Yesterday was a very significant day in Court for the future of Swindon Town. This note considers what is likely to happen next, and when. One caveat: TrustSTFC does not have the evidence filed at Court and copies of key documents, so this is based on what we heard yesterday. In addition, the Judge has so far given only a short explanation of his reasoning. A detailed written judgment will follow.
So, what happens next?
There is one overriding point. The High Court has decided that Lee Power is required to sell his remaining shares to Axis. Michael Standing won’t block that, and Power could bring an end to the uncertainty today by selling his shares to Axis and giving it control of the club.
He told the Court yesterday he cares greatly for the club and wants to secure its future. TrustSTFC’s view is that only way for him to demonstrate that now is by handing over the club to Axis without delay.
Yesterday’s hearing means that Axis is now very likely to take-over STFC. However, if Power does not co-operate, this could still take weeks at the minimum, and possibly longer.
A recap: yesterday’s outcome
These are the two critical points from yesterday:
- Power is entitled to sell STFC only through the pre-emption mechanism applying to Swinton’s shares. This means he can never sell STFC without first offering it to Axis. Unless this decision is successfully appealed, Able and its backers are no longer in the race to buy STFC.
- Power commenced a legally binding process that requires him to sell all of his remaining shares in Swinton to Axis for £250,000.
So why didn’t the Court order Power to transfer the shares to Axis immediately?
Axis’s barrister said in Court it will be difficult to explain to STFC fans why the Court hasn’t transferred the shares to Axis if Axis is entitled to buy them. He was right!
The answer is that the agreement that governs the sale of shares (Swinton’s Articles of Association) sets out a process for the share sale. Under that process, Axis isn’t yet entitled to the shares. It works like this:
- If he wants to sell shares, Power must serve a “transfer notice” on Swinton offering the shares for sale. He did this on 17 May.
- Swinton must then serve an “offer notice” on Axis offering the shares to Axis. Swinton did this on 25 May (although it wrongly said that Axis was entitled only to some of the shares).
- The “offer notice” would have specified a period during which Axis could accept the offer, which had to be somewhere between 21 and 42 days. TrustSTFC hasn’t seen the notice and doesn’t know what was specified.
- Axis accepted the offer on 28 May, stating it would take all of Power’s shares. The Court has decided that this requires Power to sell all of his shares to Axis.
- Swinton is now required to issue a “sale notice” to Power. However, it does not have to do so until 7 days after the expiry of the period in the “offer notice”, i.e. which would mean it must issue the “sale notice” somewhere between 22 June and 13 July.
- On receipt of the “sale notice” and the sale price of £250,000, Power must transfer his shares to Axis.
This means that Swinton isn’t yet in breach of any obligation to issue a sale notice, and Power isn’t in breach of any obligation to actually transfer the shares. This is because these obligations have not yet fallen due. But they will do so soon.
But didn’t Axis try to persuade the Judge to transfer the shares immediately?
Yes, it did.
However, this was completely separate from the pre-emption dispute. Axis asserted that Power’s evidence filed at Court is that the club was hopelessly insolvent and there was no satisfactory explanation of how the club could be funded in the short-term. In those circumstances, Axis argued that the only way to safeguard the club is for the Court to transfer ownership to Axis immediately, before the various disputes are resolved.
Contrary to that evidence, Power says he is willing and able to fund the club (why he wants to continue to do so when a Judge has decided that he is required to sell the club to Axis is completely unclear and seems illogical).
Ordering the sale of the club on this basis would be exceptional. The Judge decided that at the moment he did not have sufficient information on the financial position of the club to justify requiring the shares to be transferred immediately. However, he decided to look at this question again in July. Power is now required to provide evidence of the financial position of the club and how it is to be funded by 25 June 2021.
So, what happens now?
Again, Power could choose to transfer the Swinton shares to Axis immediately and co-operate with the handover of the club.
Assuming he doesn’t, Axis now has to wait and see if Swinton issues the “Sale Notice” for the shares and, if so, whether Power then transfers the shares.
If these steps don’t happen, or if Swinton/Power refuses to confirm they will take them, TrustSTFC assumes that Axis will return to Court at the earliest opportunity to ask for orders requiring the shares to be transferred to it. Hopefully, that hearing could take place in July, but the timing is uncertain.
The Judge has left it open for Power to argue that his Transfer Notice was revoked by a 2-1 vote of the directors of Swinton on 14 June meaning he isn’t required to transfer his shares (or any other argument he wants to make that despite having an obligation to transfer the shares, he does not actually have to do so).
However, the Transfer Notice was accepted before Power purported to revoke it. Swinton’s publicly available Articles of Association that govern the sale process do not contain any right for a selling shareholder to withdraw from a sale once a Transfer Notice has been accepted. In addition, Axis will argue that the Transfer Notice wasn’t revoked as Power had a conflict of interest and should not have voted.
So there may be further legal disputes but the pre-emption process should lead to Axis having control of Swinton. In the absence of co-operation from Power, it could then take Axis some weeks to work through the various corporate steps that need to happen to get control first of Seebeck (owned by Swinton) and then finally of STFC (owned by Swinton). That process could take longer if Power keeps making legal challenges. To avoid those challenges, Axis could ask for a court order requiring Power to co-operate and to provide immediate control of STFC.
Separately, the Judge will decide in July whether the financial condition of the club means, quite separately from the pre-emption process, he should order the transfer of the shares to Axis.
Can Power appeal?
Power could attempt to appeal the decision that he must transfer the Swinton shares to Axis, as well as the decision that he can only sell STFC through the pre-emption mechanism (and any decision in July that the club should be transferred to Axis because of its financial condition). In the English system, he does not have a right to appeal. He needs permission to do so, either from the Judge that made the decisions or from the Court of Appeal.
Permission will only be given if either of them decide that an appeal has a reasonable chance of succeeding. However, the process of asking for permission normally takes a few months and, if permission is granted, an appeal may not be decided for over a year (unless the Court of Appeal decides that resolution of the dispute is so urgent that the appeal process should be accelerated, which is possible).
Power may ask that the Court does not implement any share transfer pending the outcome of his application for permission to appeal and pending any appeal that is granted. Usually Court Orders are implemented immediately regardless of whether there is an appeal process, but another hearing could be needed to decide this, which could also cause delay.
The Court decisions definitely mean a resolution of the ownership of STFC is much closer, but there is a still some way to go, unless Power agrees now to sell Swinton’s shares to Axis without delay.