 5 - I contacted them at about 8pm that evening, and by 11pm we were on conference calls. They were taking every step with us, drafting the witness statements and instructing counsel. They were in court for the hearings, working out what the decisions meant and what the next moves were. The three of us were the whole team. I think it's good to keep teams relatively lean because it means that everyone is going to get decent bits of the job.
MZ: We had two trainees and two junior associates. Early on, the work was very high level advice to the board and so was very partner-driven, but in the run-up to the deal, things became more document intensive. The junior team members drafted the board minutes, prepared the completion documents, made sure that all conditions were met, and also liaised with the Premier League because there were approvals needed from them. In Corporate, we keep teams small too, because people then get more involved and better understand what's going on.
MZ: I'm a Chelsea season ticket holder.
EM: I'm a Nottingham Forest supporter.
MZ: I think it was a more exciting deal than others in some ways for me because I love football. We normally buy and sell mining companies and so on, where you know what they do, but it doesn't affect your life in any meaningful way. So working on something of which I had a deep understanding was great, as was seeing directly the effect the deal had on people, particularly the fans in court.