Swapping the boardroom for the terraces

Corporate analysis: Are Community Interest Companies (CICs) the right match for football supporters? With the Rangers First CIC making headlines for its recent intervention in the running of Rangers FC, Oliver Hunt, solicitor in the charity and social enterprise team at Bates Wells Braithwaite, considers the role CICs can play in shaping the direction of a club.

Background

The supporters club, Rangers First, has recently made headlines by taking steps to intervene in their efforts to intervene in how Rangers FC is run. Rangers First is a CIC, established to receive donations from Rangers’ supporters to purchase AIM shares in the club’s holding company Rangers International Football Club (RIFC), and use that shareholding to influence how the club is run. Rangers First has since announced that it used its amassed shareholding in RIFC, to vote in favour of shareholder resolutions to remove existing, and appoint new directors to the RIFC board that were passed at RIFC’s extraordinary general meeting held on 6 March 2015. The case raises interesting questions about the obligations of CICs and the use of this company model in supporters’ attempts to ‘reclaim’ their club.

What are the legal forms for supporters’ clubs?

Supporters’ clubs have existed for many years, and traditionally took the form of an unincorporated association and, more recently, a co-operative form such as the community benefit society. Since their introduction in 2005, CICs have grown in popularity as a vehicle for supporters’ clubs because of their combination of operational flexibility and mission locked governance.

What accountability does a CIC have to its supporters’ goals?

The essential feature of a CIC is that, while being a private company limited by shares or guarantee, it exists for the benefit of the community, as specified in its company objects. For example, Rangers First’s objects state it will ‘carry on activities which benefit the community’ in particular through buying shares in RIFC and utilising that shareholding to ‘repair, improve and enhance the engagement between the owners and followers’ of Rangers FC. Although in reality the main purpose of the CIC is clear—to buy shares in Rangers FC and so influence how it is run—the opening words of the objects also give the directors discretion to pursue any ‘activities which benefit the community’, so conceivably not all its efforts must go towards buying those shares. This flexibility is common in CIC objects, and is often important to the directors, given the practical difficulty in running the CIC within the rigidity of only being allowed to pursue the activity of purchasing shares in RIFC.

If Rangers supporters want to influence how Rangers First is run, the best means to do so is to join as a member, requiring an application to and acceptance by the directors. Membership will allow the supporters to scrutinise how much energy the directors are putting into the ‘in particular’ part of the CIC’s objects.

However, because Rangers First is a CIC, supporters also have a second route to ensuring accountability. Unlike a general commercial company, a CIC is also overseen by the CIC regulator, which has powers to intervene if a CIC is not following its objects and/or acting for the community benefit. Those powers can include removing directors or bringing civil proceedings against the directors on behalf of the CIC (though these interventions are in practice very rare). As a last resort, a supporter unhappy with how a supporters’ CIC was being run could complain to the CIC regulator in the hope it intervenes.

Could a supporters’ CIC change its objects?

Yes, but there are safeguards. Like a general commercial company, a CIC’s objects can only be changed with approval from at least 75% of its members (in the case of a CIC limited by guarantee) or shareholders (in the case of a CIC limited by shares). However, CICs must also have any change to their objects approved by the CIC regulator, who will assess whether the change will harm the members of the community the CIC was set up to benefit, and whether the community has been made aware of the intended change.

How could a CIC like Rangers First influence the football club?

Clubs listing their shares on public markets such as AIM do so to raise capital, and in some cases a club’s capital needs will never require it to offer the shares needed to give supporters’ CICs enough voting rights in the club. But, given that the financial fortunes of football clubs can change rapidly, supporters could judge that it’s worth forming a group to wait for the moment that more capital is needed, so more shares become available for purchase.

The extent to which buying shares and therefore voting rights can influence a club will vary depending on the club’s constitution, but some rights are mandatory under company law.

At the lowest end of the shareholder arsenal, every shareholder, regardless of their stake, must receive notice of every general meeting of the club, and be allowed to attend and speak at those meetings. Supporter attendance can be a big factor in how the club approaches the agenda and venue for its meetings and increasing media attention on how the club is being run.

If a shareholder holds 5% or more of the voting rights, company law allows them to requisition a general meeting of the club and put a resolution to it—including, for example, the removal of the board. With greater than 25% of voting rights, a shareholder can block a move by the majority shareholders to change the constitution.

Given the likely funds required, it is acknowledged that supporter groups are unlikely to be able to hold shares with more than 25% of the total voting rights, regardless of how popular the supporters group is, so the chances of holding a majority or three quarters of the voting rights (allowing for removal of board members and changes to the constitution, respectively) are low. However, the greater the shareholding, the more attractive the supporters’ group becomes to other large shareholders in forming an agreement between shareholders on certain issues, potentially allowing a coalition of shareholders to achieve decisive influence on the club.

Will CICs be the model of the future for supporter ownership schemes?

CIC registrations have grown rapidly since 2005, with nearly 10,000 on the current register. While probably only a small fraction of those are supporter ownership groups, the CIC is in many ways ideally suited for supporter ownership, given the inherent protection that it must operate for the community. In comparison to the traditional model of co-ownership—the co-operative or community benefit society—CICs offer the well-known systems of a limited company and few restrictions on how they can operate or hold property, being within the flexible framework of a commercial company. With government intervention in favour of fan ownership of clubs being widely discussed, many more groups such as Rangers First CIC could appear in the future.

Interviewed by Guy Skelton.

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

Relevant Articles
Area of Interest