Jonathan Taylor QC was asked in late 2019 by the Board of Directors of the EFL to conduct an independent review to establish the circumstances leading to the expulsion from the EFL of Bury FC.  In particular he was asked to look at the manner in which the EFL applied its regulations, policies and procedures. His report was produced on 20th February and can be seen in full here:

bury-review..pdf---adobe-acrobat-pro

Taylor's main conclusion is that:

"with hindsight, it could be argued that the EFL could have acted sooner and more forcefully but I do not see anything that the EFL could and should have done that would have made any difference because the real cause of Bury's collapse is the fact that Clubs are able to fund player wages not just from normal operating income but by means of cash injections from their owners". He continues: "If such an owner becomes no longer willing or able to provide such funding the Club is inevitably plunged into deep financial crisis. In such cases, unless a new owner comes along with sufficient funding there is nothing the EFL can do."

Because Bury were a League One club they were subject to the Salary Cost Management Protocols (SCMP) which limit the amount spent on player wages and bonuses to a percentage of turnover. The level of the percentage is closely monitored by the EFL and is 55% in League Two and 60% in League One. (Charlton were subject to this regime last season but are now covered by the profit and sustainability rules which prevail in The Championship). Turnover in this context is divided into two types:

(a) gate and commercial income plus central EFL distributions and

(b) what is called Football Fortune income - ie cup prize money, net transfer income, donations and cash and equity injections.      

Taylor's report provides Bury FC SCMP figures from season 2013/14 to 2017/18. They demonstrate that Bury player wages and bonuses remained within the required percentage every year but that, before Football Fortune income was included, they were running closer to 90%. Some of this latter income no doubt came from cup prizes and transfer profits, but there is no doubt that the majority came from owner Stewart Day. As long as he continued to provide cash injections the Club were completely compliant with EFL regulations.

During this period there were also numerous defaults in payments of football creditors by Bury FC. Nearly 100 specific defaults are listed (including £58k to Charlton & Bristol City for ticket monies and loan wages). Taylor notes that, every time this occurred, the EFL acted by fining the club, withholding central distributions or imposing transfer restrictions and the payments were subsequently honoured.

The Digital, Culture, Media & Sport Committee has suggested that "the EFL must share the blame for having allowed the situation at the club to have deteriorated for so long" but Taylor, although acknowledging that the regular defaults signalled that Bury had significant cash flow problems, makes the point that the EFL took the appropriate action within their regulations every time. He notes that "The owner was putting in significant funds ...if he had been ready, willing and able to continue to do so, there would have been no issue"

Taylor reports that during 2018 Stewart Day's businesses encountered significant financial difficulties which lead to cash flow problems for Bury FC. In November 2018 HMRC issued a petition to wind up the club for non payment of taxes totalling £605k. Day was no longer in a position to provide the necessary funds and later that month he announced he was selling the club to Steve Dale. Dale had no previous involvement with football and had previously been linked with a large number of liquidated companies. However, neither of these facts were disqualifying conditions under the EFL Owners and Directors test which Dale passed.

A new owner also has to provide "future financial information" which takes into account the consequences of the change of control. This should be provided "as far in advance of the change of control as is reasonably possible or, if such submission is not reasonably practical prior to the change of control, no later than 10 normal working days thereafter." Under EFL regulations therefore, a takeover cannot be held up pending satisfaction of the Future Financial information requirement.

Dale never provided satisfactory proof of funds. The EFL Executive formed the view that a cash input of £340k would be required to complete the 18/19 season and a further £3.4m - £4m would be needed for 19/20 and they requested a letter of support from Dale committing him to providing it. In February 2019 most of the club's debts to non-football creditors (including HMRC) were cleared but  other clubs started to call in debts. The EFL withheld £155k of central payments between December 2018 and April 2019 and paid it direct to Bury's football creditors.

Dale told fans at a meeting in January 2019 that he "was not an ATM" and informed the EFL that he was "disenchanted" with football.

Bury failed to pay March and April salaries. EFL informed Dale that this constituted misconduct under EFL regulations. Nevertheless, Bury gained promotion to League One. Other clubs expressed frustration that Bury had achieved this while failing to meet its financial obligations but the EFL did not have the power to deduct points or block promotion.

In May 2019 Dale confirmed that he had decided to sell Bury and would therefore not be supplying the Future Financial information the EFL required. However, the EFL soon became concerned that there was no sign of real engagement by Dale with potential purchasers.  Dale issued a company voluntary agreement (CVA) proposal in mid June whereby football creditors would be paid in full and unsecured creditors paid 25p in the pound. This CVA was approved on 18th July. This constituted an "insolvency event" and the EFL were able under their regulations to apply a 12 point deduction for season 19/20. The Safety Advisory Group had also advised that they were concerned whether Bury had appropriate facilities and resources to host its fixtures.

When the fixtures for season 19/20 were published on 2oth June the EFL wrote to Dale that the registration embargo would only be lifted and the club's membership of the EFL would only be maintained if :

1. Sufficient funding was provided to finance the CVA
2. A fully underwritten business plan was provided that demonstrated the club would be able to complete the 19/20 season.

During July and August there followed a series of exchanges between the EFL and Dale, in which he failed to supply convincing evidence of the necessary funds being available. On 22nd July the EFL issued a Notice of Withdrawal (terminating membership of the EFL) but, in accordance with EFL insolvency policy, immediately suspended it. Bury's first five fixtures were subsequently postponed.

On 23rd August C&N Sporting Risk confirmed to the EFL that it had offered to buy Dale's shares subject to due diligence. However, having completed due diligence, they withdrew their offer. On 27th April the EFL board concluded that Bury FC's continued membership was no longer in the interests of the EFL and its member clubs as a whole. It therefore terminated the suspension of the Notice of Withdrawal and thereby expelled the club from the EFL. On 26th September, following a meeting of all clubs, the EFL board confirmed that Bury FC would not be re-admitted to League 2 for the 20/21 season.

Taylor concludes:

"I do not see that anything else that the EFL could have done under its Regulations would ultimately have made any difference, because the ultimate problem was a lack of owner funding, and no Regulations can fix that"

"The EFL correctly applied the Owners and Directors Test in relation to Day and Dale. The question is whether the test as currently written is fit for purpose"

"The regulations do not prevent a new owner acquiring a club before he or she has provided a business plan and proof of funding to underwrite that plan. I am aware that the EFL is already considering blocking changes to control until the new owner has provided evidence of source and sufficiency of funding"

"The regulations do not currently require League One and Two clubs to submit annual business plans or half yearly management accounts"

"The lack of regulations preventing clubs pledging capital assets such as stadium or training ground as security for loans that are used not for capital improvements but to cover operating costs"

"To be fair to the EFL Board and the EFL Executive, they have previously raised many of these issues but have found no support from the clubs for changes to the regulations to address them. "

What does Taylor's report tell us about the current situation at Charlton?

1. That, providing the directors of ESI fulfilled none of the disqualifying conditions in the Owners & Directors test, the EFL had no grounds within current regulations to withhold their approval of them. The same will apply for Radiu Florica and Marian Mihail.
2. The EFL also had no power within current regulations to withhold approval of ESI because source and sufficiency of funds could not be satisfactorily demonstrated at the point of takeover. They could only impose sanctions if no demonstration was forthcoming within ten days.
3. Ultimately, the EFL Board and Executive can only recommend changes in regulations to the member clubs. If the clubs refuse to adopt proposed changes they cannot be made. (Current owners are no doubt resistant to limitations on their ability to sell a club quickly if need be.)
4. Restrictions on the signing of new players will continue until satisfactory proof of source and sufficiency of funds is achieved. That would leave Charlton with half a squad at best after the end of June.
5. Even if funds were put into the club by Tahnoon Nimer that would not necessarily provide proof of source and sufficiency.
6. The EFL do not have any appetite for expelling clubs and will go to some lengths to try to find solutions.
7. However, if Charlton continue to be unable to present satisfactory evidence of source and sufficiency of funds to operate and fulfil fixtures until the end of the 2020/21 season, the EFL will be very reluctant to allow us to kick off next season (whenever that might be).