Trust reaches resolution arising from the 2016 sale of the club

[MaxSA1]

Sent out by email ...

Trust statement: Trust reaches resolution arising from the 2016 sale of the club

In June 2021 the Trust wrote to all our members to update them on the status of potential legal action to address the issues arising from the 2016 sale of Swansea City Football Club and the impact that has had on our position within the club.

It was the expectation at the time that commercial funding and litigation insurance agreements would be signed off (based on offers received by the Trust) and that this was likely to happen before the end of the previous Trust Board’s tenure on 31st July 2021. It was further anticipated that legal proceedings would then commence, not least because at that time, there were no meaningful options available to settle the dispute outside the courts. In short, there were no offers “on the table” and the Trust was heading towards legal action, a step the Trust has always described as being the last resort.

Soon after the newly elected Trust Board convened for the first time in August, our new Trust Chair, Dave Dalton, was directly approached by club director Mr Jake Silverstein. Around the same time as the new Board convened, it also became apparent that the litigation funding and ATE insurance terms needed further consideration and more time to complete. This created some additional time for discussions with Mr Silverstein.

Dave and other Trust Board officers met with Mr Silverstein while he was in Swansea for the club’s first two home games of the season. Not long afterwards, discussions also began in earnest with representatives of the former (selling) shareholders.

Since August discussions have continued, while in parallel our legal team has continued to work on finalising the necessary paperwork with counsel and our funding / insurance providers. However, the latest discussions have resulted in proposals being received which include important elements that are fundamentally consistent with the aims of the Trust. From the outset, the Trust has always been clear that it has been willing to listen to offers that could lead to a settlement and so avoid the need for legal action.

After advanced discussions, the Trust received a further improved offer from both the current and former majority shareholders which was formally put to the full Board for their consideration. This enhanced offer contained components that are better aligned with the aims of the Trust. Around the same time the Trust Board was presented with the final funding/insurance documentation, for consideration. This contained some aspects within its final terms that could potentially impact on one of the Trust Board’s responsibilities - to protect the Trust from financial exposure.

The Trust Board then held lengthy discussions and sought further input from our legal team on the available options. After weighing up all the pros and cons of the improved offer against the alternative of proceeding with the legal case, the Trust Board unanimously decided to accept the offers from both the current and the former majority shareholders, rather than to proceed with legal action.

The Trust currently holds just over 21% of the shares in the club. Over the coming months the Trust understands that convertible loans that have previously been made to the club will be converted into equity (new shares). This conversion (which affects all existing shareholders) will “dilute” our 21% shareholding to just above 15% of the shares in the club. The Trust does not presently have the financial resources to match the injection of equity that would be necessary to maintain our current shareholding. The Trust has long anticipated that this dilution would occur once additional funding (new investment in the form of convertible loans) were converted into equity in the club.

Against this background, the settlement offer that has been accepted by the Trust Board is broadly as follows:
• 5% of the Trust’s remaining shares (approximately one-third of the shares retained post dilution) will be permanently protected against further dilution. They will become “Class A” shares and will be anti-dilutive and permanent, and cannot be sold. These will also have 5% voting rights in all decisions taken by the Club Board, both while the club is owned by the current majority owners and by any future owners. The Trust will also have 5% dividend rights in the event of dividends being paid by the club in the future.
• In respect of the Trust’s remaining ordinary shareholding (expected at circa 10% post dilution), these too will have voting and dividend rights (relative to % ownership). In the event of further investment in the club that the Trust decides not to participate in and therefore results in dilution, future voting and dividend rights attached to these shares would reduce in line with the Trust’s % ownership level.
• The Trust will have tag rights for its remaining expected circa 10% unprotected shares so that, as and when the current majority owners sell their controlling interest in the club, the Trust has the option to participate in such a sale of its remaining unprotected shares should it elect to do so.
• The Trust will also have a no-drag provision in place, so that the Trust is not obligated to sell its remaining unprotected shares as and when the current majority owners sell all or part of their shareholding in the club.
• The Trust will shortly receive a settlement payment of £0.5 million.
• In addition to the settlement payment and while the club is owned by the current majority owners, the Trust will receive a further payment of £0.5 million on promotion to the Premier League and a further £0.5 million for each season thereafter that the club is in the Premier League until an additional total of £1.5 million has been paid.
• If the club is promoted to the Premier League and the current majority owners sell their controlling interest in the club at any time during the club’s first season in the Premier League, then the Trust will receive one payment of £0.5 million as described above as well as a second payment of £0.75 million at the time of sale. For clarity, this means the Trust would receive a total of £1.25 million in this scenario.
• The Trust will be guaranteed on a permanent basis a Supporter Director on the Club Board who will continue to enjoy the same full rights and duties as other Club Board Directors. The Trust will also continue to be granted a Club Board observer (currently termed Associate Director) who will be invited to attend Club Board meetings and will also receive the same Board information as Directors of the Club.
• As part of the agreement the Trust will in future work alongside the Club to implement new initiatives aimed at encouraging more supporters to become Trust members.

The relevant elements of the settlement agreement have been documented in a new Shareholders Agreement and new Articles of Associations for the football club.

We appreciate that the decision of the Trust Board to accept the above offer and not initiate legal action is one that some of our Trust members may not have anticipated. As a Trust Board we have always been very conscious of the need to protect the Trust. While we understand the desire of some supporters to see the Trust take this shareholding dispute all the way to court, the Trust would never take this step unless it were financially responsible and in the best interests of the Trust. Legal action is complex, expensive and uncertain.

The Trust Board would ideally have preferred to have been in a position to consult formally with our members on:

(a) Whether to accept the final negotiated offer from current and former majority shareholders, and move forward in a constructive manner with the majority owners; or

(b) To proceed with legal action (but with the risk of exposing the Trust to potentially consuming all of its funds and having to find an additional funder to see the case through to its natural conclusion). Note –the Trust would also have had to advise members that proceeding with this option would in all probability resulted in a period of 2-3 years of litigation that would significantly undermine the Trust’s ability to influence the running of the football club.

After lengthy discussions between our legal team and the Trust Board if was decided that further consultation and a vote from our members was not possible on this occasion.

This was primarily due to the fact that should details of the final settlement and funding/insurance offers become public the Trust would be in breach of a number of confidentiality aspects and in all likelihood face the real prospect of losing our funders/insurers so severely weakening our position while discussions with the current and former shareholders were still ongoing. The loss of our commercial funder would have left the Trust reliant on its own resources with which to bring legal proceedings.

We hope therefore our members can understand the considerations of the Trust Board and our legal team regarding the need for confidentiality. Unfortunately taking any other course severely risked jeopardising the positive outcome that we are announcing today.

For the awareness of members, there were also discussions between the Trust and the current owners for the purchase of some of the Trust’s remaining shareholding but as no agreement could be made on their sale value no shares were sold. The Trust therefore retains its ordinary shareholding of circa 10% post current pending dilution (i.e., excluding the 5% of our shares that have now been permanently protected) as part of the agreement not to proceed with legal action.

Considering all the factors involved, the Trust Board firmly believes the decision that has been made to settle the dispute arising from the 2016 sale of the club is in the best interests of the Trust and its members. It also means that the club and the Trust can move forward in a constructive and collaborative partnership, which would not have been achievable had we become opposing parties in High Court litigation. The settlement agreement allows the Trust to proceed with its core aims and ambitions, as well as to ensure that the Trust is properly protected in the years ahead.

On Thursday 17th February at 7pm we have arranged a virtual members’ forum via Microsoft Teams to allow members to present any questions to the Trust Board and its legal team. If you’d like to attend please send your full name, address and any questions you’d like to submit in advance to: communications@swanstrust.co.uk

Swansea City Supporters’ Trust
15th February 2022

 

[Bonygyfraith]

Close reading of the Trust chair's letter of explanation to members, together with some hard facts about the civil (so-called) 'justice' system in England & Wales ('E&W'), seem to show that the only reasonable decision by the Trust Board was to accept the final offer, and - of necessity - to do so without further consultation of the members.

* Members are, in effect, shareholders in the corporate body that is the 'Trust'. Those on the Board are in effect directors, who owe duties of care and confidentiality to the 'Trust' - which the members do not. A corporate body acts through its directors, not its shareholders, so a duty of confidentiality owed by the Trust means the Board cannot disclose confidential information to members.

* Anyone can join the Trust by paying a small membership fee. Communications to Trust members will, in practice, reach a wider audience, including the intended defendants ('Ds’), or at least that is the assumption that has to be made.

* The Board would thus have breached the confidentiality of the funding/insurance offer (see the letter) had it been revealed to members (as would have been necessary to enable them to make an informed decision on the settlement offer). It is quite usual for funders/insurers to require an offer to be kept confidential pending acceptance, as otherwise the recipient could use it to seek a better offer elsewhere or to negotiate a settlement (with the funder then getting no 'cut', as the funding/insurance agreement would not have been signed). Thus, consultation of the members on the settlement offer would probably have resulted in the offer of insurance/funding evaporating, thereby removing the best card in the Trust's 'hand' against the Ds and risking the settlement offer being withdrawn. (It also appears from the letter that the settlement offer itself was confidential to the Trust, i.e. the Board).

* The 2019 vote of members authorised the Board to litigate, but only if the Board was able to enter into financial arrangements that would adequately protect the Trust from the costs risks. It seems from the letter that the final insurance/funding offer did not meet this pre-condition, so that the Board probably had no mandate from members to litigate. Settlement on the best terms available seems to have been the only option.

* Initial indications seem to have been that adequate funding and insurance was available, and the letter suggests that it was only at the stage of final terms that the inadequacies emerged.

* Aside from the Board's duty of confidentiality as to the offer(s), had the Board consulted its members, it would have had a duty to provide an accurate 'warts and all' picture, i.e. advising members that the Trust was unable to litigate because adequate financial/insurance terms had not been received. As night follows day, that would likely have become known to the Ds, who would have had no incentive to continue to offer the settlement terms. Negotiations are a 'poker game', in which you cannot reveal your 'hand' to the opposition. The Ds knew full well that the Trust would not be able to litigate without adequate litigation funding and insurance.

* Sadly, having a good legal case is not enough to enable one to litigate in E&W without outside funding, unless one is, for instance, a wealthy oligarch or substantial business. Legal costs in a case such as this could have run into millions. Winning does not mean you get all your legal costs reimbursed, but only some of them. If you lose, you pay both your own costs and part of the opponents' costs. That situation is grossly unfair and denies access to civil justice to those without substantial means. It is a national disgrace, but not a matter which brings in votes, so successive governments fail to rectify it. The English Courts are open to Russian oligarchs to litigate their disputes, as they often do, sometimes between themselves. Taxpayers pay for the civil justice system, but most of them cannot afford to use those very courts which they support with their taxes. There are court fees payable by parties, but because there is a cap on such fees, the higher the amount of the claim, the lower the % fee. Large solicitors firms and Queens’ Counsel make huge amounts of money in such cases and argue that if higher court fees were charged, it would discourage such litigation (which is frankly codswallop). If the Chelsea owner wishes to make use of the E&W courts, he - and others like him - should have to pay a realistic amount towards the costs of the justice system, and all E&W taxpayers should be able to have the same access to the courts.

* This was a 'David and Goliath' case. Without adequate finance from a litigation funding company and insurance against the risk of losing, a not-for-profit such as the Trust, run by volunteers, could not take on 'big ticket' litigation such as this. The Trust could easily have found itself on the end of a costs bill it could not afford, with the result that it would have been liquidated by the Ds and its shares sold off.

* Aside from the costs risk, to run litigation of this sort is a big ‘ask’ for a volunteer Board. It needs people who are able to commit large amounts of time and, preferably, to remain in post until the litigation is concluded, as frequent changes can cause issues of continuity and consistency.

* As to the settlement itself, the draft terms which the members approved in 2017 were clearly financially better, but, with the prospect of relegation, the offer appears not to have been pursued by the owners. Since then, relegation has occurred, as has the pandemic. What the 2017 draft terms did show was willingness by the owners to purchase some Trust shares and by the Trust to sell them. It remains a pity, to say the least, that the Trust was not given the chance to sell some shares in 2016 and to participate in the huge financial realisation by other shareholders of their investment in, and work for, the Club over many years.

* As was made clear to members in the past, once funding and insurance terms were signed, the goal of litigation (and settlement) would have to be financial. It would have had to be assumed that success would mean that the Trust would sell all its shares (under a court order or a settlement) and cease to have any formal involvement in the company which owns the Club, and certainly not have a seat on the Board. The funds received would have likely been substantial, but could not be paid out to members. Instead, they would have been a ‘rainy day’ fund, to call upon in the event of the Club getting into financial difficulty in the future - and perhaps buying back some or all of the Club. Of course, that situation might never arise or not arise for many years. The Trust would have become a supporters organisation, like many others, only able to try to influence matters from outside. For those who value the Trust’s seat on the Club Board, that would not have been satisfactory.

* The money to be received at once will replenish the Trust’s coffers and assist in its various activities, provided they are within the scope of its constitution. All the more so if promotion is achieved and further money paid as agreed. Most supporters organisations would be delighted to have such funding. Yes, it’s much less than would have been received in 2016/7 on a partial share sale, but that is not the fault of Board members past or present. Yes, the Trust has been badly treated in the past, and denied justice due to the inadequacy of the E&W civil justice system.

* The 10% post-dilution ‘unprotected’ shares should not be ‘sneezed at’. In terms of shareholder voting, they are no worse than the original 21% shareholding, because anything less than a 25% shareholding means that the shareholder cannot stop a special resolution of shareholders.

* Dilution is of the percentage of the number of shares held, not necessarily of their market value. When new shares are issued in return for investment in the Club company, that should/may increase the value of the company: 10% of a bigger cake is not necessarily less than 21% of a smaller cake, and may be worth more. If the majority shareholders decide to sell, the Trust will have the opportunity (but not the obligation) to sell some or all of its shares (I think that’s what the chair’s letter means) - in other words, the Trust cannot be ‘cut out’ of any deal in the future. If a dividend is paid, the Trust will get its fair share.

* So, going forward, the Trust’s fortunes are linked with that of the majority owners and there is therefore every reason for them to work together, both as directors and shareholders. The Swans Trust may therefore be unique amongst supporters organisations (?) in (i) the extent to which fans can, through the Trust, take part in the Board's management of the Club and (ii) benefit collectively from the Club’s success.

 

[Uxy]

On the other hand, No.

 

[JackSomething]

After 2 weeks, that's the best that a Trust/Owners shill could do? Piss poor.

 

[PSumbler]

After 2 weeks, that's the best that a Trust/Owners shill could do? Piss poor.

Are we thinking Chris or Rupert?

 

[Uxy]

After 2 weeks, that's the best that a Trust/Owners shill could do? Piss poor.

Are we thinking Chris or Rupert?

Whoever it is, they'd be far better served not hiding behind a pseudonym. Preferably they'd also engage on the Trust Members Page too.

 

[Nocountryforoldjack]

Dirty sellouts

 

[Darran]

For the first time ever I didn’t receive an email.
That must mean I’m off the mailing list after resigning my membership.
That pleases me!!!

 

[Itchysphincter]

For the first time ever I didn’t receive an email.
That must mean I’m off the mailing list after resigning my membership.
That pleases me!!!

I’m out too, I don’t think there is a trust in anything but name now is there?

 

[PSumbler]

For the first time ever I didn’t receive an email.
That must mean I’m off the mailing list after resigning my membership.
That pleases me!!!

The email was sent 16th Feb

Its taken this long for the reply to be drafted

 

[monmouth]

They really think Jackanory words, and not even the courage to put a name to the words make what they’ve done less disgusting and the capitulation “deal” less shit?

Jesus.

 

[Swanjaxs]

https://youtu.be/BLpQMskLK2M

 

[Jackmanandboy]

I can't be bothered to drive the coaches and horses through the statement.

Let me put the alternative perspective, the sell-outs/club just got completely off the hook for just £500K.

 

[Londonlisa2001]

Are we thinking Chris or Rupert?

Whoever it is, they'd be far better served not hiding behind a pseudonym. Preferably they'd also engage on the Trust Members Page too.

Oh, it’s quite deliberate. If they put their name to it, they’ve brought the arguments into the public domain in which case we can point out the flaws, half truths and lack of knowledge in the points being made. This way they can pretend it’s someone who’s ‘read closely’ before deciding its all absolutely perfect. And will criticise anyone who answers it for ‘not respecting confidentiality’.

Pathetic to be honest.

The bit about Russian oligarchs was a particular highlight…

 

[EagleEye]

What a cop out from a bunch of people unfit for the purpose for which they were ‘elected’. Cowardice doesn’t even scratch the surface.

These clowns think that they are in a position to influence the club for the supporters. In reality they have been squashed, used as wipes & flushed away with total disdain. Let down by the ‘E&W civil justice system’. Pathetic.

But hey ho at least they will have a seat at a boardroom table & free match day benefits for the chosen few. Sickening.