Secretary of State for Trade and Industry v Goldberg & Anor

Until the end of the 1997/98 football season Crystal Palace FC ("Crystal Palace") played in the Premier League. However, it was heading for relegation. At the end of the season the club was relegated to Nationwide Division One. On 4 June 1998 Mr Mark Goldberg, through the vehicle of Allowclear Ltd, acquired control of the club, which was then being operated through Crystal Palace FC (1986) Ltd ("CPFC"). He had just realised some £25 million from the sale of shares, and spent most of it in buying CPFC. The acquisition proved to be a disaster.

Relegation from the Premier League has serious consequences for a football club. Its gate receipts are likely to fall, both because fewer people will watch a First Division, rather than a Premiership match, and because the price that can be charged for a ticket is lower. In addition a relegated club is likely to lose a very substantial amount of income from television and sponsorship deals. The financial gulf between a Premiership club and a First Division club is well known, and for that reason the Premier League makes "parachute payments" to newly relegated clubs. However, although income drops, expenses do not. Unless players are sold, they will continue to be entitled to their wages at a Premiership level. CPFC did not survive the club’s relegation and it went into administration on 31 March 1999. The deficiency as regards creditors exceeded £30 million. Its business has subsequently been sold for £11 million.

A number of other companies, of which Mr Goldberg was also a director, became insolvent at about the same time, and Mr Goldberg himself was adjudicated bankrupt in December 1999.

Mr Goldberg was a director of CPFC between 1 August 1997 and 11 August 1999. Mr Jim McAvoy was a director of CPFC between 4 June 1998 and 2 March 1999, although he ceased to play an active part in the affairs of the company in January 1999.

The Secretary of State alleges that, primarily as a result of their stewardship of CPFC, both Mr Goldberg and Mr McAvoy are unfit to be concerned in the management of a company. In relation to Mr McAvoy she also makes allegations in relation to Allowclear, and MG Investments Ltd (MGI"). She further alleges that accounts and annual returns relating to a number of companies of which Mr McAvoy is a director have not been filed on time, and in some cases not filed at all.

Mr Newey QC and Mr Westwood appeared on behalf of the Secretary of State. Mr Downes and Ms Lee appeared on behalf of Mr McAvoy. I wish to record my thanks to counsel for expertly guiding me through the murky waters of both the law and the facts, and for patiently answering what must have seemed, at times, tiresome and naïve questions. Both sides of the argument were presented to the highest standard. Mr Goldberg appeared in person, although he did have some legal assistance. On the second day of the hearing, towards the end of Mr Newey’s opening, the Secretary of State accepted a disqualification undertaking from Mr Goldberg under section 1A of the Company Directors Disqualification Act 1986 ("the Act") which disposed of the case against him. The case thereafter proceeded against Mr McAvoy alone.

I shall describe the football team as "Crystal Palace", and the company as CPFC.

Under section 6 of the Act, the court must make a disqualification order against a person in any case where, on an application, it is satisfied—

It is not in dispute that the first of these conditions is satisfied. There is a dispute about the extent to which Mr McAvoy had executive responsibility for CPFC’s affairs. However, this does not go to the satisfaction of the first condition, although it may well have a bearing on the second. The Secretary of State has made it clear that her case against Mr McAvoy is not based on the allegation that he occupied the position of Chief Executive. It is based on his position as director. Mr Downes argues that this precludes the Secretary of State from asserting that Mr McAvoy has failed to discharge any special duties over and above those imposed upon him in his capacity as a director and member of the board. He may be right but I do not think that the Secretary of State does allege that Mr McAvoy had special duties.

Section 9 of the Act says that where a court has to determine whether a person’s conduct as a director of any particular company or companies makes him unfit to be concerned in the management of a company, it must, as respects his conduct as a director of that company or, as the case may be, each of those companies, have regard in particular—

The requirement that the court must have regard "in particular" to the matters listed in the schedule means that the court is not confined to looking at those matters: Re Bath Glass Ltd [1988] BCLC 329; Secretary of State for Trade and Industry v. Reynard [2002] 2 BCLC 625. However, I accept Mr Downes’ submission that the words "in particular" mean that the court should give greater weight to those matters that are expressly mentioned in the Schedule, as opposed to those that are not.

The relevant matters laid down in the Schedule to the Act include the following:

In Re Sevenoaks Stationers (Retail) Ltd [1991] Ch. 164 Dillon L.J. said at 176:

A less pejorative description of the question is that it is a "value judgment": see Re Grayan Building Services Ltd [1995] Ch. 241 at 255D. That case also shows that to describe the question as simply one of fact may be an over-simplification. It is a question of mixed law and fact, namely the application of the standard laid down by the courts as conduct appropriate to a person fit to be a director (law) to the facts of the case (fact). In his judgment in that case, Henry L.J. said:

As Peter Gibson J put it in Re Bath Glass Ltd [1988] BCLC 329, 333:

Mr Downes submitted that the question whether a person is fit or unfit to be a director should be considered under three broad heads:

If a person is competent, disciplined and honest, Mr Downes says, he cannot be said to be unfit to be a director. It is fair to say, as Mr Downes acknowledged, that this three-fold analysis has not hitherto appeared in the voluminous jurisprudence on directors’ disqualification. But he submitted that this conceptual framework is at least consistent with authority, with one possible exception.

Competence. The general standard of competence that the law requires of a director was described by Lindley MR in Lagunas Nitrate Co v. Lagunas Syndicate [1899] 2 Ch. 392 as follows:

In Re D’Jan of London Ltd [1994] 1 BCLC Hoffmann LJ said:

This, I think, is the modern formulation of a director’s duty of skill and care. I do not, however, consider that the reference to "general knowledge" excludes a duty to bring to the attention of the company (acting by its board of directors) knowledge possessed by an individual director of particular facts that are relevant to a decision that the board is called upon to make.

Incompetence in "a marked degree" is enough to render a person unfit: Re Sevenoaks Stationers Ltd [1991] Ch. 164 at 184. Mr Downes accepts that a person who is not competent to discharge the duties of a director is unfit. But he emphasises the word "duties". He says that a director cannot be castigated as incompetent unless he is in breach of some legal duty to the company. If a director fulfils all his legal duties to the company he is, by definition, competent.

The cases give guidance on the sort of conduct which the courts will regard as amounting to unfitness. Allowing a company to trade while insolvent, even if not amounting to wrongful trading under section 214 of the Insolvency Act 1986, may yet amount to unfitness: Re Bath Glass Ltd [1988] BCLC 329. The courts regard this as in effect trading with creditors’ money: Re Living Images Ltd [1986] 1 BCLC 348. In Secretary of State for Trade and Industry v. McTighe (No 2) [1996] 2 BCLC 477 the Court of Appeal accepted the Secretary of State’s submission that it was misconduct to pursue:

Both limbs of this submission are important. As Sir Martin Nourse put it in Secretary of State for Trade and Industry v. Creegan [2002] 1 BCLC 99:

In Secretary of State for Trade and Industry v. Gash [1997] 1 BCLC 341 Chadwick J said:

Mr Downes explains this line of cases by pointing out that the thread that runs through them all is the insolvency of the company while continuing to trade. He says that once a company becomes insolvent, there is a sea change in the nature of a director’s duties to the company. While it is solvent, his duties are owed to the general body of shareholders. But once it becomes insolvent, the interests of the shareholders are replaced by those of the company’s creditors: see West Mercia Safetywear Ltd v. Dodds [1988] BCLC 250. Statements to the effect that a director owes duties to the company’s creditors may also be found in Winkworth v. Edward Baron Development Co Ltd [1986] 1 W.L.R. 1512 and Facia Footwear Ltd v. Hinchliffe [1998] BCLC 218. Thus, Mr Downes says, a director’s duties preclude him, once the company has become insolvent, from unfairly preferring one creditor to another. Although there is no statutory duty not to trade while insolvent, he says that these cases are properly viewed as ones in which the court found that there had been a breach of the director’s duties. Even if the duties in question are duties to the company’s creditors rather than to the company itself, nevertheless they are legal or equitable duties that have been broken. However, in Re Pantone 485 Ltd [2002] 1 BCLC 266 Mr Field QC, sitting as a judge of the Chancery Division, held that it is not a breach of duty if directors of an insolvent company act consistently with the interest of the creditors generally, but inconsistently with the interests of a particular creditor or section of creditors. Mr Downes’ explanation of the cases that are founded on the preference of one creditor to another is therefore contrary to authority.

In Re Barings plc (No. 5) [1999] 1 BCLC 433 Jonathan Parker J considered the position of three senior directors of Barings in the wake of the debacle brought about by Nick Leeson’s unauthorised trading. He emphasised that no imputation was made on the honesty or integrity of any of the directors concerned. The Secretary of State’s case was based on incompetence alone. In Section III of his judgment he set out the law. Paragraph A7 emphasised that the Secretary of State’s case was based solely on allegations of incompetence. What he said subsequently must be read in that context. In paragraph A12 he said:

Mr Downes submits that, for the reasons I have outlined in paragraph [25] above, Jonathan Parker J was wrong to give the example of trading at the risk of creditors as an example of unfitness without breach of duty. When the case reached the Court of Appeal [2001] 1 BCLC 523 that court approved Jonathan Parker J’s statement of the law. They said specifically:

Since the allegations of unfitness in that case were based solely on allegations of incompetence, it must follow that unfitness by reason of incompetence may be established even without proof of a breach of duty. This authority is, in my judgment, inconsistent with Mr Downes’ submission and binds me.

Central to the concept of limited liability is the concept that a company has a separate legal personality. A company retains its separate legal personality even if it is a member of a group of companies. Every director of a company, whether executive or non-executive, owes fiduciary duties to that company. Respect for the separate legal personality of each company, and recognition of a director’s duty to exercise his powers in the best interests of the particular company of which he is a director are essential attributes of fitness to be concerned in the management of a company. These duties are personal and inescapable: Re Westmid Packing Services Ltd [1998] 2 All E.R. 124. Mr Downes accepted, I think, that a failure to understand or respect these fundamental principles could lead to the conclusion that a person was not competent to be a director.

As Millett L.J. explained in Bristol and West Building Society v. Mothew [1998] Ch 1:

Discipline. Engrafted onto the general duties are the specific duties imposed on directors by statute. The statutory requirements to make and retain adequate financial records arise under sections 221 and 222 of the Companies Act 1985. Section 221 (2) prescribes the contents of the accounting records. They must contain entries from day to day of all sums of money received and expended by the company, and the matters in respect of which the receipt and expenditure takes place. They must also contain a record of the assets and liabilities of the company. The importance of these records is twofold. Chadwick J described the two purposes in Secretary of State for Trade and Industry v. Arif [1997] 1 BCLC 34 as follows:

Section 382 of the Companies Act 1985 requires a company to maintain books of minutes recording all business transacted at meetings of the company’s members, directors and managers. This is supplemented by Reg 100 of Table A which places the duty to cause minutes to be made on the directors of a company. The minutes are also required to record the names of the directors present at such meetings.

Section 226 of the Companies Act 1985 requires the directors to prepare a balance sheet and profit and loss account for each financial year. Section 234 requires them to prepare a report for each financial year. Section 242 requires the directors to deliver to the registrar of companies a copy of the company’s annual accounts together with a copy of the directors’ report and the auditors’ report on the accounts. Failure to comply with obligations as regards the filing of accounts and returns may also amount to unfitness. Nicholls V-C observed in Secretary of State for Trade and Industry v. Ettinger [1993] BCLC 896:

Indeed, persistent failure to comply with duties about filing accounts and returns can amount to an independent ground for disqualification under section 3 of the Act. However, as Mr Downes points out, disqualification under section 3 is discretionary rather than mandatory.

Section 317 of the Companies Act 1985 requires a director of a company who is in any way, whether directly or indirectly, interested in a contract or proposed contract with the company to declare the nature of his interest at a meeting of the directors of the company. This is no mere formal requirement. It is a fundamental safeguard of the general obligation of a fiduciary not to place himself in a position where his interests conflict with those of the person to whom he owes fiduciary duties. Failure to comply with the statutory duty to disclose interests in contracts may amount to unfitness.

Mr Downes said that discipline requires that a director should comply with the duties laid upon him by statute. Discipline also requires that a director should exert his own judgment. In Re Barings plc (No. 5) [2001] 1 BCLC 523 the Court of Appeal approved the following statement by Jonathan Parker J:

In Re Westmid Packing Services Ltd (above) Lord Woolf M.R. said:

Honesty. In order to be fit to be a director a person must be honest. He must be capable of being entrusted with the management of assets that do not belong to him. But, said Mr Downes, proof of dishonesty was essential. This, too, seems to me to be inconsistent with authority. In Re Dawson Print Group Ltd (1987) 3 BCC 322 Hoffmann J said that:

Judges have used different phrases to describe the kind of conduct which may make a director unfit. They include "a lack of commercial probity" (In re Lo-Line Electric Motors Ltd.); "breach of standards of commercial morality" (Re Dawson Print Group) and "ordinary standards of commercial morality" (Secretary of State for Trade and Industry v. Ettinger). Lack of commercial probity is, to my mind, difficult to distinguish from dishonesty. But the other two quoted phrases seem to me to apply a lower standard. Mr Downes submitted with considerable force that if a director’s conduct was lawful and honest, it was difficult to see how it could be a breach of commercial morality. A cynic might think that commercial morality is summed up in the aphorism: "business is business." But Mr Downes was inclined to accept that untrustworthiness in a more general sense could amount to unfitness. Thus if a person repeatedly makes promises that he does not keep, then even though the promises may be honestly made, he may be so untrustworthy as to be unfit.

While accepting both that the words of other judges are no substitute for the words of the Act itself, and while also accepting that standards of commercial morality may be a more nebulous criterion than that of dishonesty, I conclude that dishonesty is not the acid test.

I hold therefore that Mr Downes’ three-fold framework, though attractively and persuasively advanced, does not represent the law. Time and again judges have emphasised that the court is required to take a broad brush approach. Moreover, "competence" and "discipline" overlap to a considerable extent. I have no doubt that the criteria that Mr Downes urges on me are highly relevant in assessing the fitness or otherwise of a director. But the question for the court is a much broader one, and is not confined within the tramlines of these criteria. This may make the court’s task a more difficult one, but that is what Parliament has provided for.

However, the identification of the standard of conduct laid down by the law is important for two reasons. First, because the question of unfitness to do something can, as it seems to me, only be judged against an expectation of what is required of a person doing, or attempting to do, that thing. Second, because fairness to a director, or prospective director, requires that he should know what the law expects of him both before accepting his appointment and while carrying out his duties. I am uncomfortable with the notion that an honest director may be held to be unfit on account of conduct that, many years later, a judge may consider was a breach of some indefinable standard of commercial morality.

Thus I accept Mr Downes’ submission on "commercial morality" to this extent: that the court must be very careful before holding that a director is unfit because of conduct that does not amount to a breach of any duty (contractual, tortious, statutory or equitable) to anyone, and is not dishonest.

In considering whether a director is unfit, it is important to consider the cumulative effect of such of the allegations as are proved against him. Although the consequences for a disqualified director are serious, these are civil proceedings. Thus the civil standard of proof applies. The burden of proof lies on the Secretary of State. I bear in mind that the more serious the allegation, the more cogent must be the evidence required to prove it, even on the balance of probabilities: Re Living Images Ltd [1996] 1 BCLC 348, 355-6.

The dissenting director. What if a director disagrees with the way in which a company is run? Chadwick J has addressed this question in two cases, Secretary of State for Trade and Industry v. Arif [1997] 1 BCLC 34 and Secretary of State for Trade and Industry v. Gash [1997] 1 BCLC 341. In the latter case, having considered his earlier judgment, he said:

Section 6 of the Act says that the reason for disqualification can only be a person’s "conduct as a director". "Conduct" encompasses both acts and omissions. The phrase "as a director" means "in his capacity as a director". Thus incompetence in, say, providing investment advice to a prospective shareholder, or in failing to control the personal financial affairs of a company’s principal shareholder, is not relevant conduct. In deciding whether or not to make a disqualification order, the court must concentrate on a person’s acts or omissions in his capacity as a director. Even if the case is based on allegations of dishonesty, the dishonesty in question must be dishonesty "as a director".

In reaching its value judgment about a person’s fitness or unfitness to be a director, the court must beware of hindsight. As with any critical evaluation of a person’s decisions, the court must confine itself to what he knew or ought to have known at the time the decisions were made. I think also that I must treat statements made by other directors with some degree of caution, since the directors of an insolvent company will have a natural tendency to wish to exculpate themselves, and to point the finger of blame at others. In reaching that value judgment I must also take account of Mr McAvoy’s evidence, not in the sense of judging his performance as a witness, but in order to evaluate his response to the allegations made against him.

There is one other point that I should make at this stage. The Secretary of State’s case was originally presented against both Mr Goldberg and Mr McAvoy. It has continued against Mr McAvoy alone. Much of the evidence that I heard was concerned with Mr Goldberg’s deficiencies as the chairman of CPFC. But he has reached a compromise with the Secretary of State. It is therefore important to disentangle those allegations that relate to Mr McAvoy. To adapt the standard direction given to juries (since this has been described as a jury question), I must consider the case for and against each defendant separately.

As is common, the Secretary of State’s main allegations relate to some only of the companies of which Mr McAvoy was a director. The companies specifically named in the claim form are conventionally described as the "lead companies". She makes other allegations relating to other companies which are referred to in further evidence served on her behalf. These companies are conventionally referred to as "collateral companies". Mr Downes submits that I must find conduct amounting to unfitness relating to the lead companies alone, and that misconduct proved in relation to collateral companies goes only to the length of the period of disqualification, if disqualification is justified by reference to the lead companies alone.

I do not accept this submission. Section 6 refers to "his conduct as a director of that company (either taken alone or taken together with his conduct as a director of any other company or companies)". The natural reading of this phrase enables the court to take into account both the director’s conduct in relation to the lead company and also his conduct in relation to the collateral companies in determining the question of fitness. There must, of course, be conduct in relation to "that company" (i.e. the lead company). But the conduct in question need not be such as to demonstrate unfitness. It need only be such as tends to demonstrate unfitness. In other words it is conduct which is fit to be placed into the scale. If unfitness had to be proved by reference to conduct relating to the lead company alone, it would deprive the words "taken together with his conduct as a director of any other company" of virtually all force. In my judgment this conclusion is fully supported by the reasoning of the Court of Appeal in Secretary of State for Trade and Industry v. Ivens [1997] 2 BCLC 334.

Rule 3 (3) of the Insolvent Companies (Disqualification of Unfit Directors) Proceedings Rules 1987 ("the Disqualification Rules") requires the affidavit served in support of the application to contain "a statement of the matters by reference to which the defendant is alleged to be unfit to be concerned in the management of a company." More than one judge has said that this requirement should not lead to the technicalities associated with the framing of a criminal charge. I am not sure how helpful this is as practical guidance, since the statement of offence in an indictment simply sets out the statutory provision which creates the offence, and the particulars of the offence are often extremely terse. A pleading in a civil case is usually very much more detailed and precise. However, it is clear that the affidavit must set out the substance of the case that the defendant is required to meet.

It is equally clear that the Secretary of State is not necessarily confined to the allegations as formulated in the affidavit originally served in support of the application. As Dillon LJ said in Re Sevenoaks Stationers Ltd (above):

If dishonesty is to be alleged against a director, the allegation must be fairly and squarely made in the affidavit, and must be fairly and squarely put in cross-examination. As Millett LJ said in Paragon Finance plc v. BB Thakerar [1999] 1 All E.R. 400, in the context of the amendment of pleadings:

I do not believe that proceedings for disqualification of a director are any different: Secretary of State for Trade and Industry v. Rogers [1996] 1 WLR 1569.

The Disqualification Rules require that the procedure laid down by CPR Part 8 be followed. CPR rule 8.1 (3), which enables the court to order that the claim to continue as if the claimant had not used the Part 8 procedure, is specifically disapplied. These procedural rules have a number of consequences. First, there is no formal statement of case. Although the evidence served in support of the application must state the matters by reference to which the defendant is alleged to be unfit to be concerned in the management of a company, if the Secretary of State wishes to amend the allegations or to introduce new ones, there is no master document which she must apply to amend. It is true that, as Mr Newey pointed out, counsel for the Secretary of State is required to provide a skeleton opening a few days before the trial; but this is not a wholly satisfactory substitute. It is still less satisfactory if the Secretary of State’s full case is not revealed until her counsel’s closing address, which takes place after the director (or his counsel) has made his own final submissions. Second, even if it becomes clear that factual allegations are hotly contested, there is no obvious mechanism for providing that the case should continue as if begun by claim form. Third, under the Part 8 procedure, there is normally no disclosure of documents. In the normal course of events most or all of the relevant documents will be in the possession (or at least in the power) of the Secretary of State. This considerably blunts the force of a submission that there is no document to support such and such defence to an allegation.

In those circumstances, I think that I must be cautious before allowing the Secretary of State to change the thrust of the allegations as they were originally set out.

Although the initial involvement of the Official Receiver was triggered by the winding up of Allowclear Ltd, the Secretary of State’s case was presented on the basis that CPFC was the lead company. Her case was initially presented in the form of an affidavit sworn by Mr Boyall. There are allegations relating to companies other than CPFC, but I shall concentrate on CPFC for the time being. The principal allegations made by the Secretary of State in relation to CPFC are as follows:

Mr McAvoy’s answers to these allegations are, in brief:

The various allegations are to some extent intertwined, and cover much the same chronological span. Although placed first in the list, the allegation that Mr McAvoy took unnecessary risks with creditors’ money can really only be considered after the remaining allegations. But before considering the allegations individually, it is necessary to tell the story. The task of telling the story was not made easier by the almost random arrangement of documents scattered through many files, and the lack of a core bundle.

Before embarking on a consideration of the facts, I must say something about the witnesses. However, I deal with Mr McAvoy’s evidence at the end of this judgment.

Mr Morley. Mr Peter Morley CBE became a director of CPFC in 1995 and remained a director throughout the relevant period. He was Group Personnel Director of Tesco plc and has particular expertise in employment matters. He has some formal training in the reading of accounts, and clearly much experience of doing so. He is clearly an experienced businessman. He took notes of meetings that he attended and some of these were produced in evidence. He was, to my mind, a careful witness and he was doing his best to give a truthful version of events. He willingly accepted that some of his evidence was reconstruction of what must have happened, but he was careful to differentiate between what he remembered and what he thought, with hindsight, must have happened. Mr Morley accepted that he had not asked the right questions; had taken Mr Goldberg’s assurances at face value, and had allowed his heart to rule his head in a number of decisions. As he put it: "my enthusiasm as a fan exceeded my capacity as a businessman to ask the right questions." He was quite clear that the board believed in Mr Goldberg’s grand vision for the future. However, Mr Morley’s general attitude towards CPFC was that since Mr Goldberg was by far the majority owner of the share capital, "he would have had, effectively, the right to do whatever he wanted at the time". So embedded was this view that Mr Morley found difficulty in seeing how there could be a conflict of interest between CPFC and its majority shareholder.

Mr Grimes. Mr Lawrence Grimes was also a director of CPFC throughout the relevant period. His business career is in the oil industry. He has no formal training in the reading of accounts, and is reliant on others for financial advice. Like Mr Morley, he said of Mr Goldberg: "it was pretty clear that after a short period of time that, as the owner, he was going to do what he wanted to do anyway." However, I do not think that Mr Grimes was as sanguine about that as Mr Morley. But like Mr Morley he found it difficult to see what conflict of interest there might be between CPFC and Mr Goldberg.

Mr Barnes. Mr Paul Barnes was a director of CPFC from 26 June 1998 to 2 February 1999. He is a qualified accountant. His role was as the finance director both for CPFC and the MGI group. He resigned from MGI and his executive duties at CPFC in December 1998, although he remained a director of CPFC until the following February. He was in my view minimising the role that he played in the management of both companies, and seemed unwilling to accept the responsibilities of a finance director. Like Mr Morley and Mr Grimes, he found it difficult to see that there might be a conflict of interest between Mr Goldberg and CPFC.

Mr Alexander. Mr Phil Alexander was the managing director of CPFC from 4 June 1998 to mid-October 1998. Thereafter he was the operations director. He claimed to have very little recollection of any of the main events in the story. He also claimed to have paid very little attention to the financial affairs of CPFC despite being its managing director for several months. On some points (for example whether he was authorised to sign cheques) his evidence was clearly incorrect. I approach his evidence with caution. I did, however, form the strong impression that he accepted instructions from Mr Goldberg uncritically and unquestioningly. I do not believe that he would have stood up to Mr Goldberg or questioned his decisions.

Mr Hume-Kendall. Mr Hume-Kendall has a business career in the shipping industry. He was at pains to emphasise the concerns he had about CPFC’s finances during the autumn of 1998 and at the same time to downplay his role in the management of its affairs. In my judgment he exaggerated on both counts. I approach his evidence with caution.

Mr Cole. Mr Jonathan Cole is also a chartered accountant. He was a director of Tramp Oil. He joined the board of CPFC on 15 January 1999, after Mr McAvoy’s departure. I found him a careful and reliable witness.

Mrs Keeling. Mrs Jan Keeling was a book-keeper employed by MGI between October 1998 and March 1999. She was a careful and reliable witness.

Mr Goldberg and Mr McAvoy met in 1995. Mr Goldberg’s career began in the recruitment business, and he was a director and substantial shareholder in a listed public company. He was and was perceived as being a wealthy man. Although Mr Goldberg did not himself give evidence, I heard a lot of evidence about him. I was told that he had been a lifelong supporter of Crystal Palace. Mr Morley, who described his own passion for football as "bordering on the fanatical", said that Mr Goldberg’s passion was even stronger than his own. He was a man of great drive and vision and an excellent salesman. He was a man who could inspire belief in his vision. He had boundless self-confidence and a belief that he could solve problems. He had great energy and was always on the go. Mr Barnes described him as having "his cellphone strapped permanently to his ear". One result of Mr Goldberg’s self-confidence was that he did not always take advice. As Mr Barnes put it:

His talents as a salesman meant that he had a ready answer for any difficulty put to him by other board members, and plausible excuses for failure to adhere to previous decisions. Mr Morley described him as "an extremely difficult person to handle".

Mr McAvoy is a chartered accountant with a background in local government, the computer industry, financial management and consultancy. Mr McAvoy provided consultancy services to Mr Goldberg and various of his companies. His consultancy fees, at the rate of £20,000 per month plus VAT, were paid to Newcourt Leisure Ltd of which he was a director. In August 1997, he joined the Board of MG Investments Ltd ("MGI"). MGI was a holding company, owned by Mr Goldberg, for a group of companies engaged in various business ventures. It ceased trading in January 1999 and has subsequently gone into creditors’ voluntary liquidation.

In response to a questionnaire in February 2001 Mr Goldberg said that:

Mr McAvoy ceased to be an effective director of CPFC in January 1999. On 2 March 1999 he wrote a long letter to the board in which he set out his view of how and why things had gone wrong. I shall refer to this letter from time to time. His resignation was formally accepted by the board at their meeting on 3 March 1999. Between Mr McAvoy’s appointment as a director of CPFC and his leaving in mid-January 1999 the full board met four times (on 4 June, 26 June, 29 July and 17 November). There appear to have been further board meetings for more routine business on 9 July and 2 October. A committee of the board met on 4 August. A meeting was recorded as having taken place on 28 October, but whether there was in fact a meeting (in any sense of the word) is disputed.

In order to understand the financial position, it is necessary to say something about the corporate structure of Mr Goldberg’s various business ventures and his assets. MGI was Mr Goldberg’s principal company. Its subsidiaries included Sports Management Corporation Group Ltd ("SMCG"); Sports Management Corporation Ltd and Synovate Ltd. Mr Goldberg was a director of MGI from shortly after its incorporation until it went into liquidation. Mr McAvoy was a director from 14 October 1996 until 15 January 1999. Land Developments Corporation Ltd ("LDC") was a trading company engaged in property development. It began trading in January 1996 and went into creditors’ voluntary liquidation in March 1999. Mr Goldberg was a director throughout. LDC had had a contract to acquire a property called Holwood House, but it later assigned the benefit of the contract to Mr Goldberg personally. Holwood House was thought to be worth about £5 million.

Allowclear Ltd was incorporated in April 1998 for the purpose of acquiring the majority shareholding in CPFC. Mr Goldberg and Mr McAvoy were appointed as directors shortly after the company’s incorporation. CPFC had other shareholders who between them held the remaining 15 per cent of CPFC’s shares.

None of these companies were subsidiaries of any of the others of them. They did not form a group of companies, although MGI was the parent of its own group.

CPFC was incorporated in 1984. Its articles of association are based on the 1985 version of Table A. The management of the company is the responsibility of the board. Article 29 says that a resolution signed by all the directors entitled to receive notice of a meeting is as effective as a resolution passed at a duly convened meeting. Article 30 deems a meeting of directors to be held when a director is or directors are in communication by telephone or television with another director or directors and all those directors agree to treat the meeting as so held.

Before Mr Goldberg acquired control of CPFC 85 per cent of its shares were owned by Altonwood Ltd, a company in which Mr Ron Noades had a controlling interest. On 1 August 1997 Mr Goldberg became a director of CPFC. At the time his business experience related mainly to the recruitment of staff for the information technology industry. He had a substantial shareholding in a successful listed company, MSB International plc.

Mr Noades was an autocrat. Mr Morley said that he ran CPFC as his private fiefdom. The board met infrequently; and then only to ratify actions that Mr Noades had already taken in his capacity as executive chairman. Mr Morley commented that this was not unusual in a football club. Indeed he said that football clubs are usually run as private fiefdoms. Mr Noades was, however, an astute businessman. He had particular skills in buying and selling players. He also made an exceptionally good bargain over the sale of his shareholding in CPFC. As part of the arrangements for the takeover, Mr Noades procured the sale of CPFC’s interest in Streete Court (the club’s training ground) to Altonwood, with a simultaneous leaseback to CPFC. The price at which Streete Court was to be sold was supported by a professional valuation. The proposal was put before the company in general meeting and approved. However, following the takeover, some of the board members began to think that the sale to Altonwood had been at an undervalue; and that CPFC might have a claim for substantial compensation.

The balance sheet. The last audited accounts for CPFC covered the period to 30 June 1997. They were signed off by the directors on 31 December 1997. Neither the Secretary of State nor Mr McAvoy questioned the accuracy of the audited accounts. The balance sheet showed total assets less current liabilities as being £5.1 million and net assets as being £2.55 million. These figures take account of the trading loss for that year of some £665,000. At the time, the value of players was not shown as an asset in the balance sheet. Rather, purchases and sales of players were shown in the profit and loss account as and when they took place. Due to a change in accounting standards, that has now changed. Plainly the value of a player is difficult to assess, and a player’s value may be affected by matters such as injury. Note 26 to the accounts said that the cost of the then current playing squad was £15.3 million. Note 28 said that since the balance sheet date new players had been acquired at a cost of £9.9 million, and that existing players had been sold for a total of £2.4 million. Figures as high as £28 million have been given for the value of the squad as a whole. In the light of subsequent events this last figure may have been over-optimistic, but I consider that it was not unreasonable for Mr McAvoy to assume that the playing squad had substantial value. Mr Quick, the Official Receiver, suggested that whatever the value of the players was, it was inappropriate to capitalise the value of all of them in the balance sheet. The reason for this was that if all the players were sold, there would be no team left to play. I do not agree. In estimating the value of a company’s assets it is commonplace to value them all, even if the company would cease to carry on business if all its assets were sold. The only difference between the value of a player and the value of any other asset is that if a football club is wound up, the players’ registrations revert to the Football League, so that the value of a player cannot be realised in a liquidation (as opposed to a sale of a going concern). But that is no reason not to include the value of a player in the balance sheet. It is now expressly permitted by the relevant accounting standards. In addition, as Mr Downes points out, the Companies Act 1985 itself requires a company’s statutory accounts to be prepared on a going concern basis.

The value of CPFC’s interest in its stadium at Selhurst Park as at 30 June 1997 was shown in the accounts as £7.8 million. However, the directors’ report said that the directors had obtained a valuation from Edward Symmons & Partners which valued the leasehold interest at not less than £21,000,000. The basis of valuation was not stated in the accounts. Mr Morley said of that valuation that he saw no reason to query it at the time. Mr Hume-Kendall also said that Edward Symmons & Partners were a reputable firm, so no one had any reason not to take the valuation at face value. The value of the interest as at 30 June 1998 was shown in the draft balance sheet (prepared in the autumn of 1998) as £9.9 million. However, in May 1998 Edward Symmons & Partners had valued the leasehold interest at £18 million. This valuation was on a "depreciated replacement basis", which is, in effect, the cost of buying and building a new stadium, rather than the open market value of the existing one. In my judgment it would not have been unreasonable for Mr McAvoy to have considered that there was a hidden reserve of value in the stadium which was not reflected in the accounts.

In August 1997, shortly after he became a director of CPFC, Mr Goldberg was interested in signing Mr Neil Emblen, who played for Wolverhampton Wanderers. Wolves wanted £1,800,000 as a transfer fee, but CPFC was unwilling or unable to pay that. So Mr Goldberg agreed to contribute £500,000 personally towards the transfer fee. On 12 August 1997 he entered into a written agreement with CPFC under which he agreed to contribute £500,000 before 30 September 1997. The agreement stated:

The agreement, read as a whole, certainly does not suggest that the £500,000 was a loan, which would have entitled Mr Goldberg to the return of his £500,000 in addition to 25 per cent of the eventual sale price. I reject Mr McAvoy’s initial suggestion to that effect. On 14 October 1997 MGI transferred £500,000 to CPFC. Mr McAvoy suggested that this payment was a payment by MGI on account of wages whose liability was that of CPFC and that the agreed payment for Mr Emblen came out of Mr Goldberg’s personal account. However, this was only an assumption on his part, and there was no evidence to back it. I bear in mind that there has not been disclosure of a full set of CPFC’s bank accounts, which blunts the lack of documentary evidence. But even so, I reject the suggestion that there were two payments, and find that the £500,000 transferred by MGI to CPFC was Mr Goldberg’s promised contribution to the purchase cost of Mr Emblen.

By the following spring, CPFC wanted to sell Mr Emblen. Wolves were willing to buy him back again, but at the lower price of £600,000. Eventually, on 25 March 1998, a deal was structured under which the nominal price for Mr Emblen’s transfer was £1,200,000 plus VAT payable in three stages. The first stage was a payment of £600,000 (plus the VAT) payable on registration of the player with the Football League. At this stage, no money was to change hands, as the payment was to be satisfied or "contra-ed" by bringing forward £810,000 of the remaining £900,000 still owed by CPFC to Wolves under the terms of the original transfer. £200,000 was to be paid on or before 25 April 1998 and the balance of £400,000 was to be paid on or before 31 August 1998.

However, in order to fund the latter two payments, Mr Goldberg, through MGI, was to pay £200,000 to Wolves on or before 25 April 1998 and £400,000 on or before 31 August 1998. The agreement between MGI and Wolves was signed on behalf of MGI by Mr McAvoy. The payments of £200,000 were made in April 1998 by Wolves to CPFC and by Mr Goldberg to Wolves. The final payments were not made, as I shall describe later.

Mr Michele Padovano played for Juventus until November 1997, when he was transferred to Crystal Palace. He was one of two Italian players, the other being Mr Attilio Lombardo. Mr Padovano entered into a written contract with CPFC on 15 November 1997. The financial provisions of the agreement were contained in Schedule D. At the date of this contract, Mr Goldberg was already a director of CPFC, although Mr Noades, through his company Altonwood, was the majority shareholder. Mr McAvoy was not yet a director of CPFC.

Three days before Mr Padovano signed with Crystal Palace, he entered into an agreement with Mr Goldberg and SMCG. The agreement with SMCG and Mr Goldberg supplemented the financial terms agreed between Mr Padovano and CPFC. The differences are easiest to understand if they are tabulated, as follows:

The witnesses referred to the supplementary agreement as an agreement relating to "image rights". However, image rights are not mentioned in the agreement. But it is not clear whether the version of the contract in the court bundle is complete, as it appears to be missing (at least) the signature page. However, the payments under the agreement with SMCG were to be made by SMCG and guaranteed by Mr Goldberg personally. Clearly, Mr Goldberg and SMCG undertook considerable liabilities towards Mr Padovano which CPFC were unable or unwilling to take. Mr Lombardo also entered into an agreement with SMCG relating to image rights.

Mr Padovano was not a success at Crystal Palace. He rarely played for the first team, and was prone to injury. All the witnesses agreed that he would have been content to take his money and not appear on the pitch at all. He was clearly a bad buy.

Mr Terry Venables is one of the best-known coaches in the world. An early part of his playing career was spent at Crystal Palace; and he began his management career also at Crystal Palace. While managing Crystal Palace, the club was promoted from the third to the first division. Since leaving Crystal Palace for QPR, Mr Venables has managed a number of clubs, both in England and abroad, (and the England national team) and in each case the club under his management has achieved great success. However, he has attracted notoriety for his financial dealings. He was involved in a high profile dispute with Alan Sugar, the chairman of Tottenham Hotspur FC, and shortly before his involvement with Crystal Palace and CPFC he had been disqualified from being concerned with the management of a company.

In March 1998 Mr Goldberg personally entered into an agreement with Mr Venables. The agreement was recorded in Heads of Terms, which were to be binding until a more formal contract was executed. The effect of the agreement was that Mr Venables would be employed as head coach for a three year term. Among the terms of the agreement were:

Mr Goldberg also agreed to lend Mr Venables a substantial amount of money which Mr Barnes thought was for payment of his legal costs in the disqualification proceedings.

At the date of the agreement Mr Goldberg does not appear to have had the authority of CPFC to enter into the agreement; did not himself control CPFC and, to be fair, did not purport to contract on behalf of CPFC. Rumours about Mr Venables’ return to Crystal Palace were already in the national press by mid-March 1998. I think it probable that by mid-April, when an article appeared in the Sunday Times, keen supporters of Crystal Palace were aware that if and when Mr Goldberg acquired control of CPFC Mr Venables would be the team coach. They would also have known that it was likely that Crystal Palace would begin the next season in the First Division.

Mr Venables was a controversial figure. The majority view among football fans was that he had unrivalled skills in motivating teams. Mr Barnes went so far as to call his choice as coach "an inspired move" in football terms. He also said that Mr Goldberg was in awe of Mr Venables. Others, such as Mr Grimes, thought that he was overrated, even as a coach and manager. There was a school of thought among the board that, whatever Mr Venables’ skills may have been on the football field and at the training ground, his activities, particularly those relating to financial matters, left much to be desired. Mr Hume-Kendall said that Mr Noades had warned Mr Goldberg against engaging Mr Venables, predicting that "he will eat you alive, and you will go bankrupt"; but that Mr Goldberg was confident that he could keep Mr Venables under control. Mr Morley, Mr Grimes and Mr Hume-Kendall were unhappy at the choice of coach. Some of this unhappiness surfaced at the board meeting in July 1998, as I shall describe later. However, it was part of Mr Goldberg’s grand plan to restore Crystal Palace to the Premier League within a season; and he saw Mr Venables as the man who was capable of doing that.

Commenting on the agreement with Mr Venables, Mr McAvoy said in his letter of 2 March 1999:

In his oral evidence he said that the feature of the contract that caused him the most concern was the transfer budget of £10 million.

On 1 April 1998 MGI paid Mr Venables £135,000. This, according to the Heads of Terms, was partly for salary and partly for entering into the agreement at all.

Late in 1997 Mr Goldberg was able to buy an option to buy Altonwood’s shareholding in CPFC. In April 1998 Mr Goldberg incorporated Allowclear Ltd and assigned the option to purchase to that company. Mr Noades was apparently very open about the state of CPFC’s finances. He told Mr Goldberg, in the presence of Mr Hume-Kendall, that there was "an £11 million hole" in the accounts. Mr Goldberg commissioned Price Waterhouse to prepare a report on CPFC, although he may have left the reading of it to others. I have not seen the report. Mr Hume-Kendall said that Mr Noades had told Mr Goldberg, in his presence, that players would need to be sold and that he was willing to stay on after the takeover in order to achieve this. Mr Goldberg refused. Mr Hume-Kendall went on to say that he himself was "frightened" or "nervous" at the challenge of selling players and that he counselled Mr Goldberg to allow Mr Noades to help him but that Mr Goldberg refused. I find this evidence difficult to accept. It seems to me to be unlikely that Mr Noades, having sold his "fiefdom" to Mr Goldberg, would have agreed to work for him. I think it also unlikely that Mr Hume-Kendall, who was not yet on the board of CPFC, and who does not appear to have been close to Mr Goldberg, at least at that stage, would have taken it on himself to advise Mr Goldberg about his business strategy.

Mr McAvoy recognised that CPFC needed to raise at least £9 million by selling players and cutting the wages bill. In his letter of 2 March 1999 Mr McAvoy said:

The option was exercised and the shareholding was transferred to Allowclear on 4 June 1998. The agreed price for the shares was a little less than £23 million. About £4 million of the price remained outstanding as a loan. Mr Noades and two of his associates resigned as directors of CPFC. At the time of the takeover CPFC negotiated three facilities with Midland Bank. They were:

The first of these facilities could be raised to £3.5 million (making a total facility of £5 million) but the terms of the facility letter made it clear that it would have to be reduced to £2.5 million by August 1998 and to £1.5 million by the end of the year. In short, CPFC’s borrowings from the bank would have to be reduced from a total of £5 million to a total of £3 million by the end of 1998.

Mr Goldberg was a man with big ideas. He also appeared to be very wealthy. Not only had he just paid £23 million for his shareholding in CPFC (albeit that £4 million was left outstanding on loan notes), he also had a remaining shareholding in MSB worth in the region of £10 million at that time, and other assets besides. He gave the impression that he was willing to invest more of his personal wealth into CPFC, although no binding commitments to that effect were ever given. Mr McAvoy was appointed a director of CPFC at the board meeting on 4 June 1998. Mr Noades and one of his associates resigned. At the same meeting, Mr Hume-Kendall was also appointed as a director. Mr McAvoy was introduced as Mr Goldberg’s "personal financial adviser"; and Mr Hume-Kendall as "a specialist in structuring corporate transactions and in arranging asset finance and cash-flow finance for shipping fleets." Mr Alexander was appointed as Managing Director and Mr Goldberg as Chairman. The board were also told that Mr Paul Barnes had accepted an appointment as Director of Finance and would in due course be appointed to the board as Finance Director. Mr Morley, who had been a director under Mr Noades’ chairmanship, remained on the board. Mr Goldberg told the board that he would pledge 400,000 shares in MSB to the bank in order to secure CPFC’s overdraft. At the same board meeting Mr Goldberg dealt with the future financing of CPFC. He said that he was negotiating with a number of possible lenders, including individuals who would be prepared to lend money in return for becoming directors. He also mentioned a possible AIM flotation within 6 months to raise £15 million. He described these plans as "very much amorphous" but said that he would keep the board informed. Nothing appears to have been said at that meeting about sales of players.

On 7 June 1998 Mr McAvoy sent a number of financial documents to Clydesdale Bank in support of a proposal for a loan of £10 million to CPFC. They included a 3 year profit and loss budget based on a business plan. These projections envisaged net player sales of £6.5 million in the year to 30 June 1999. On 15 June 1998 Mr McAvoy sent Singer & Friedlander (who were providing finance) a fax in which he said that a number of players had been identified for disposal. They included Dyer, Gordon, Warhurst and Padovano. The values for these players given in the July business plan were £1,000,000 (Dyer), £1,000,000 (Warhurst) and £500,000 (Padovano). Gordon was not valued in the business plan but seems to have been thought to have commanded a value of about £500,000 at that time. Had these players been sold promptly, they would have brought in £3 million, before deduction of agents’ fees, player compensation and the like. The accompanying cashflow appears to have contemplated a net inflow of funds, amounting to £200,000, from MGI to CPFC in the year to June 1999. Mr McAvoy was unable to explain what this inflow was; and it is the only contemporaneous reference that I have seen to an inflow of funds from MGI. That cashflow was not placed before the board. On 21 June Mr McAvoy sent Mr Goldberg a cash flow forecast for CPFC. It was based on a number of assumptions. The assumptions included an assumption that there would be player sales and wage reductions in accordance with previous plans. The forecast assumed player sales of £1.5 million in June 1998; £3.5 million in July and £3 million in August (a total of £8 million), with a consequential reduction in the wages bill of over £150,000 per month (equivalent to £1.8 million a year). It also assumed borrowings of £12.95 million, including £5 million from Midland Bank. On those assumptions Mr McAvoy was able to conclude that "we are positive … through to February 1999" by which time it was hoped that CPFC would have been floated. The assumption that Midland Bank would continue to provide a facility of £5 million was over-optimistic. Mr McAvoy knew that the bank’s policy was that although a Premier League club could have an overdraft of £5 million, a First Division club could only borrow £3 million. Moreover, the facility letters contained a requirement to that effect. In addition the cashflow did not allow for any payments by CPFC to MGI. On 25 June 1998 Singer & Friedander agreed to provide a facility of £3.2 million for working capital and to finance player purchases.

At the first substantive board meeting after the takeover, on 26 June 1998, Mr Goldberg presented his vision to the board. He outlined his "five year plan". The "mission" was to have a club capable of competing in Europe and with a value of £100 million within five years. This was to be achieved by new sports medicine and skills development; a new playing structure and the latest technology and discipline. In the short term his ambition was to secure promotion to the Premier League at the earliest possible opportunity. Mr Barnes joined the board as Finance Director. In addition Messrs Grimes, Wilder and Coppell were appointed as non-executive directors, although Mr Coppell soon became the Director of Football. The board now numbered 11. Mr Gary Withey, a solicitor, was appointed as company secretary. As I have said, during the period when Mr Noades was the chairman and majority shareholder the board met infrequently. Mr Goldberg proposed, and the board agreed, to changes in corporate governance. First, the full board was to meet quarterly, and an executive board was to meet monthly. Second, Mr Goldberg said that he wanted CPFC to operate as if it were a publicly quoted company. The board thus appointed an audit committee and a remuneration committee. Mr Morley described the appointment of the two committees as "overkill" for a small private company. The former committee was to be chaired by Mr Wilder and its other members were to be Mr Morley and Mr Barnes. Mr McAvoy was not to be a member of either committee. However, it seems that the board did not meet at quarterly intervals, nor did the executive board meet once a month. The audit committee does not seem to have met at all, and the remuneration committee met only once. Mr Morley said that Mr Goldberg genuinely wanted to run a model company, but it did not happen that way.

The board were also provided with a financial review. It seems that this review was given by Mr Goldberg. He explained that further finance was needed to achieve the fulfilment of the five year plan. This might take the form either of equity or loan capital. The board was told that there was a secured bank overdraft of £5 million and that Singer & Friedlander had offered a facility of £3.95 million, which the board resolved to accept. The board was also told that players would or might have to be sold. Those who were identified as possible disposals were Dyer, Gordon, Warhurst and Padovano. These were the same players who had been mentioned to Singer & Friedlander. Mr Morley’s notes of the meeting were a little firmer. He recorded: "Selling Dyer, Gordon, Warhurst, Padovano but no takers yet." His note also indicated that Ismael might be transferred back to Stuttgart (although he may have originally come from Strasbourg).

Mr Barnes said that budgets were being reviewed and would be presented to the July meeting of the board.

Mr Coppell, as Director of Football, announced several staff appointments. These included D Butler, described as "assistant to Mr Venables", although Mr Venables was not yet under formal contract to CPFC.

The question of the sale and leaseback of Street Court was also raised, and it was suggested that the transaction might have been illegal. Although the transaction had been supported by a valuation prepared by professional valuers, the board’s concern was that CPFC had continued to fund improvements to the property which had not been taken into account in the valuation. Mr Morley’s notes of the meeting record a suggestion that a committee be formed to "look at Streete Court". Mr Hume-Kendall thought that he was on the committee. It does not appear ever to have met.

Some time in June (the date is not legible) the sum of £450,000 was transferred from CPFC’s bank account to Mr Venables. He still had no contract with CPFC. The payment clearly post-dated the takeover. On 14 July 1998 CPFC transferred £750,000 to MGI. There is no evidence that these transfers were approved by or drawn to the attention of the board.

On 30 June 1998 Mr Withey reported to Mr Goldberg that he had been approached by Padovano’s agent, Marcello Bonetto, with a proposal for combining his contract with CPFC and his contract with SMCG. Mr McAvoy was copied in to this memo. A letter from Mr Bonetto set out the combined terms. It seems that Mr Withey prepared an amended schedule to be attached to Mr Padovano’s contract combining the terms of the two agreements, and also a draft letter under which Mr Padovano was to be paid £264,000 in settlement of his "image rights". Both the amended schedule and the draft letter are dated 6 July 1998. But neither is signed.

A Business Plan prepared for CPFC in July 1988 set out the company’s policy for buying and selling players. It said:

Part 7 of the document (not part 8) set out projections. Under the heading "Transfer Activity" it estimated a "current year spend" of £4 million in the transfer market and disposals of £5 million. In the following year, 1998/9, it assumed net disposals of £1 million rising to net purchases of £3.5 million by 2000/2001. Clearly this level of transfer activity was not consistent with Mr McAvoy’s perception of the financial need to dispose of players, nor with the information he gave to Clydesdale Bank, or, indeed, the information he gave to Mr Goldberg.

It is by no means clear what status this document in fact had. Mr Morley said that it was soon overtaken by events. The expansive attitude towards player sales and purchases does not sit easily with financial projections or board decisions. I conclude that the board of CPFC did adopt a policy of selling players in June 1998.

In early July 1998 Mr McAvoy travelled to France with Mr Goldberg. His account of their trip is not challenged. He said that he began to express concerns about Mr Goldberg’s handling of CPFC. Mr Goldberg agreed that there would be a strategic review; he was receptive to the need for player sales, and said he was actively pursuing the disposal of a number.

The board met on 29 July 1998. Mr Goldberg chaired the meeting. Those present included Messrs Alexander, Barnes, Grimes, Hume-Kendall, McAvoy and Morley. The agenda for the meeting had as one of the items of business "management accounts for June 1998". Mr Goldberg began with an introduction, as part of which he said that he was pleased to have kept Lombardo and Jansen, and he reported that two signings were being negotiated, including two Argentinians and two Australians. Lombardo and Jansen were regarded as star players and potentially valuable. Many of the directors believed that the sale of Jansen was always going to be an available means of last resort to save the financial fortunes of CPFC.

The Finance Director (Mr Barnes) reported that CPFC made a profit before transfer fees but a loss after. He also explained that the players’ value was not shown in the balance sheet, but that it would be shown as from July. He continued by explaining:

Both Mr Morley and Mr Grimes confirmed that Mr Barnes gave the financial report; although Mr Grimes said that both Mr Goldberg and Mr McAvoy "chipped in" from time to time. Mr McAvoy says that he relied on Mr Barnes. Despite Mr Hume-Kendall’s evidence to the contrary, I find that at the board meeting on 29 July Mr Barnes presented a budget to the board. Mr Alexander, the managing director, reported that season ticket sales were up £200,000 on budget, although sales of executive boxes were down £8,000. Season ticket sales at this level were unprecedented and were a good omen. Match sponsorship, described as "a key indicator" was favourable. None of this would have given the impression that CPFC was insolvent.

Mr Goldberg also said that he was discussing a possible sale and leaseback of the stadium. If this materialised CPFC would have a 125-year lease at a rent which was a percentage of receipts, and the new freeholder would have an incentive to develop the ground. This was clearly a long-term aspiration. However, negotiations were later put in train with a property company and they seem to have reached an advanced stage, although nothing in the end came of them.

On 29 June 1998 Mr Goldberg on behalf of CPFC had agreed with Maccabi Nevealon Israel for the transfer of David Amsalem, an Israeli defender, at a fee of £800,000. The size of this fee is mysterious, because a subsequent letter of 22 July 1998 from the Israel Football Association, complaining of non-payment of the transfer fee, records it as being $20,000. The entry into this agreement caused unhappiness among the board. It gave rise to a "full and frank discussion" at the board meeting on 29 July 1998. That was a diplomatic euphemism for a heated discussion, in which allegations of impropriety were made against Mr Venables. He was accused of "having his hand in the till". The attack was led by Mr McAvoy, supported by Mr Barnes, Mr Grimes and Mr Hume-Kendall. Mr Goldberg and Mr Coppell defended him and assured the board that there was no impropriety. Mr Grimes told me that Mr McAvoy publicly criticised Mr Goldberg. This was an occasion on which Mr McAvoy stood up to Mr Goldberg. It ties in with his unchallenged account of the trip to France.

The draft board minutes contained a proposal for a procedure on transfer. It was proposed by Mr Coppell and seconded by Mr McAvoy. The proposal was unanimously approved by the board. The proposal was as follows:

I was told, however, that this committee never met. Mr Grimes said that Mr Coppell complained that Mr Goldberg and Mr Venables carried on regardless. He said that when Mr Goldberg was tackled on this question his response was that he had to move quickly in order to acquire players. To some extent this was borne out by Mr Hume-Kendall who said that if a wealthy chairman goes shopping "they move extraordinarily quickly with massive amounts of money compared to normal businesses and with no due diligence required or anything." Mr Goldberg’s response would have seemed plausible at the time. Mr McAvoy commented in his witness statement:

Broadly, I accept this evidence, which was not seriously challenged. The board’s resolution was supplemented by a written procedure for the transfer of players. The procedure applied both to the purchase and the sale of players, although the board resolution itself referred only to the acquisition of players.

The next item for discussion was the employment of Mr Venables. Despite the heated discussion that had just taken place, none of the board members spoke against the engagement of Mr Venables. Mr Barnes said that the directors "had made their point which was that basically they wanted things done properly and appropriately. It was taken as a matter of course that Mr Venables would be the manager and that the contract would be entered into." Mr Morley also said that when he came to the meeting he was not expecting to approve Mr Venables’ service agreement "because I understood by then that the whole deal had been done." Mr Grimes also said that he regarded the engagement of Mr Venables as a "done deal". However, the course of the ensuing relatively brief discussion, which lasted about ten minutes, was the subject of sharply conflicting evidence.

It seems clear that by June 1998 at the latest the board of CPFC were aware that a deal of some sort had been done with Mr Venables. First, as recorded in Mr Morley’s note, the board were told at the meeting on 26 June 1998 that a report from Mr Venables was awaited before CPFC would embark on raising finance. Second, at the same meeting the board were told by Mr Coppell that D Butler had been appointed as Mr Venables’ assistant. There is no record of any dissent or disquiet in any of the board minutes, despite the fact that three members of the board were not happy about the choice. As I have mentioned the deal was in fact done by Mr Goldberg, apparently on his own initiative, and before he had acquired control of CPFC. Ultimately, however, on 5 August 1998, CPFC did take over Mr Goldberg’s obligations under the agreement. The mechanism by which this was done was that CPFC entered into a service agreement with Mr Venables. Clause 16.1 of the agreement said that it superseded the heads of terms previously agreed between him and Mr Goldberg. It is clear, not least from the narrative of SJ Berwin’s bill, that Mr McAvoy was heavily involved with the early stages of the drafting of CPFC’s service agreement with Mr Venables. He had many telephone calls with SJ Berwin and attended a number of meetings. In a letter dated 5 April 2002 SJ Berwin say that Mr McAvoy was present at a number of the meetings at which advice was given. They go on to say:

Mr McAvoy said that he was unaware of SJ Berwin’s advice. But whether he knew about that advice or not, he did have concerns over the terms of the contract.

However, Mr McAvoy took more of a back seat after the end of June 1998, and instructions to SJ Berwin seem to have been given by Mr Goldberg and Mr Barnes. It was either Mr Barnes or Mr Goldberg who made the presentation of the contract to the board. However, I find that Mr McAvoy knew the commercial terms of the proposed service contract.

Broadly, the service agreement replicated the Heads of Terms. The duration of the agreement was three years, but Mr Venables had the right to terminate it after one year, or to extend it for a further two years. The contract said that if it were terminated by CPFC (other than for incapacity or material breach of contract) then CPFC would pay Mr Venables liquidated damages. The liquidated damages were to be 18 months salary, less any salary paid in advance but which had not accrued due. CPFC was obliged to provide Mr Venables with rent free accommodation for the duration of the contract. But some important changes to the Heads of Terms were made which were more favourable to CPFC. Notably, the player budget of £10 million was reduced to £4 million for 1998/99, and the budget for the two following years was conditional on Crystal Palace being promoted to the Premiership. The figure of £4 million was not a net figure, so that CPFC was able to sell players without having to put the proceeds of the sale at Mr Venables’ disposal. It was, however, inclusive of agents’ fees and VAT. This change was made on Mr McAvoy’s initiative. However, under clause 3.4 of the agreement CPFC undertook not to buy or sell any player without Mr Venables’ consent. I do not find this clause a surprising one. The fortunes of a football club depend crucially on the team’s performance on the pitch, and I do not find it surprising that the selection of the team is ultimately the responsibility of the head coach.

Mr Venables drove a hard bargain. No doubt he was worth it; and Mr Newey makes no complaint on that score. The two criticisms he makes are: first, that the board were misled about the terms on which Mr Venables was engaged; and second, that CPFC could not afford Mr Venables.

The board minutes read, so far as relevant, as follows:

The board resolved to approve these proposals. Mr Newey makes the following criticisms of the minute of 29 July 1998. First, contrary to the terms of the minute, the draft agreement was not produced to the meeting, and the board had no opportunity to study it. Second, although Mr Goldberg did tell the board that the service agreement contained "breaks in years one and three", that was inaccurate. The breaks were not mutual breaks, but were exercisable by Mr Venables alone. Although CPFC had a right to terminate the agreement, it could only do so on payment of 18 months’ salary to Mr Venables. Third, the minute fails to record that the board were told by Mr Goldberg that MGI had paid Mr Venables’ salary for the first year, so that CPFC would not be exposed to liability for that. What the board was told about that was not in fact true. Mr Goldberg had not paid the first year’s salary. Fourth, the board were led to believe that the accommodation to be provided for Mr Venables would cost about £200,000, whereas its true cost was £600,000. Fifth, Mr Goldberg did not disclose his personal interest in obtaining the approval of the board to the transaction, since it would relieve his personal liability to Mr Venables under the Heads of Terms. The fifth allegation is not made against Mr McAvoy. It is not alleged that Mr McAvoy was at fault in not revealing to the board the budget allocated to Mr Venables for player transfers.

Mr Newey alleged in opening not only that Mr Goldberg was in breach of his duties in these respects but also that Mr McAvoy, at the very least, knew the true position and acquiesced in the misleading of the board. However, Mr Newey put to Mr McAvoy in cross-examination that he knew that the board was being misled and that not only did he fail to disabuse the board, but that he actively misled them by "chipping in". In his closing address he contended that Mr McAvoy was "actively involved" in misleading the board. This, in effect, is an allegation of dishonesty.

Mr Boyall’s affidavit contains little mention of Mr McAvoy on this topic. The only reference to Mr McAvoy is in paragraph 153 in which Mr Boyall says:

What Mr Barnes in fact said was:

But this refers to the negotiation of the contract; and not to its presentation to the board. It also significantly downplays Mr Barnes’ own role in the negotiations, in which he was a full participant between mid-July and early August. In relation to the board meeting itself (which Mr Barnes placed in August) he said in his statement:

Mr Morley does not mention Mr McAvoy in his account of the meeting contained in his affidavit. In a statement made on 20 October 2000 Mr Morley said:

Mr Hume-Kendall in his affidavit says that information about the contract was provided either by Mr Goldberg or Mr McAvoy. He does not mention Mr Barnes at all. Mr Grimes says in his affidavit that information about the contract was given either by Mr McAvoy or by Mr Barnes. He accepts that Mr Goldberg and Mr Withey said more than Mr McAvoy, but says that Mr McAvoy was present and did not correct anything that had been said. Mr Barnes does not deal with this meeting in his affidavit at all.

Mr Morley said in his oral evidence that Mr Goldberg informed the board that he had paid Mr Venables’ salary for the first year of the contract out of his own pocket and that there was a break clause at the end of one year; so that if the board did not like Mr Venables, his services could be dispensed with at no cost to the club. Mr Morley said that put in those terms "it was a jolly good deal". The club was getting the services of a manager of national status at no cost to the club for 12 months. Thus no one challenged the appointment. However, he said that but for Mr Goldberg’s statement that he had already paid Mr Venables’ salary for the first year, the decision would have been challenged. Mr Morley was adamant that the phrase "at no cost to the club" was used. No other witness recalled the use of this particular phrase, and Mr Morley does not mention it in his affidavit. Mr Hume-Kendall, in particular, could not recall whether the board were told that Mr Goldberg had come up with the cash to pay Mr Venables but that there would still be a cost to CPFC; or whether the board were told that that there would be no cost to the club.

Mr Grimes said that he knew before the meeting that Mr Goldberg had paid Mr Venables’ salary for the first year, but that that was confirmed at the meeting itself. However, Mr Grimes’ oral evidence seemed to me to be less clear on the question whether Mr Goldberg had paid the first year’s salary on his own account or on behalf of CPFC. At one stage in his evidence he said that Mr Goldberg had paid it "on behalf of the club" and in his affidavit he complained that the board had not been consulted over the payment in advance, which makes better sense if he thought that ultimate liability for the payment was CPFC’s. However, in his oral evidence he explained that the reason why he thought that the board should have been consulted over the payment in advance was that it set a bad precedent for the club’s employees. Certainly his evidence does not sit easily with the clarity of Mr Morley’s evidence on this point; and I did not find his explanation of setting a bad precedent convincing, since, on any view, Mr Venables was a "one-off" employee. In his statement made in November 2000 Mr Grimes said that he was "under the impression" that there was a mutual break clause at the end of year one and year three, as he remembered Mr Barnes reading out the conditions of the contract at the board meeting. In his oral evidence he said that it had been made clear at the meeting that the break clauses were mutual. He said that he himself had asked whether there were any conditions attached, and that Mr Barnes "had assured him that there were not". His oral evidence was much firmer than his earlier written statement. He also said that the board were told that a house was to be bought for Mr Venables at a cost of £200,000.

Both Mr Morley and Mr Grimes said that the contract was not "produced" to the board in the sense of being shown to it. Mr Grimes thought that Mr Barnes had a resume of the contract in front of him, and that Mr Goldberg said that the contract would be circulated later. Mr Grimes said that he chased Mr Goldberg on several later occasions for sight of the contract, but was, in effect, fobbed off. Mr Hume-Kendall thought that someone at the meeting had a draft contract which was not passed round, but that a committee of the board was formed to finalise the negotiation, so that the board did not need to see the contract. He also said that he thought that the draft could not be passed round because it contained a confidentiality clause. Mr Hume-Kendall said that he was aware that Mr Goldberg had a separate contract with Mr Venables, but he was not sure when he became aware of that.

Mr Barnes, however, had a different recollection. He accepted that the draft was not "produced" to the board in the sense of being circulated; but he said that he had a copy of it and offered to make it available to any board member who wished to see it. None of them did. Mr Barnes also said that the draft in existence at the time of the board meeting was not the final form. He said that there were meetings that took place subsequent to the July board meeting at which amendments to the service contract were made. The narrative to the bill submitted by SJ Berwin shows that meetings did take place, and amendments were discussed, after the board meeting. The bill only covered the period to 31 July, and the service contract was not agreed until 5 August. This is one of those occasions where, in view of the absence of disclosure, the absence of a document enables no inference to be drawn. He said that it was accurate to say that CPFC "proposed" to grant a service agreement with breaks in years one and three, because that was the proposal then current. CPFC tried to negotiate mutual breaks but Mr Venables would not agree. He also says that although Mr Goldberg said that he had paid the first year’s salary, that was meant in cashflow terms and that the amount of the salary would be posted in CPFC’s books as an addition to Mr Goldberg’s loan account. Thus although CPFC would bear ultimate liability for Mr Venables’ salary, it would not have to find the cash unless and until Mr Goldberg called in his loan. He was sure that none of the board members were thinking other than in cashflow terms. So far as the purchase of a house was concerned, Mr Barnes said that the figure of £200,000 was mentioned, but that it was not the gross purchase price of the house. Rather, it was the cash sum that CPFC would have to find in order to buy a house costing £600,000, of which £400,000 was to be borrowed on mortgage.

Mr Hume-Kendall’s recollection was admittedly imperfect. He accepted in cross-examination that it was possible that Mr Barnes’ account was correct. However, he was firm in his recollection that the board felt that they were told that there was a break clause and that the maximum obligation was one year, with no question of it being conditional.

None of these witnesses could remember anything specific that Mr McAvoy said, beyond vague and generalised allegations of "chipping in". But since the evidence is that there was some sort of discussion about Mr Venables’ contract, it is likely that all the directors "chipped in".

Mr McAvoy’s evidence about this meeting was unsatisfactory. His evidence on the question of break clauses seemed to me to give varying versions of events. It included the following:

The first sentence of the first quoted passage corresponds with the evidence of Mr Morley, Mr Grimes and Mr Hume-Kendall. Yet without the information about liquidated damages it was a misleading piece of information. No other witness gave evidence about the alleged discussion about liquidated damages. Nor was any such discussion mentioned by Mr McAvoy in his written evidence. Nor was it put to any of the Secretary of State’s witnesses in cross-examination. It is also inconsistent with the fifth quoted passage from Mr McAvoy’s evidence. I do not accept that such a discussion took place. Even if the board were told no more than that there were break clauses at years one and three, they would have gained the impression that the breaks were mutual and would not have understood that CPFC could only terminate the contract on payment of substantial compensation. This is the plain import of the sixth quoted passage. In my judgment Mr McAvoy must have realised that simply to tell the board that there were breaks in years one and three would have given the board a false impression. He knew that if CPFC terminated the contract, it would have to pay Venables up to 18 months salary. Yet he said nothing. So far as payment of salary in advance was concerned, Mr McAvoy’s evidence was that he heard no discussion about that. I do not accept this evidence either. I conclude that the board were told that Mr Goldberg had paid a year’s salary in advance.

Mr Downes asks: why would Mr Goldberg or his associates deliberately mislead the board? Mr Goldberg, Mr McAvoy and Mr Barnes clearly supported the contract with Mr Venables. Mr Alexander would not have dissented from anything that Mr Goldberg proposed. Mr Morley’s attitude was that since Mr Goldberg was the majority shareholder in CPFC he could more or less do as he pleased. CPFC had always been run as the personal fiefdom of the chairman. And one must also remember that at this time, which was just before the start of the new season, the board had bought into Mr Goldberg’s grand plan, which included bouncing back into the Premier League. The whole board thought that the playing squad had considerable value. The board also had the impression that Mr Goldberg was willing to put money into the club, either by way of loan or, possibly, gift. If they had been told that Mr Goldberg had paid Mr Venables’ salary for the first year out of his own pocket, but would expect that to be added to his loan account, none of them would have objected. The injection of money by Mr Goldberg, even if only as a loan, would have been exactly what they would have expected.

There are two other factors which Mr Downes says should lead me to conclude that the board was not deliberately misled. First, since it was Mr Barnes who made the presentation, if there were to be any accusation of lying the accusation would be more naturally directed against him. Yet in January 1999, after the board discovered the full terms of Mr Venables’ contract, no such accusation was made. On the contrary, at its meeting on 15 January 1999 the board considered a proposal by Mr Barnes for the provision of consultancy services to CPFC. It is true that the board did not take up the proposal, but there is nothing in the minuted discussion which suggests that the board thought that six months earlier Mr Barnes had been telling them lies. Second, even after the full terms of Mr Venables’ contract became known to the board, there was no immediate protest that they had been told lies. The first surfacing of the allegation that the board had been given inaccurate information was not made for another two months, by which time CPFC was known to be insolvent. Mr Downes does not suggest that the witnesses are giving anything other than honest evidence. But he does suggest that their evidence is largely reconstruction rather than recollection and that their reconstruction is heavily influenced by hindsight and a desire to exculpate themselves. These points have caused me to consider carefully the totality of the evidence.

First, there is the evidence of Mr Grimes. He had lent a large sum of money to CPFC in the spring of 1998. He said in his oral evidence:

I have no doubt that this evidence was honestly given. But I must weigh against it Mr Grimes’ evidence that he regarded Mr Venables’ appointment as a done deal, and that he joined the board on that basis. If the precise terms of Mr Venables’ appointment were of such importance, it is strange that he made no enquiry about them before he joined the board. Second, there is the evidence of Mr Morley. He too said that if the full deal had been known, he would have challenged it. But his general attitude was that Mr Goldberg could do as he pleased. Third, there is the evidence of Mr Hume-Kendall. He said that he was nervous about CPFC’s financial position, and that if Crystal Palace remained in the First Division it would be touch and go whether CPFC could afford Mr Venables. However, I think that Mr Hume-Kendall was less anxious than his evidence might have suggested. I consider that in July 1998, before the start of the football season, the board had bought in to Mr Goldberg’s grand vision and would have been happy to go along with the appointment of Mr Venables. In my judgment their evidence, though honest, is heavily tinged with hindsight.

Mr Newey alleges that Mr McAvoy actively participated in misleading the board. I am unable to find that Mr McAvoy actually said anything of note on this topic. I do not consider that vague allegations of "chipping in" are enough to found what is effectively a finding of active dishonesty. There are two particular pieces of information that Mr Newey alleges that Mr McAvoy should have revealed. The first was that, contrary to what the board was told, Mr Goldberg had not paid any salary in advance. CPFC had in fact paid it. It is perfectly true that there is evidence that Mr McAvoy knew of this payment when it was made. However, it was not put to Mr McAvoy in cross-examination that he remained conscious of this payment at the board meeting. I do not consider that it would be fair to make a finding against him on the basis of an allegation that was not put. However, I do find that Mr McAvoy stayed silent about the terms on which CPFC could terminate the contract, when he knew that the board were being given a misleading impression. However, having come to these conclusions, I should make it clear that I do not accept that there was any advance conspiracy to mislead the board. Nor do I consider that Mr McAvoy was consciously dishonest in keeping silent. In my judgment Mr McAvoy’s silence was a breach of his duty to communicate to the company (acting by its board) his knowledge of particular facts that were relevant to the decision that the board was called upon to make.

My findings on this are as follows:

The agenda for the meeting indicated that there was to be a progress report on Streete Court. However, there is no record of any such discussion.

In July 1998 a draft amendment to Schedule D of Mr Padovano’s contract with CPFC was prepared. The amendments, if implemented, would in effect have amalgamated into one contract both the payments and benefits to which Mr Padovano was entitled from CPFC and also those which he was entitled from SMCG. At the same time a draft letter was prepared under which Mr Padovano agreed to release his rights under the contract with SMCG for a payment of £264,000. Neither document envisaged that Mr McAvoy would sign them.

Mr McAvoy said that he thought that the two contracts had in fact been amalgamated. There is some evidence, in the shape of Mr Barnes’ notes to the September management accounts which he provided to the board in November, that he thought so too. However, subsequent enquiries of the FA revealed that no amendment to Mr Padovano’s contract had ever been registered, and no trace of any signed amendment remains. Moreover, if the contracts had been amalgamated as Mr McAvoy suggests, it is curious, to say the least, that Mr Padovano sued SMCG and Mr Goldberg, rather than CPFC, later on in the year. I find that the two contracts remained separate. I will deal later with Mr McAvoy’s belief.

A committee of the board, which, according to the minute, consisted of Messrs Goldberg, McAvoy and Barnes, gave further consideration to Mr Venables’ service agreement on 5 August 1998. Mr McAvoy’s membership of this committee undermines his contention that until October 1998 he had no executive responsibilities. This committee also agreed on behalf of CPFC to pay a further £110,000 plus VAT to Mr Venables in reimbursement of agents’ fees and legal costs. However, Mr Barnes insists that he was not at the meeting on 5 August. He does not remember being telephoned on that day to approve the contract with Mr Venables.

On 11 August 1998 Mr Borland sent Mr McAvoy a memo with accompanying cashflows. In his memo he said that he had just had Marcello Houseman on the phone and that he was "ballistic" about his payment. Mr Houseman was a football agent who had been involved in a player purchase (I think it was Del Rio). Mr McAvoy explained in his oral evidence that he had refused to sign a cheque in Mr Houseman’s favour. On 13 and 14 August CPFC’s bank was instructed by two successive letters to make available to Marcello Houseman a banker’s draft in US dollars equivalent to £35,000; £10,000 and the equivalent of $30,000 in cash; and to make a transfer to a foreign account of $60,000. The letters authorising these payments were signed by Messrs Goldberg, Hurst and Alexander and they said that "the football club’s authorised signatures are unavailable". Mr McAvoy was one of the "authorised signatures" and he was not "unavailable". I conclude that Mr Goldberg went behind Mr McAvoy’s back in authorising these payments. In my judgment it was an instance of Mr Goldberg bypassing the agreed procedures for player purchases, and it also shows how compliant Mr Alexander was.

I have already described the agreement between CPFC and Wolves for the re-transfer of Neil Emblen and the collateral agreement between Wolves and Mr Goldberg. It will be recalled that Mr Goldberg was due to make a final payment to Wolves of £400,000 in August 1998 and Wolves were to make a payment of £400,000 to CPFC at about the same time. In the result, however, neither of the final payments was made. On 26 August 1998 Mr McAvoy, writing on behalf of MGI, told Wolves that the balances owing between Wolves, CPFC and Mr Goldberg had been settled on "an inter-company basis", and that the final payment of £400,000 due from Wolves need not be paid.

The economic effect of this was that CPFC did not receive the £400,000 due to it from Wolves, and Mr Goldberg was relieved of his liability to pay £400,000 to Wolves.

In his letter of 2 March 1999 Mr McAvoy said:

This evidence was not challenged. This is another instance of Mr McAvoy attempting to exert control over Mr Goldberg.

On 8 September 1998 CPFC transferred £100,000 to MGI. Mr McAvoy says that this was payment for IT support. He produced an invoice dated 29 September 1998 which purports to charge £100,000 plus VAT "in respect of the provision of IT services". No further details are given. It is worth noticing that the invoice is dated three weeks later than the payment. If the payment was made in respect of IT services, it must have been made without any adequate documentation at the time of the payment. On 25 September 1998 CPFC transferred £450,000 to MGI. Mr McAvoy says that this was "effectively" a loan. There is no evidence that these transfers were approved by or drawn to the attention of the board.

In mid October 1998 Mr McAvoy assumed the title of Chief Executive and Mr Alexander assumed the title of Operations Director. There was a dispute about whether this was a change of form or substance.

In the autumn of 1998 Mr Barnes was attempting to negotiate a loan from Banque Internationale at Luxembourg. Mr Barnes prepared cashflows in September 1998. These prompted a number of questions from the bank and Mr Barnes reworked them in October. On 29 October 1998 he sent the re-worked cashflows to the bank. In his covering letter he said that CPFC had agreed a reduction in the overdraft from Midland Bank, and that the cashflows indicated that a reduction to £3 million could be reached by the end of the season.

I have already said that Mr Padovano was regarded as an expensive liability. The board were keen to arrange his transfer. Mr Barnes spoke to Metz Football Club about a possible transfer. On 14 October 1998 it looked as though agreement had been reached for the transfer of Padovano to Metz for £2 million; payable as to half to CPFC and half to Padovano himself. By 23 October the price seems to have gone down to £1.7 million. However, it seems that Mr Bonetto, Padovano’s agent, had told Metz that there was no binding agreement with CPFC and it also seems that Padovano had been injured in the meantime on a visit to Metz. By 26 October the price had gone down again to £950,000.

In the meantime Mr Padovano alleged that he had not received his entitlement from SMCG and he sued both that company and Mr Goldberg for damages. CPFC was not a party to the litigation. However, the litigation was compromised by an agreement dated 28 October 1998 to which CPFC was a party, together with SMCG. Under the terms of the agreement, CPFC agreed to pay Mr Padovano £1,200,000; his salary of £22,500 for the first half of October 1998 and his legal costs of the litigation against SMCG and Mr Goldberg in the sum of £11,500. In return for these payments Mr Padovano dropped his claims against both SMCG and Mr Goldberg and acknowledged that he had no claims against CPFC. Neither SMCG nor Mr Goldberg contributed to the settlement. The agreement was conditional on Mr Padovano being transferred to Metz Football Club for a transfer fee of £950,000. The transfer duly took place. The whole of the transfer fee was paid to CPFC; none of it was paid to SMCG or Mr Goldberg. Thus the net cost to CPFC for dispensing with Mr Padovano’s services was about £300,000.

Entry into the agreement with Mr Padovano was apparently authorised by a board meeting on 28 October 1998 of which a minute was prepared. The minute says that the meeting was duly convened and was held on 28 October 1998 at 2 p.m. Those directors present were recorded as Mr McAvoy, Mr Barnes and Mr Alexander.

The minutes record that an engrossment of the agreement was produced to the board for approval and that, after due and careful consideration of it, it was resolved that the agreement was in the best interests of the company and that the company secretary be authorised to sign it. Mr McAvoy said that the minute was prepared at the request of Mr Padovano’s lawyers. I think that this is probably correct.

Mr Newey attacks this minute as having been knowingly falsified.

On 4 November 1998 CPFC transferred £210,000 to Mr and Mrs Goldberg. On 6 November it transferred £41,990 to MGI. There is no evidence that these transfers were approved by or drawn to the attention of the board.

There is quite a lot of evidence that points to the conclusion that a board meeting took place on 17 November 1998, although no minutes or notes of that meeting have survived. I find that a meeting did take place on that day and that the board considered the financial pack that had been prepared by Mr Barnes.

The financial pack included an unaudited balance sheet as at 30 September 1998, management accounts as at that date and Mr Barnes’ commentary on those accounts. As foreshadowed at the July board meeting, the players were now included in the balance sheet. On that basis CPFC was shown as having net assets of some £13 million. There was an item for prepayments of £947,000 which Mr Barnes said in evidence included the advance payments made to Mr Venables, although this is not discernible from the financial pack itself. Thus he said that although Mr Goldberg had "paid" the first year’s salary, it was still recorded in the accounts as a liability of CPFC. This explanation does not tie in with the transfer from CPFC’s bank account to Mr Venables of £450,000 back in June 1998. Bank borrowings were shown as £5.1 million and trade creditors (mainly payments due for transfer fees) as £12 million. The management accounts showed that income exceeded the budget for the three months to September 1998 (largely because of better than expected gate receipts). But expenditure also exceeded the budget by quite a long way. However, in his commentary on the accounts Mr Barnes’ overall assessment was as follows:

Two other particular comments must be noted.

The financial pack included a schedule of player transfers. This showed that six players had been bought, at an aggregate cost of £2.48 million, and six players had been sold for an aggregate of £4.04 million. Thus a little over £1.5 million had been raised from player sales in the three months to September 1998. But the size of the squad had not reduced. The figures given for Padovano only make sense if his two contracts (with CPFC and with SMCG) had been amalgamated, and even then they are not accurate. But since the two contracts had not been amalgamated, the board were in fact misled. I should also point out that neither the figures nor the notes reveal the inter-company transfers between MGI and CPFC.

On 9 December 1998 Midland Bank wrote to Mr Goldberg expressing dissatisfaction about the level of CPFC’s borrowings.

On 14 December 1998 CPFC transferred £90,000 to MGI. There is no evidence that this transfer was approved by or drawn to the attention of the board.

On 23 December 1998 Mr McAvoy met Mr Gibbs of Midland Bank. Mr McAvoy gave the bank some information about possible sources of finance, but none was immediate. Mr Gibbs’ note records:

Mr McAvoy explained to Mr Gibbs that Mr Goldberg was in Australia and that he would be joining him shortly. He said that Mr Goldberg would be back on 11 January and that he himself would be back on 12 January. He told the bank that CPFC would only manage a £250,000 reduction in the overdraft by the end of the year, and Mr Gibbs made it clear that he "required a prompt review in January on their return." I think it was not unreasonable for Mr McAvoy to have left the meeting thinking that nothing drastic would happen until his return from Australia.

However, Mr Hume-Kendall, accompanied by Mr Carlsen of Tramp Oil, went to see Mr Gibbs on 31 December, while Mr Goldberg and Mr McAvoy were still in Australia. Mr Hume-Kendall said that on his arrival he was shocked to be told by Mr Gibbs that the bank had expected him to arrive with a cheque for £1 million. His shock stemmed from the fact that he had been told by Mr Goldberg that, following Mr McAvoy’s visit to the bank, the bank had agreed to maintain CPFC’s total borrowings at £4 million. I cannot accept this evidence. First, it is inconsistent with what Mr McAvoy had told the bank on 23 December. He had made it clear that CPFC could not reduce the overdraft by more than £250,000. Second, there is nothing in the bank’s notes of the meeting with Mr McAvoy or Mr Hume-Kendall to suggest that the bank was expecting a cheque for £1 million. Third, the best that Mr McAvoy had achieved was a review in January 1999 on his return from Australia. It is unlikely that he would have told Mr Goldberg that the bank had agreed to keep the overdraft at £4 million. Fourth, it had been made clear to the board in November that the bank required the overdraft to be reduced to £3 million. In fact Mr Hume-Kendall already knew that this was the bank’s policy. He told me that he accompanied Mr Goldberg to a meeting at the bank at the time of the takeover, at which the bank informed him that they had two rules: a £5 million overdraft for a premiership club, falling to £3 million for a First Division club. Indeed the required reduction in bank borrowings was made clear in the original facility letter itself. I also consider that Mr Hume-Kendall was playing a more active role in CPFC than he cared to accept. It is, to my mind, clear from the bank’s note of the December meeting that he supplied the bank with a lot of financial information about future funds including: the progress of the sale of Warhurst; the possibility of new investors, and the gate that CPFC expected to receive from an FA Cup match against Newcastle. All this information ties in with the figures appended to a fax that Mr Hume-Kendall had sent to Mr McAvoy a few days earlier while the latter was in Australia. The figures in this fax appear to me to show that Mr Hume-Kendall was aware that the overdraft stood at over £4 million at the end of December 1998 and would not be reduced below £3.75 million. This ties in with the reduction of £250,000 that Mr McAvoy had indicated to the bank on 23 December. These figures also show that Mr Hume-Kendall was aware of future receipts from the sale of Warhurst and the anticipated income from the FA Cup match against Newcastle. I do not accept Mr Hume-Kendall’s protestations of ignorance of these figures.

The team’s fortunes on the playing field did not prosper during the first half of the 1998/9 season. By February 1999 Mr Coppell warned the board that Crystal Palace faced further relegation to the Second Division. (In fact his fear was unfounded and, given the team’s position in the league table, seems to have been unnecessarily pessimistic at the time.) Mr Morley said that if the team had been at the top of the table things would have been different. He thought that CPFC would have been able to attract more sponsorship monies; there would have been a better gate, and hence more money at the turnstiles; and CPFC’s credit would have been better.

There was a widespread perception that, for all his skill, Mr Venables had failed in the task he had been set. Many of the directors were unhappy with Mr Venables. Not only was he failing to achieve success on the pitch, but there was concern that he was not really interested in the club. Some directors, including Mr Grimes and Mr Hume-Kendall, thought that it was time for him to go. They communicated their views to Mr Goldberg, who was still in Australia at the time. (Mr Hume-Kendall denied this, but I do not accept his denial).

While they were in Australia Mr McAvoy and Mr Goldberg fell out. Mr McAvoy resigned on his return to England.

On his return from Australia in the middle of January 1999, Mr Goldberg summarily dismissed Mr Venables. This took the board by surprise. As Mr Grimes put it: "when we told Goldberg he had to go we did not mean please rush off and do it straight away." He added:

The dismissal of Mr Venables sparked a flurry of press speculation. Rumours were rife that CPFC was in financial difficulties. Events now went from bad to worse. As Mr Morley said:

Two things in particular happened. First the prospect of raising new money was severely impaired, if it did not disappear completely. Second, the player values were irreparably damaged. The hopes that any gaps in the balance sheet could be filled by player sales and the raising of new finance were now beginning to look forlorn.

The board met on 15 January 1999. Mr Morley reported on the settlement with Mr Venables which had been negotiated the previous day. Mr Venables would receive substantial compensation for his dismissal. The board agreed to accept an offer of £4 million from Blackburn Rovers for Matt Jansen. The question whether CPFC was insolvent was discussed, and the board concluded that it was not. There was discussion about a new Chief Executive. Mr Cole and Mr Carlsen were appointed to the board.

On the same day Mr Goldberg and Mr Hume-Kendall attended a meeting with Mr Noades and his team. The purpose of the meeting was to settle the litigation that Altonwood had brought against CPFC and Mr Goldberg and to deal with a statutory demand that Altonwood had served on Allowclear. The parties reached a compromise. In essence, CPFC acknowledged its indebtedness to Altonwood and withdrew its claims that the sale of Streete Court to Altonwood had been irregular. Thus CPFC gave up any possible claim to compensation against Altonwood. However, there is no solid evidence that CPFC’s claim against Altonwood had any real prospect of success; and very little effort had been made to progress or quantify the claim since the possibility of a claim had been raised back in June.

The board met again on 2 February 1999. The board was told that Mr McAvoy had not attended the company in any capacity for two months. On any view this was an over-statement. Under the heading "Player Sales" the minutes read:

On 25 February 1999 the board resolved to draw down £440,000 from a facility provided by Tramp Oil in order to pay wages. At about the same time two of CPFC’s sponsors, TDK and Adidas, withdrew support.

The board met again on 3 March 1999. Mr David Buchler of Buchler Phillips, an insolvency practitioner, was in attendance. So were representatives of Moore Stephens, also insolvency practitioners, who were the personal advisers of Mr Goldberg. After a discussion about the solvency of CPFC and possible means of obtaining finance, the board resolved to appoint an administrator.

Mr McAvoy accepts that he was the chief executive of CPFC from about the middle of October 1998 until 11 January 1999. However, he says that before mid-October 1998 and between January and March 1999 he was a non-executive director with little or no responsibility for the day to day management of CPFC.

I was shown two versions of a Business Plan prepared for CPFC in July 1998. One contains an organogram showing Mr McAvoy as Chief Executive. However another version shows an operational board (of which he was not a member), and an executive board of the holding company (i.e. Allowclear) on which he was described as the MGI director. Mr McAvoy has also produced a fax dated 7 November 1998 from Mr Alexander (who had been the Managing Director since 4 June 1998) in which he assures Mr McAvoy of his support in "your new role as Chief Executive". Although I accept that Mr McAvoy did not assume the title of Chief Executive before October 1998, he was more than a non-executive director before that time. I am entitled to take account of what he actually did as a director, as opposed to considering merely the title that he bore.

As I have said, the minutes of the board meeting held on 2 February 1999 say that Mr McAvoy had not attended the company in any capacity "for 2 months"; that is since December 1998. In addition the board minutes of the meeting held on 15 January 1999 contain a reference to a discussion about a new Chief Executive. In his witness statement Mr McAvoy says that he played no part in the running of CPFC from January 1999. I accept what he says. In my judgment the case against Mr McAvoy, so far as it relates to CPFC, must be approached on the basis that he was an effective director between June 1998 and January 1999.

A theme that runs through Mr McAvoy’s evidence is that he has been targeted as a scapegoat, and that other members of the board bear as much responsibility as he does. I do not think that this complaint helps Mr McAvoy. I am not considering the case against any other director, and if I think that some of them may have had lucky escapes, that is irrelevant.

I deal here with how Mr McAvoy was perceived by his fellow directors at the time.

Mr Morley said that Mr McAvoy "kept the chairman’s feet on the ground." He also said that he was sure that "Mr McAvoy would have tried to have kept his chairman in order." However, he also said that he always saw Mr McAvoy as the "eminence grise behind the scenes" and that "he had his hand in everything".

Mr Hume-Kendall described Mr McAvoy as "the voice of reason", trying to control "Mr Goldberg’s excesses".

Mr Barnes was initially very impressed by Mr McAvoy whom he described as a "high class individual"; "a highly eminent and skilled chartered accountant". His principal criticism of Mr McAvoy is that he did not keep Mr Goldberg under firmer control. I quote a few extracts from Mr Barnes’ evidence:

Mr Barnes originally had a cordial relationship with Mr McAvoy and it did not deteriorate until mid-November 1998. I think that his expressions of dissatisfaction relate to November 1998 and later. It will be recalled that Mr Barnes resigned in early December 1998; and Mr McAvoy resigned, for practical purposes, at the end of that month, or in early January 1999. There is very little evidence of anyone, apart from Mr McAvoy, standing up to Mr Goldberg before then.

One of the allegations made by the Secretary of State is that the directors were led to believe that Mr Goldberg had substantial assets from which he would provide funds to support CPFC. She says that his failure to provide funds to CPFC was one of the reasons for its collapse.

The minutes of board meetings contain no trace of an assurance by Mr Goldberg that he (either personally or through one of his companies) would provide funds to CPFC. There is no other document which records any such assurance. On the contrary the board minutes contain consideration of other means of raising money, such as a sale and leaseback of the stadium, and the support of the bank; and the documents reveal that CPFC tried (with varying degrees of success) to borrow money from financial institutions. In addition other supporters of Crystal Palace (including Mr Grimes and Mr Carlsen of Tramp Oil and Mr Simon Jordan) were approached to lend money to CPFC. Mr Hume-Kendall at least was aware that Mr Goldberg could not fund his initial purchase of CPFC from liquid resources and was looking to borrow money.

With two exceptions (namely the Arthur Andersen report and a cashflow prepared by Mr McAvoy in June 1998 but not placed before the board) none of the financial forecasts or cashflow projections assumed an inflow of funds from Mr Goldberg or his companies. Mr McAvoy’s cashflow assumed a net contribution of only £200,000 from MGI. And so far as the Arthur Andersen report is concerned, the assumption about receipt of funds from MGI was ultimately borne out by events.

None of the witnesses could recall a specific instance of Mr Goldberg promising to inject funds into CPFC. I do not doubt that Mr Goldberg was keen to impress his fellow directors with his wealth, but I conclude that, apart from what is recorded in the Arthur Anderson report, which post-dated Mr McAvoy’s departure, he gave no specific assurance that he would inject funds into CPFC.

In addition, there is no specific allegation made against Mr McAvoy arising out of this evidence. I am now in a position to consider the specific allegations that are made against Mr McAvoy.

The allegation: Mr Goldberg and Mr McAvoy failed to ensure that CPFC’s board was aware of the onerous terms on which CPFC was to employ Mr Terry Venables as its head coach, and, to the contrary, caused or permitted the board to be misled as to such terms.

I have set out my findings about the discussion of Mr Venables’ contract (para 149). I conclude that Mr McAvoy’s failure to tell the board that termination of the contract by CPFC would leave it liable to pay substantial compensation contributed to the board receiving a misleading account of the terms agreed with Mr Venables. This was, in my view, a breach of his duty to CPFC to place before the board information which was relevant to an important decision they were about to make. I do not, however, consider that he was dishonest in remaining silent. This part of the allegation is made out against Mr McAvoy to the extent that he remained silent about the terms on which CPFC could terminate the contract, and was a breach of duty to CPFC. I should in fairness say that I regard Mr McAvoy as the least culpable of the Goldberg team in this respect; but culpable nevertheless.

Mr Newey’s subsidiary complaint about Mr Venables’ contract was that CPFC could not afford it. Mr Morley said that the monies to which Mr Venables was entitled would have made a hole in administrative expenses but that did not mean that CPFC could not afford it. He said that the board did not say that CPFC could afford it, but that had they been asked his assumption was that they would have said yes.

Mr Barnes said on this topic:

He also said that he considered that entry into the contract was in the best interests of CPFC. Mr Alexander thought that the better-than-expected sales of season tickets were due to the engagement of Mr Venables.

It must also be added that if Mr Goldberg’s grand plan had worked, and Crystal Palace had achieved promotion back to the Premier League by the end of the 1998/9 season, the financial picture would have been very different. Mr Hume-Kendall thought that in that event CPFC would have been able to afford Mr Venables, but that if Crystal Place remained in the First Division, it would be touch and go.

In my judgment the decision to engage Mr Venables on the terms on which he was engaged was a decision which a director could have considered to be in the best interests of CPFC, and one which CPFC could afford. Was that Mr McAvoy’s belief? Although Mr McAvoy had very serious concerns about the agreement recorded in the heads of terms, I am prepared to accept his explanation that, with the alterations to the transfer budget to be allocated to Mr Venables, he did believe in July 1998 that entry into the renegotiated service agreement was in the best interests of CPFC and that CPFC could afford it.

This part of the allegation is not made out against Mr McAvoy.

The allegation: Mr Goldberg and Mr McAvoy caused or permitted CPFC to forego a payment of £400,000 due to it from Wolverhampton Wanderers in return for Wolves foregoing an equivalent sum due to it from Mr Goldberg.

Mr McAvoy’s suggested justification, namely that balances had been settled on "an inter-company basis" does not bear serious scrutiny. First, CPFC and MGI were not members of the same group of companies. Second, the liability to contribute to Emblen’s transfer fee was that of Mr Goldberg personally. Moreover, Allowclear was not the sole shareholder in CPFC: 15 per cent of its shareholding was in other hands.

Mr McAvoy initially suggested that the contribution that Mr Goldberg had made to the original purchase of Mr Emblen was a loan. I have already rejected that suggestion. He suggested in his evidence that a set off was legitimate because Mr Goldberg was entitled to his 25 per cent of the eventual sale price of Mr Emblen. There are two reasons why this is not so. First, Mr Goldberg’s entitlement would have been only £300,000, leaving a shortfall of £100,000. Mr McAvoy’s suggestion that he expected CPFC to raise an invoice for the balance of £100,000 is inconsistent with his statement to Wolves that the liability had been settled; and in any event the settlement was not put before the board, and no instructions were given to Mr Borland to raise an invoice. Mr McAvoy did not even copy his letter to Wolves to Mr Barnes or Mr Borland. Second, and more important, a series of agreements, made in March and April 1998 had discharged CPFC’s liability to pay Mr Goldberg any part of the sale price of Mr Emblen in the events which happened. Those agreements were, in the first instance, made between Altonwood and Labra (another "Goldberg" company), but culminated in an agreement between Mr Goldberg and CPFC which incorporated some of the terms of the earlier agreements. At the date of Mr McAvoy’s letter, CPFC had no liability to Mr Goldberg. Mr Downes argued in his written closing submissions that CPFC was not entitled to the benefit of the agreements by which Mr Goldberg agreed to forego his entitlement to a share of Emblen’s sale proceeds. I reject this argument. In his oral argument he advanced a different point. That was that the agreement made in March 1998 between CPFC and Mr Goldberg (which is signed but undated) only discharged Mr Goldberg’s entitlement if the underlying agreement between Altonwood and Labra remained in being. He accepted however, that on any view the agreement between CPFC and Mr Goldberg plainly defers Mr Goldberg’s entitlement to a share of the transfer fee until December 1998. So on any view Mr Goldberg was not entitled to an immediate payment of his share of Mr Emblen’s transfer fee. Beyond that, in my judgment the agreement between CPFC and Mr Goldberg expressly incorporates the provisions of the earlier agreement between Altonwood and Labra which released CPFC from making any payment in the events which happened. Mr McAvoy was not prepared in his oral evidence even to concede that he had made a mistake in thinking that Mr Goldberg was still owed £300,000 by CPFC.

Moreover, if Mr McAvoy thought that Mr Goldberg owed CPFC £100,000, it is impossible to understand why less than a fortnight later, CPFC paid MGI £100,000 for IT support rather than setting off that liability (if there was one).

Mr Borland plainly realised that the £400,000 due from Wolves had not been paid to CPFC. He was under the impression, as he told the auditors, that it had been paid to MGI. In a number of memos he recorded that sum of £400,000 as being paid to MGI rather than to CPFC. When Arthur Andersen investigated CPFC’s creditors and debtors they treated the £400,000 as due from MGI to CPFC. This enabled Mr Downes to submit that what happened was that Mr McAvoy exchanged a debt due from Wolves for a debt due from MGI, and that since CPFC recorded the debt as being £400,000, nothing was lost. I do not accept this argument. In the first place, it is not what Mr McAvoy thought at the time. There can be no doubt that he thought that CPFC was foregoing at least £300,000. Second, Mr McAvoy had no authority from the board to exchange one asset of CPFC (namely a debt due from Wolves) for another (a debt due from MGI). It must be remembered that at this stage, in August 1998, Mr McAvoy’s own case (which I have accepted) is that he was not the chief executive of CPFC. Third, on closer analysis, Mr Borland’s memos do not recognise a debt to CPFC from MGI. They merely raise questions about missing money.

In his statement made in January 2001 Mr McAvoy said:

He was right. The conclusion is inescapable: Mr McAvoy was party to a scheme which effectively gave away £400,000 of CPFC’s money to benefit MGI. Mr McAvoy’s two inconsistent justifications of this scheme do him no credit. Moreover, all this occurred at a time when CPFC was in need of cash, as Mr McAvoy knew.

In my judgment this was a breach of Mr McAvoy’s fiduciary duties to CPFC. This allegation is made out against Mr McAvoy. It is an example of Mr McAvoy failing to respect the separate legal personalities and interests of the various companies in "the Goldberg empire" and, indeed, Mr Goldberg himself. It also demonstrates Mr McAvoy’s willingness to bypass the board.

The allegation: Mr Goldberg and Mr McAvoy caused or permitted CPFC to incur a liability to Mr Padovano, a player who had been bought from Juventus, of £1,200,000 for the purpose of settling the personal liabilities of Mr Goldberg and an associated company of his, SMCG.

As I have explained, Mr Padovano’s two contracts had not been amalgamated. That is not surprising as amalgamation of the contracts could not have been to CPFC’s advantage. Mr McAvoy’s suggestion that amalgamation of the contracts would have been in CPFC’s interest because it would have made Mr Padovano more amenable to a transfer was unconvincing, and is belied by what actually happened. Mr Padovano was quite happy to be transferred to Metz even though the contracts had not been amalgamated. However, no complaint is made in the case against Mr McAvoy that he participated in an amalgamation of the two contracts.

Mr McAvoy said that his belief was that the two contracts had been amalgamated, because he had been told as much by Mr Goldberg and Mr Withey. As I have said there is some support for such a belief in the shape of the subsequent notes on the accounts presented by Mr Barnes to the board meeting in November. Mr McAvoy deposed to this belief, albeit inferentially, in his affidavit sworn on 25 October 2001. Mr Quick did not comment on this section of Mr McAvoy’s affidavit. In his closing submissions Mr Newey said that if Mr McAvoy was not aware that the two contracts had not been combined "he should have been". This is an allegation of failure to take proper care. It is, to my mind, a materially different allegation to that contained in the evidence against Mr McAvoy. Mr Goldberg and Mr Withey were the people within CPFC who were dealing with the possibility of amending the contract with Mr Padovano. Mr McAvoy’s first step, if he had attempted to find out more, would have been to contact them. If the allegation of failing to make inquiries had been clearly made, one or both of them might have been called to give evidence. Neither was. Thus this is not a mere pleading point. In my judgment this allegation is not one on which the Secretary of State can rely.

I have already described the main terms of the settlement with Mr Padovano. Mr Newey says that there was no benefit to CPFC in entering into this agreement under which it agreed to pay more than its contractual liability to Mr Padovano. The beneficiaries of the agreement were, in effect, SMCG and Mr Goldberg. CPFC’s money was being used to further their interests rather than its own.

Mr McAvoy’s response is that entry into the settlement agreement facilitated Mr Padovano’s transfer to Metz FC. Mr Padovano was regarded as a liability, not least because of his high salary. There were also doubts about his playing ability and his proneness to injury. In July 1998 his contract with CPFC still had two years to run. CPFC would have been contractually obliged to pay salary amounting to about £1.5 million if Mr Padovano remained on the payroll. As it was CPFC received £950,000 from Metz FC for Mr Padovano’s transfer. Thus, Mr McAvoy says, it was in CPFC’s interests to enter into the agreement. Mr Morley said in evidence that even though the overall deal involved CPFC in sustaining a net loss of £250,000 it was still a good deal in cash terms, as Mr Padovano’s salary of £750,000 still had two years to run. Selling Mr Padovano was also in line with the general need to sell players both in order to recoup capital and also to reduce the ongoing wage bill. Mr Morley, Mr Grimes and Mr Barnes all agreed that the agreement with Mr Padovano was in CPFC’s best interests. Neither Mr Morley nor Mr Grimes was made aware of SMGC’s own liability under the collateral contract with Mr Padovano. However, Mr Barnes knew that there was some contractual arrangement between Padovano and SMGC, and he still thought that paying Padovano £1.2 million was a good deal for CPFC.

Mr Newey is prepared to accept that there may be some truth in Mr McAvoy’s position. However, he says that there are two flaws in it. First, whatever the benefits to CPFC, there were undoubted benefits to both SMCG and Mr Goldberg personally. It could not have been in the best interests of CPFC to accept the whole of the liability for settling Mr Padovano’s litigation against SMCG and Mr Goldberg. Moreover, Mr Goldberg, as a director of CPFC, had a clear interest in the contract of settlement, and that interest should have been declared to the board of CPFC. Mr McAvoy had his own conflict, because he was a director of MGI and MGI was, in turn, a director of SMCG. There was, in short, a clear conflict of interest between Mr Goldberg and CPFC; and Mr McAvoy knew that there was.

Given that the board of CPFC all agreed that the terms on which Padovano was transferred to Metz represented a good deal for CPFC, it seems to me that Mr Newey’s allegation must be that Mr McAvoy was at fault in not doing a better deal by getting Mr Goldberg or SMCG to bear part of the cost. However, the practicalities of either Mr Goldberg or SMCG providing hard cash to contribute towards the Padovano settlement were not explored in evidence. But Mr Newey’s point is that the board were never given the chance to persuade Mr Goldberg or SMCG to shoulder some of the financial burden. Had they been given that chance it is entirely possible that Mr Goldberg would have offered to contribute to the deal, thus lessening CPFC’s legal liability.

Mr Downes objects that a complaint that Mr McAvoy did not do a better deal than was in fact done was not the way the original allegation was put. He says that the case he had to meet was a case of no benefit to CPFC. Had the case been one of inadequate benefit to CPFC he would have wished to call a football expert to evaluate the terms of the deal. He says, and says correctly, that the Secretary of State originally asserted that the terms on which Mr Venables was engaged were not value for money. In order to rebut that allegation, Mr McAvoy wished to call a football expert. The Secretary of State resisted that application, and eventually it was abandoned, but only on terms that the Secretary of State abandoned the allegation that Mr Venables was not good value for money. Mr Downes says that he might also have explored in evidence whether there was any real possibility of SMCG and/or Mr Goldberg contributing to the settlement and, if not, what the board’s attitude would have been. In my judgment there is force in Mr Downes’ point. I do not consider that giving Mr McAvoy notice of the amended allegation in the skeleton opening shortly before trial is adequate notice of an important change in the Secretary of State’s case.

Mr McAvoy’s own conflict only emerged in the course of his cross-examination. It was not an allegation that Mr Boyall made in his affidavit or that Mr Newey made in his opening. It is certainly not an obvious conflict. I do not regard Mr McAvoy as culpable in having failed to see it.

This allegation is not made out against Mr McAvoy.

The allegation: Mr Goldberg and Mr McAvoy caused or permitted a board minute purporting to record a board resolution of CPFC approving the payment of £1,200,000 to Mr Padovano to be produced, notwithstanding that no such resolution had been passed.

Mr Newey makes a number of serious criticisms of the Padovano minute. First, despite what it says, the board meeting was not duly convened, since the members of the board were not given notice of the meeting. Second, neither Mr Barnes nor Mr Alexander was physically present. That in itself is not controversial; but Mr McAvoy says that he was told by Mr Withey (the company secretary) that both those gentlemen had been contacted by telephone and had given their consent. Mr Newey says that no such conversation took place, but that, even if there was a conversation, there was no conversation to which all three directors were party, and hence no collective discussion or consideration of the proposed agreement. Third, there was nothing in the minute to indicate that Mr Goldberg’s keen personal interest in the agreement was disclosed to the board. In consequence he says Mr McAvoy can have been under no illusion that entry into the settlement agreement had not been properly authorised by the board.

Mr McAvoy agrees that there was no meeting, in the sense of him and Messrs Alexander and Barnes being physically present in the same room, or even participants in the same three-way telephone conversation. Indeed Mr McAvoy accepts that he did not speak to either Mr Alexander or Mr Barnes. But he says that he was told by Mr Withey, who prepared the minute, that he (Mr Withey) had spoken both to Mr Alexander and Mr Barnes, that they had approved the agreement and that they would be signing a minute. Although Mr Withey was interviewed, he was not asked about the circumstances in which this minute came to be produced. Nor was he called to give evidence. I record here that Mr McAvoy was given permission to serve evidence from Mr Withey, but chose not to do so. Mr Barnes said that he was not present at any meeting to discuss the Padovano settlement (because he was in London at the time having lunch with Mr Leon Angel) and he was not telephoned to give his consent. I accept his evidence. Mr Alexander gave evidence to the same effect, although it was not as firm as Mr Barnes’. I accept his evidence too.

I find that the contents of the minute were probably prepared by Mr Withey or at his dictation. The minute was signed by Mr McAvoy. However, no meeting took place, either by the physical presence of the purported participants, or by telephone. I find that Mr McAvoy knew that no such meeting had taken place. He also knew that Mr Withey had not telephoned the other named directors. I am, however, prepared to accept that Mr McAvoy was told by Mr Withey that the other named directors would be signing the minute. But even if that had happened, the resolution would still not have been valid under article 29, because, as Mr McAvoy knew, not all directors had been given notice of the meeting.

At its meeting on 29 July the board had delegated the approval of player transfers to a committee. It must also be recalled that the board were keen to see Padovano transferred as soon as possible. However, I accept Mr Newey’s submission that the Padovano settlement went beyond player transfer, since it also involved the settlement of litigation against Mr Goldberg personally and SMCG. Thus entry into the settlement was not within the authority of the committee. For good measure, the directors named in the minute are not the members of the committee in question.

Mr Downes says that in retrospect, all of those directors who gave evidence thought that the deal was a good one. In addition the Padovano settlement was reported to the board at the meeting in November and provoked no criticism. Mr Newey retorts that the report to the board at the November board meeting was based on inaccurate information. But the minutes of the November board meeting have not been produced in evidence. This is another example of the absence of a document not enabling an inference to be drawn.

That said, Mr McAvoy signed a minute that purported to record a board meeting that he knew had not taken place. However, I find that he did so without any intention of misleading the board of CPFC. He signed the minute because Mr Padovano’s lawyers wanted a minute, and one had to be produced in a hurry. Nevertheless, this allegation is made out against Mr McAvoy.

The allegation: Mr Goldberg and Mr McAvoy failed to ensure that the affairs of CPFC were subject to proper financial control.

There were clear changes in the way CPFC was run after Mr Goldberg’s takeover. Expenditure was not kept under control. The witnesses gave a number of small but telling examples. In his letter to the Board of 2 March 1999 Mr McAvoy said:

Mr Steve Coppell said in a statement in December 2000:

However, Mr Newey’s principal complaints under this head were as follows. First, instead of selling players, CPFC continued to buy players. Second, excessive sums were paid to football agents, and in many cases it was impossible to say what the payments were for. Third, some of these payments were in breach of the rules of FIFA and the Football League, as the agents were not registered. By the close of the evidence, the second and third complaints were no longer pursued. Fourth, there were transfers of money from CPFC to MGI for which there was no authorisation and for which there was inadequate documentation.

Buying and selling players. I have already explained that the financial well-being of a football club plummets if it is relegated from the Premier League. Further relegation from the First Division to the Second was described by Mr Morley as "the kiss of death". Crystal Palace had already had a volatile track record of promotion and relegation between the Third Division and the Premier League. One further consequence of relegation from the Premier League is that, typically, the bank will require a reduction in the overdraft and, as Mr Morley explained "that was invariably done by selling players to meet the reduced overdraft requirements." The value of a player is determined by market forces. But the value of a squad can be severely and adversely affected by a perception in the market that the football club with which a player is registered is in financial trouble. And as I have mentioned, if a club goes into liquidation, the players’ registrations revert to the Football League, so that their realisable value on a liquidation is nil.

Mr McAvoy expressed considerable unhappiness about the buying and selling of players in his letter of 2 March 1999. He said:

Once again the critical question is the extent of Mr McAvoy’s responsibility for this.

The transfer of David Amsalem also gave rise to later allegations by the FA that both FIFA rules and Football League rules had been broken. Mr McAvoy said that it was he who referred the matter to the FA. His evidence was not challenged in this respect.

A number of players were bought and a number sold in the months following the takeover. It is not entirely easy to work out the precise details. The best estimate is as follows. The figures given for purchases include agents’ fees, sign on fees and transfer levy, as they represent the total cost to CPFC. The figures for sales are the net sums receivable by CPFC. The figures take no account of deferment or VAT:

Thus it was not until January 1999 that CPFC became entitled to receive more in transfer fees than it had agreed to pay for players. A comparison of the salaries of those players transferred, as against those players bought, reveals that there was little if any saving on the wages bill.

Mr McAvoy said in his letter of 2 March 1999 that by November 1998 "it was evident that we were not tackling the squad reduction with the speed that was necessary." On 23 December 1998 Mr McAvoy had a meeting with Mr Gibbs of Midland Bank. Mr Gibbs’ note records:

Mr Hume-Kendall said that he initiated the sale of Jansen and that both Mr Goldberg and Mr McAvoy were furious about it. However, he also said that in December 1998 the board had taken a collective decision to sell Jansen; and that Mr McAvoy was in contact with Blackburn Rovers and Mr Coppell was in contact with Aston Villa. These two pieces of evidence are hard to reconcile. Mr McAvoy says that the sale of Matt Jansen was initiated by him before he left. In view of the fact that Mr McAvoy told the bank just before Christmas that there were no sales in the pipeline apart from Warhurst, and that every effort would be made to retain Jansen; and that he was in Australia between Christmas and his departure from CPFC, I think it unlikely that he was the initiator of the decision to sell Jansen. On the other hand I consider that Mr Hume-Kendall exaggerated Mr McAvoy’s attitude towards the sale of Jansen. Mr McAvoy recognised that Jansen might need to be sold, and I do not believe that he was furious when this happened.

One of the striking features of expenditure on players is the large amounts that CPFC paid to agents. Perhaps the most striking example is that of Del Rio. In his case agents’ fees amounted to nearly £450,000 as against a transfer fee of £187,500. I have already quoted Mr McAvoy’s criticisms of this. The Secretary of State does not pursue any allegation against Mr McAvoy relating to agents.

Buying and selling players was very much Mr Venables’ field. But Mr Goldberg wanted to be involved in everything and liked the process of negotiation with players and their agents. In my judgment it was Mr Goldberg’s passionate desire to see Crystal Palace regain its place in the Premier League, encouraged by Mr Venables, that led to the spending on player purchases.

Mr McAvoy was not directly involved in player purchases. This seems to me to be the substance of the evidence of many of the witnesses. I quote some extracts from their evidence:

Mr McAvoy said in his written evidence:

Mr Barnes agreed in cross-examination that this evidence was correct. I note also that in his statement made in January 2001, Mr Barnes says that it was he who was in Lens, on behalf of CPFC, negotiating the sale of Ismael. Mr McAvoy was not a member of the committee appointed to deal with player transfers. Mr McAvoy also said that he tried to get Mr Venables to report to the board or at least to the executive team which he set up on becoming Chief Executive. However, for various reasons, including the death of Mr Venables’ father which affected him very badly, this did not happen. There was some evidence, of a more tentative and vague character, that Mr McAvoy was involved in the transfer of players. It was not clear whether the evidence related to player sales or player purchases or both. But having regard to the cashflows he presented both to prospective lenders and to Mr Goldberg, his expressed disagreement with Mr Goldberg at the July board meeting, his proposal of a committee (not including himself) to oversee transfers, the discussion that took place on the trip to France and Mr Barnes’ acceptance of the steps that Mr McAvoy took on becoming Chief Executive in October 1998, I do not consider that Mr McAvoy played any significant part in the negotiation of player purchases.

On the contrary, I find that Mr McAvoy tried, albeit unsuccessfully, to control Mr Goldberg over player purchases and agents’ fees. I asked Mr Newey what more Mr McAvoy should have done. His answer was that, as Mr Barnes suggested, Mr McAvoy ought to have threatened to resign. This suggestion was not put to Mr McAvoy, and I do not consider that he ought to be criticised for not having threatened to resign earlier than he in fact resigned. In essence I find that he establishes his defence under this head.

Inter-company transfers. CPFC made a number of substantial payments to Mr Goldberg and/or companies that he controlled. It is also true that Mr Goldberg and/or his companies made substantial payments to CPFC, but the overall balance was on any view in Mr Goldberg’s favour to the extent of £1.4 million, and arguably as much as £2 million. Part of the difficulty in establishing a figure is the lack of paperwork, which is in itself an indicator of lack of financial control. Of the total monies transferred from CPFC, £1.5 million was paid to MGI, of which Mr McAvoy was a director. All those payments were made in 1998. On the other hand, approximately £718,000 was transferred from MGI to CPFC during the same period. But the balance in favour of MGI is still more than £750,000. None of these transfers were reported to or authorised by the board.

Mr Downes argues that it is not open to the Secretary of State to impeach the payments as payments, since that is not the allegation that Mr McAvoy was called upon to meet. She is restricted to complaining about the procedure for the making and recording of payments. I do not agree. Mr Boyall’s affidavit prefaces his complaints about inter-company transfers with a reference to CPFC’s financial predicament, and in his opening Mr Newey referred to the duties of directors to separate companies within a group. In addition, Mr McAvoy has chosen to explain not only the procedures, but also the rationale for the payments. Had he not chosen to do so, the position might have been different. As things stand, I do not consider that he has suffered any unfair prejudice. I consider that I am entitled to evaluate the whole of his explanation in reaching my value judgment on fitness or unfitness.

Mr McAvoy does not say that he was unaware of these payments. However, he says that financial control was the responsibility of Mr Barnes, the Finance Director. In addition to Mr Barnes, CPFC also employed Mr Borland as the Financial Controller. Of course a director is entitled to delegate responsibility for some matters to subordinates within the company. But if a director knows of impropriety, still more if he initiates it, he cannot shelter behind the responsibility of some other officer or employee of the company to prevent or detect it.

I focus on four payments in particular. On 17 June 1998 CPFC transferred the sum of £330,000 to Mr Lombardo. Mr Borland says that Mr McAvoy instigated this payment and that it was a payment for Mr Lombardo’s image rights under a contract with SMCG. Mr McAvoy does not dispute this. Thus CPFC discharged a liability of SMCG. On 14 July 1998 CPFC transferred £750,000 to MGI. Again Mr Borland says that the payment was instigated by Mr McAvoy, and Mr McAvoy does not dispute this either. Mr McAvoy’s explanation for the later payment was that it was repayment of a loan of £500,000 which Mr Goldberg or MGI had made to CPFC. However, it turned out that what he had in mind was the payment of £500,000 that Mr Goldberg contributed to the purchase of Mr Emblen, which, as I have said, was not a loan. I reject his suggestion that there might have been a second payment by Mr Goldberg personally. But even if there was such a payment, it does not account for the remaining £250,000. Once the suggestion of repayment of a loan has fallen away, there is no other justification for the payment. Even if it is regarded as a loan by CPFC to MGI, it was not authorised by the board of CPFC and remained undocumented. On 3 September 1998 CPFC made a payment of £100,000 to MGI as a payment for "IT support". In his evidence Mr McAvoy explains this as being "payroll costs incurred by CFPC" and says that CPFC did not have its own IT system and had to outsource this requirement. Mr Borland says that CPFC employed Mr Green-Taylor for IT support, and a further consultant, Mr Russell, both of whom were paid by CPFC for their services. Mr McAvoy points to an invoice dated 29 September 1998 (three weeks after the payment was made) for "the provision of IT service", and produces three miscellaneous schedules of payments said to have been produced as part of the service provided. This documentation is wholly inadequate, and in any event the documentation (apart from the invoice itself) does not relate to IT support. Mr Borland’s queries about this payment were never answered. I find it difficult to conceive how MGI (which was not a trading company) could have provided IT support to CPFC worth £100,000 between June and September 1998. Mr McAvoy could not explain. This, to my mind, demonstrates a lack of financial control, even in the narrow sense that Mr Downes advocates.

The fourth payment was one of £450,000 on 25 September 1998 and described as a loan. At this stage, apart from being a signatory on the bank mandate, Mr McAvoy had no special executive responsibility. It is, I think, necessary to quote the evidence about this. Mr Borland says in paragraph 6 of his affidavit:

In paragraph 11 of his affidavit Mr Borland refers to a loan of £450,000 made in September. Mr McAvoy commented on this part of Mr Borland’s evidence as follows:

Mr McAvoy says of the September payment:

Assuming that Mr McAvoy is right in saying that Mr Borland has confused a June payment with a September payment, Mr McAvoy does not dispute that he initiated the payment and directed that it be put through the books. There is no documentation that records the reason for this payment. The lack of documentation is squarely addressed both by Mr Boyall and Mr Borland. This is not a case in which the absence of disclosure can be given much weight. Mr Barnes agreed that cash was managed on a group basis. However, he disagreed with Mr McAvoy’s statement that CPFC was in the group. He said that CPFC had its own bank account, its own financial controller and its own books and records. This seems to me to be self-evidently correct. I do not accept the assertion that cash was managed on a group basis so far as CPFC was concerned.

But in any event, these transfers cannot be justified on the ground that the companies’ accounts were managed on a group basis. The reason is a simple one. They were not a group. Mr Barnes said, and I accept, that he would have resisted any suggestion that CPFC’s cash should be managed on a group basis with the cash of MGI and its subsidiaries.

Nor can they be justified on the ground that CPFC had surplus cash, because CPFC was consistently overdrawn from at least the beginning of September 1998. Mr McAvoy must have known from the cashflows that he himself prepared that even if CPFC was not technically insolvent in the summer of 1998, it was in a precarious position. It had bills to pay which it could not pay on the due dates. It could not afford to part with any cash.

The board of CPFC did not approve any decision to lend money to MGI. Indeed the board were not told about the transfers. There was no procedure in place for the authorisation of such a loan, short of a decision by the board. Thus the transfer of funds was made without going through any procedure and without any documentation recording the terms of any loan. I think that this can properly be characterised as a lack of financial control.

I do not consider that Mr McAvoy can escape responsibility for these payments, especially those which Mr Borland says he initiated. Whether Mr Barnes was also at fault is neither here nor there. In my judgment the transfer of money to MGI was a breach of Mr McAvoy’s fiduciary duties to CPFC. These payments also show Mr McAvoy’s willingness to bypass the board. This part of the allegation is made out against Mr McAvoy.

There were other payments made later in the story, but they are, to my mind of less significance. One payment of £55,000, made to SJ Berwin on 7 August 1998 for a deposit on a house, may in fact have been the deposit on the house that CPFC had agreed to buy for Mr Venables. But there is no documentation to explain.

The allegations that Mr Boyall makes relating to "misuse of loans" are, in form at least, directed to Mr McAvoy’s position as a director of MGI. However, in substance, they relate to CPFC, which is why I deal with them here. Between the time that Mr Goldberg acquired control of CPFC and January 1999 the only substantial sources of inflows into MGI’s bank account (with the exception of one transfer from Mr Goldberg himself) were payments by CPFC, and monies transferred by the Mark Goldberg Charitable Trust, Mr Grimes and Tramp Oil. The Secretary of State alleges that these loans were misused. In the case of each of these three loans, the pattern is the same. MGI’s bank account is overdrawn. A substantial deposit is made by way of loan to Allowclear. The lender believes that the money will be used for a particular purpose. The sum is paid into MGI’s bank account, bringing the account into credit. The credit balance is immediately used to make transfers to other persons, in each case for purposes other than those for which the lender believed the money was being advanced. This, says the Secretary of State, is misuse of the loan amounting to unfitness.

Mr Downes argues that the allegations of "misuse" of loans must fail. He says that when each lender made a loan to Allowclear, the money became Allowclear’s money. It never became CPFC’s money. Even if Allowclear was under a contractual obligation to use the money for a particular purpose, that obligation was not binding on MGI. Thus if MGI used the money which had been paid into its bank account for purposes outside the scope of Allowclear’s obligations, MGI committed no legal wrong. It follows that in permitting MGI to use the money in that way, Mr McAvoy committed no breach of his duty to MGI or, for that matter, to CPFC. Since the allegations relating to the misuse of loans allege unfitness to be concerned in the management of MGI, rather than Allowclear, they must fail. Mr Downes accepts that in some circumstances money advanced might be impressed with a trust. In those circumstances, a knowing recipient of trust monies who misapplies them might be guilty of misconduct. He accepts also that if money is borrowed in reliance on a fraudulent representation about the use to which the money will be put, the representor would be dishonest, and dishonesty may well amount to unfitness. However, he says that these kinds of misconduct are not alleged against Mr McAvoy, and it would be unfair to allow the case to be put against him on that basis.

Mr Newey, on the other hand, says that to borrow money for one purpose and then to use it for another is "a breach of commercial morality". He says that it does not depend on a deception at the time when the loan is made. It is also commercially immoral, having received a loan for one purpose with the intention to use it for that purpose, thereafter to use it for another. For good measure he submitted that, contractually, two of the loans, namely the Grimes loan and the Tramp loan had to be used for the benefit of CPFC.

In my judgment Mr Downes’ approach is far too technical. The substance of the allegation (at least in relation to two of the loans) is that money which was meant to go to CPFC, and which in point of form was lent to Allowclear, instead went to pay off MGI’s creditors. Since Mr McAvoy was a director of all three companies at the time, I cannot see that it matters what label is given to the alleged misconduct. What matters is whether facts amounting to misconduct are proved against Mr McAvoy; and whether he has been given a fair opportunity to answer the factual allegations made against him. In my judgment Mr McAvoy had a fair opportunity to answer these allegations and I proceed to consider them. I am, however, wary of reaching a conclusion adverse to Mr McAvoy based solely on a breach of "commercial morality".

The allegation: Mr Goldberg and Mr McAvoy caused or permitted all or part of a loan made by the Mark Goldberg Charitable Trust to Allowclear for the purpose of an acquisition by Allowclear of an interest in an Australian football club (which was paid into MGI’s bank account) to be used for other purposes.

On 18 August 1998 the trustees of the Mark Goldberg Charitable Trust agreed to advance to Allowclear the maximum sum of £750,000. Clause 2.1 said that "you will only draw amounts … under this facility to finance your acquisition of a major interest in the Northern Spirit Australian Football Club." Mr McAvoy signed the facility agreement on behalf of Allowclear. £750,000 was transferred into the bank account of MGI (not Allowclear) on 19 August. At the time the account was overdrawn to the extent of about £9,800. Over the next two days substantial sums were transferred out of that account. The transferees included SMCG (£180,000) Mr Goldberg (£241,500) and Newcourt Leisure (£50,000).

In fact Latercrew Ltd (which was a subsidiary of Allowclear) had already entered into an agreement to take up shares in Northern Spirit on 8 July 1998. The agreement was signed by Mr McAvoy on its behalf. The total subscription price was a little under A$1.5 million. A$750,000 was paid on 8 July 1998; A$138,944 on 14 September 1998; A$141,392 on 30 September 1998 and A$417,000 on 10 November 1998. The balance of A$47,426 does not appear to have been paid.

I can see that a drawdown of funds in order to repay a debt that has already been incurred in order to enable shares to be bought could be said to be have drawn down in order to "finance" the purchase. If I buy a house with the aid of a bridging loan and subsequently mortgage the house in order to pay off the bridging loan, it would not be a misuse of language to say that I took out the mortgage to "finance" the purchase of the house, even though I had already acquired title to it. I would not therefore criticise the drawdown in so far as it related to sums already spent in acquiring shares in Northern Spirit. Likewise it is possible to argue that the drawdown of funds to finance a future purchase of shares is legitimate, even if the shares are not bought immediately. But even if I take a generous view of all the sums paid or due on account of shares in Northern Spirit, these sums, even if they had all been paid, do not amount to £750,000. Mr McAvoy suggested that, on drawdown, it was intended that the whole of the sums drawn down would be used to buy shares in Northern Spirit, because of an option to acquire more shares. But the option was not granted until after the drawdown. In the meantime, MGI had pressing cash needs. Mr McAvoy must have known, when the loan was drawn down, that it would not be applied for the purposes for which it was made. In my judgment this can fairly be characterised as a breach of commercial probity.

I conclude that this allegation is made out against Mr McAvoy.

The allegation: Mr Goldberg and Mr McAvoy caused or permitted a loan made by Mr Grimes for the benefit of CPFC (which was paid into MGI bank account) to be used for other purposes although Mr Grimes was expressly assured by Mr Goldberg that the money would immediately be transferred to CPFC.

In October 1998 Mr Goldberg proposed to Mr Larry Grimes that he consider a "further investment" in CPFC on certain terms. His previous investment had been a loan made directly to CPFC. The terms were that he would advance £200,000 to Allowclear, as the holding company for CPFC, against the issue of a convertible loan note by Allowclear, convertible into shares in CPFC within three years. Mr Grimes replied on 19 October to the effect that he was willing to make £205,000 available to CPFC for 2 years, on the basis that the loan was convertible into shares during that period. On 22 October, Mr Grimes’ solicitors wrote to Mr Withey at MGI. Their letter set out the terms on which Mr Grimes was willing to make a loan. They began by saying that Mr Grimes would make a loan of £200,000 "available to Crystal Palace". Mr Goldberg was to "guarantee the Crystal Palace loan". Mr Grimes also wanted a warranty that there was nothing unusual going on at Crystal Palace which is material to "someone investing the amount LG has in Crystal Palace". Mr McAvoy was equivocal about whether he saw this letter at the time. I find that he did.

£202,037 was transferred into MGI’s bank account on 28 October 1998. The account was overdrawn at the time. On the following day substantial sums of money were transferred out of the account. The transferees included Newcourt Leisure (£40,000) and SMCG (£118,000).

In a letter to Mr McAvoy dated 2 November 1998 Mr Jeffreys, the senior manager at Lloyds Bank (who were MGI’s bankers) said:

In his letter of 21 September 1999 Mr Grimes says that at first he demurred to paying MGI, but was assured by Mr Goldberg and Mr Mildwater that the funds would be immediately transferred to CPFC. They never were. Mr McAvoy says that he was unaware of these assurances. The terms of the documentation did not require the loan to be used for the benefit of CPFC. The money advanced by Mr Grimes was used for purposes which fell within the terms of the legal documentation. The fact that the loan was convertible into shares in CPFC supports the conclusion that the money was in truth lent to Allowclear rather than to CPFC.

I am prepared to accept that Mr McAvoy did not know of the specific assurances that Mr Goldberg had given Mr Grimes. However, in addition to having seen the letter, Mr McAvoy knew that there had been a sustained attempt to persuade others to invest in CPFC. To use Mr McAvoy’s graphic phrase, when Mr Goldberg put up £22 million to buy his shareholding in CPFC:

He knew also that Mr Grimes had been persuaded to make his loan on the strength of a document entitled "Equity Investment and Post-Acquisition Strategy Document." A fair reading of that document shows that it is all about CPFC apart from one reference to the holding company. I agree with Mr Newey that the message conveyed by that document is "please support Crystal Palace and do so by taking a convertible loan note from Allowclear." Mr McAvoy also knew that Mr Grimes was a director of CPFC and had already made a substantial loan direct to CPFC. He must also have known that Mr Grimes had no reason to lend money to other companies under Mr Goldberg’s control. I find that Mr McAvoy knew that Mr Grimes’ intention was that his money would be used for the benefit of CPFC. It was not, as Mr McAvoy also knew. He had clearly told the bank that the money from Mr Grimes would go to the MGI group, which did not include CPFC.

If it is necessary to find a breach of duty, it seems to me that, in his capacity as a director of CPFC, Mr McAvoy owed it a duty (at least) to use his best efforts to ensure that money intended for it benefit was applied as intended. He was a director and chief executive of MGI (which had the bank account) and CPFC (the intended beneficiary of the money); and a director of Allowclear (the nominal borrower). In my judgment he could and should have ensured that the money went to CPFC. This allegation is made out against Mr McAvoy.

The allegation: Mr Goldberg and Mr McAvoy caused or permitted a substantial part of a loan made by Tramp to Allowclear for the purchase of shares in CPFC and the working capital requirements of Allowclear and/or CPFC (which was paid into MGI’s bank account) to be used for other purposes.

On 24 November 1998 the board of Allowclear, consisting of Mr Goldberg and Mr McAvoy, met to consider the terms and conditions of a facility offered by Tramp Group Ltd. The lender was to make available a facility to Allowclear "for the purposes of acquiring 3750 shares in [CPFC] and for working capital." The board approved the facility. On the same day a facility agreement was made. Mr McAvoy signed on behalf of Allowclear. The facility agreement repeated that the loan was to be used by the borrower for the purchase of 3750 shares in CPFC and for Allowclear’s working capital. The lender had an option to convert the loan into shares in CPFC, through the mechanism of acquiring some of Allowclear’s shares. On the following day, 25 November 1998 Allowclear gave notice drawing down £650,000. The notice of drawdown, signed by Mr Goldberg and Mr McAvoy, confirmed that "the Advance will be used to purchase 3,750 shares in [CPFC] and for our working capital." Mr Cole said that all Tramp’s discussions prior to making the advance "were concerning an investment in and finance for Crystal Palace". These discussions took place with Mr Goldberg. In addition, as Mr McAvoy knew, the Tramp loan was also made on the basis of the "Equity Investment and Post-Acquisition Strategy Document."

£415,000 was transferred into MGI’s account on 26 November 1998. The account was overdrawn at the time. On the following day transfers were made out of that account to a number of persons including SMCG (£144,000) and Mr Goldberg (£70,000). Mr Gibbs, the business banking manager at Midland Bank (who were CPFC’s bankers) wrote in a letter to Mr Goldberg dated 9 December 1998:

He must have been told that the monies would be made available to CPFC. However, it is right to say that the 3750 shares in CPFC were purchased at a total cost of £191,250. Allowclear had been presented (as was in fact the case) as the holding company of CPFC. It had not been presented in the "Equity Investment and Post-Acquisition Strategy Document" as part of a wider "Goldberg empire", or as having any function other than to hold its investment in CPFC. In fact it had no other function. Mr Carlsen, the relevant director of Tramp Oil, was, and was known to be, a Crystal Palace fan. In this context Mr Newey submits that the reference in the loan documents to Allowclear’s working capital can only have been understood as meaning that the loan would be used for the benefit of CPFC. Thus he submits that Allowclear was contractually bound to use the loan for the benefit of CPFC. I am not entirely convinced by this, but it is unnecessary for me to come to a conclusion. What is clear is that, whatever the strict contractual position might have been, it was Tramp’s expectation that their money would be used to benefit CPFC and in my judgment Mr McAvoy knew that. He was a director and chief executive of MGI (which had the bank account) and CPFC (the intended beneficiary of the money); and a director of Allowclear (the nominal borrower). In my judgment he could and should have ensured that the money went to CPFC.

If it is necessary to find a breach of duty, it seems to me that, in his capacity as a director of CPFC, Mr McAvoy owed it a duty (at least) to use his best efforts to ensure that money intended for it benefit was applied as intended. I find that this allegation is made out against Mr McAvoy.

The allegation: Mr Goldberg and Mr McAvoy took unnecessary risks with creditors’ money, by causing or permitting CPFC to continue to trade between June 1998 and 30 March 1999.

The Secretary of State says that CPFC was already insolvent in June 1998. She says that on a balance sheet test, CPFC’s liabilities exceeded its assets, and in addition, CPFC was unable to pay its debts as they fell due. She says that by allowing CPFC to continue to trade, Mr McAvoy took unwarranted risks with creditors’ money. Mr McAvoy disputes this. He says that the balance sheet did not include the value of the playing squad and undervalued CPFC’s interest in its stadium at Selhurst Park; and that CPFC could have survived if it had sold players to meet its debts as they fell due. I will deal with this in outline at this stage, as the full impact of the allegation can only be appreciated in the context of the other detailed allegations. It is right to record at this stage that in view of my finding about the date of Mr McAvoy’s ceasing to be an effective director of CPFC, this allegation, as against him, must be confined to the period between June 1998 and early January 1999.

The Secretary of State relies on the following matters:

However, as I have explained, the balance sheet did not include the value of the playing squad. It would have been reasonable for anyone examining the financial material to have concluded that, if the value of the squad were taken into account, CPFC’s assets exceeded its liabilities. It would also have been reasonable to suppose that projected trading losses could have been satisfied by the sale of players.

I think that I must also take into account that in June 1998 Mr Goldberg, through Allowclear, agreed to pay £22 million for an 85 per cent shareholding in CPFC. It is fair to say that all the witnesses considered that £22 million was a gross overpayment. But even so, it is unlikely that any businessman, even if passionate about football, would agree to pay that much money for a company which he believed to be insolvent.

I conclude that it was reasonable for Mr McAvoy to hold the view that CPFC was not "balance sheet insolvent" in June 1998; and to continue to hold the view that CPFC was not "balance sheet insolvent" until his departure.

Payment of debts as they fell due. CPFC had a credit balance on its current account until mid-August 1998. Mr Alexander said that there was pressure from creditors from soon after the takeover. Mr McAvoy said that when the takeover happened he was concerned to check the validity of payments and that there may have been some administrative delay in paying creditors. The bank statements bear him out. They record almost no cheques being processed in June and July 1998, but a large number being processed from August onwards. As far as I can see from the bank statements there would have been no liquidity problem in paying suppliers in June and July. However, despite that, there can be no doubt that, as things turned out, CPFC did not pay its debts as they fell due. I refer here only to those debts that were not met during 1998. In May and June 1998 CPFC did not pay instalments of transfer fees to Juventus. These instalments were rescheduled in July 1998, with the first revised payment becoming due in October 1998, but CPFC was unable to meet the revised schedule. Mr Goldberg and Mr McAvoy met Signor Bettega of Juventus in November 1998 when a further rescheduling was discussed. A payment was due to Altonwood in October 1998 on the transfer of Bruce Dyer to Barnsley FC. CPFC failed to pay, and Altonwood sued in November 1998. Also in October 1998, SJ Berwin invoiced CPFC for legal services. The bill was not paid, and SJ Berwin issued a writ in December 1998. CPFC was late in completing its VAT return, due at the end of October 1998, and was unable to pay the VAT due to HM Customs and Excise. At the end of November 1998 a payment fell due to a football agent. It was not paid. This resulted in the threat of a winding up petition.

However, even in January 1999, after Mr McAvoy had left the board, none of the remaining directors thought that CPFC was insolvent. Indeed, Mr Cole, a chartered accountant and a director of Tramp Oil, joined the board in mid-January 1999. He did not think that CPFC was insolvent at the time.

On 22 January 1999 Arthur Andersen produced a report. It is not entirely clear whether this report was formally presented to the board, but all the directors who gave evidence were aware of it and its contents. It may have been placed before the board meeting on 15 January in draft form. Arthur Andersen were careful to say that they were not offering an opinion on whether the company was solvent. However, they said that the board considered that, on the basis of three assumptions, the company was still solvent, and would be able to continue to trade within an overdraft limit of £3 million. The three assumptions were:

All the directors who gave evidence said that they considered that these were reasonable assumptions at the time. Their view was one which they reached after Mr McAvoy’s departure. With the benefit of hindsight these assumptions turned out to be over-optimistic. Receipts from player sales during January 1999 were £3.3 million, of which £130,000 was a deferred payment. The secured loan of £1 million did not materialise at all. As far as I can tell this was the first time that the board as a whole realised that MGI owed CPFC money. No one seems to have queried this. MGI, through Mr Goldberg, did in fact pay the £2.3 million (at least indirectly out of the proceeds of sale of Holwood House) but not until later in 1999. It may well be, therefore, that with the benefit of hindsight, CPFC was in fact insolvent in January 1999. However, I am not prepared to find that Mr McAvoy knew, or ought to have known, that CPFC was insolvent in December 1998 or early January 1999.

In addition, it is inherent in the Secretary of State’s allegation that CPFC ought to have gone into administration earlier than it did. All the witnesses agreed that once a football club was known to be in financial difficulties, the value of its playing squad was adversely, and possibly severely, affected. Mr Hume-Kendall agreed with the proposition that Mr Downes put to him; namely that if you go into administration when it is unnecessary "you will have this disastrous effect on player values, so going into administration wrongly may itself seriously prejudice player values". I do not consider that Mr McAvoy can be criticised for not seeking to place CPFC in administration before his departure.

However, both the cashflows that Mr McAvoy prepared at the time of the takeover, and Mr Barnes’ subsequent reports to the board, cannot have left Mr McAvoy with the impression that CPFC was flush with cash. Although he may have been reasonable in forming the impression that CPFC was not insolvent, it was clearly important, in order for it to remain solvent, that cash was carefully husbanded and that players were sold, and sold quickly.

I have already absolved Mr McAvoy from blame over the speed with which players were sold. However, I have found him at fault for initiating the substantial transfers of money from CPFC to MGI and for not ensuring that money which was lent to Allowclear, but meant to benefit CPFC, was passed on to CPFC. Mr Newey says that if CPFC had received these monies, CPFC would not have collapsed. Mr McAvoy accepted in evidence that if CPFC had had (or had retained) the benefit of this money it would have been in a better position to avoid its financial collapse. Receipt of those monies would, at the very least, have significantly improved CPFC’s cashflow. However, Mr Boyall’s affidavit did not in terms rely on the non-receipt of these monies as having contributed to CPFC’s financial collapse. Mr Downes says that if that had been the allegation, then he would have explored in evidence the extent to which they did contribute to CPFC’s collapse. As it was he concentrated on the allegation that CPFC was insolvent throughout the relevant period. This is not just a question of "re-labelling" misconduct. It is ascribing a different causative effect to the misconduct, which was not hinted at in Mr Boyall’s affidavit. However, the point was made in the Secretary of State’s opening (both written and oral). I do not think that Mr Downes went so far as to submit that there was additional evidence that he would have called but was unable to. In my judgment Mr McAvoy, by a narrow margin, was given adequate notice of this altered allegation.

I find that this allegation is made out against Mr McAvoy to the extent only of the inter-company transfers and the loans intended to benefit CPFC.

The allegation: Mr Goldberg and Mr McAvoy failed to ensure that Allowclear maintained and/or preserved adequate accounting records and/or they failed to deliver up such records.

There is no doubt that no financial records were delivered up to the Official Receiver. Mr McAvoy says that this was not his responsibility, as he says that he resigned as a director on 11 January 1999 when he severed his connection with Mr Goldberg. He formally resigned as a director of MGI on 15 January 1999. The questionnaire completed by Messrs Sayers, Mildwater and Goldberg gives the period of Mr McAvoy’s directorship of Allowclear as running from June 1998 to January 1999. There is no written evidence of his resignation as a director of Allowclear, but I am prepared to accept that, in a practical sense, Mr McAvoy "left" all the Goldberg companies on or shortly after 11 January 1999. Mr McAvoy said in his first affidavit that the records were handed to Mr Withey but that he does not know what became of them. In his second affidavit he said that the records may have disappeared as a result of a burglary in February 1999 in the course of which a server was stolen. But in his oral evidence he seemed to me to resile from this, accepting that this information would not have been of any interest to a burglar. He initially said in his oral evidence that the dealings of Allowclear could be reconstructed from information in the primary documents underlying the few transactions into which it entered. He accepted that this information was not "entered into a record". He agreed that Allowclear did not make entries from day to day of sums expended and received; but he said that the nature and number of the transactions in which it was involved justified that sort of day to day activity. But he went on to say that records were kept, in the form of a trial balance, but on no more than a couple of sheets of paper compiled in manuscript. He also says that the transactions into which Allowclear entered were all authorised by resolutions of the board. This last statement is not borne out by those resolutions that have survived.

Correspondence from Mr Mildwater gives rise to a strong inference that Mr McAvoy’s first oral account, namely that there was information from which accounts could be prepared but no actual accounting records, is the correct one. Mr Marks, an insolvency practitioner who handled the liquidation of MGI, said in his affidavit that books papers and records of Allowclear were removed from the offices at 27/28 Albermarle Street. Those records, he says, were held by Mr Withey. Mr Marks did not become involved until late January 1999. He says the records were removed by Mr Mildwater in February 1999. So Mr Marks supports Mr McAvoy’s account to some extent. The liquidator of Allowclear made some investigations in the autumn of 1999 and he came to the conclusion that all Allowclear’s records were removed by Mr Goldberg from the company’s offices at Albermarle Street to his home. But he was not able to identify what the records consisted of.

Both Mr Barnes and Mrs Keeling were asked to comment on Mr McAvoy’s first affidavit, in which he said that Allowclear did keep "books". Neither of them contradicted that assertion. But it is clear from Mr McAvoy’s oral evidence that Allowclear kept no "books" in any ordinary sense of that word.

I do not accept Mr McAvoy’s evidence that there was a manuscript trial balance. There may well have been information from which accounts could have been prepared. But even if there was, it would not have satisfied the twin obligation imposed by section 221. As things have turned out, there is a considerable amount of doubt about the extent of Allowclear’s liabilities. This is caused primarily by the lack of any proper records

This allegation is made out against Mr McAvoy.

The allegation: Mr Goldberg and Mr McAvoy failed to ensure proper financial control. Mr Newey made it clear that this allegation relates to MGI alone and not to its subsidiaries in the SMCG Group. The allegation falls into two parts. The first relates to the adequacy of MGI’s book keeping. The second relates to an abortive purchase of 28 Albermarle Street. Mr McAvoy was a director and chief executive of MGI.

Before March 1998 monthly management accounts were prepared by Mr Verroe. Mrs Keeling, who joined MGI as a book-keeper in October 1998, told me that the accounts to March 1998 were in proper order. However, over the summer MGI had employed temporary staff, and the books became muddled. Her job, when she joined MGI, was to sort things out.

Mr Barnes said that the accounts of MGI itself (as opposed to its subsidiaries) had been kept by Mr Colin Mildwater. He regularly reconciled the books with the bank account. Mr Barnes’ perception was that there was no lack of financial control so far as MGI itself was concerned. The lack of financial control, if any, was in the books of its subsidiaries. Mrs Keeling confirmed this evidence. She agreed that Mr Mildwater was an efficient book keeper and made sure that all the books were kept in order in relation to MGI.

It is clear that in the summer of 1998, at about the time that Mr Barnes joined MGI, Mr McAvoy realised that the books of the group companies needed sorting out. On 28 July 1998 he wrote a memo to Mr Barnes outlining the tasks that needed to be done. Thereafter, responsibility for the books was that of Mr Barnes.

I find that this part of the allegation is not made out against Mr McAvoy.

MGI occupied offices in Albermarle Street. It entered into a contract to buy the freehold in December 1997. Completion was due on 1 June 1998. The purchase price was £3.75 million. MGI agreed to pay a 10 per cent deposit of which it actually paid £250,000. For reasons connected with the carrying out of works to the property completion was delayed for a month. MGI was unable to complete on the postponed date. In July 1998 the vendor agreed to enter into a new contract with a completion date of 1 October 1998 but MGI had to pay a further deposit of £250,000. It was again unable to complete, and this time it forfeited the combined deposit of £500,000, and became liable to pay the balance of the original deposit amounting to a further £125,000.

Correspondence with MGI’s solicitors was not directed to Mr McAvoy, but to Mr Withey and Mr Barnes, although the contractual arrangements were already in place when Mr Barnes took up his position as finance director of MGI.

Although it was intended that part of the purchase price would be borrowed on mortgage, from Robert Fleming & Co, MGI was going to have to find about £1.9 million from its own resources or from another lender. It is clear that it had no resources of its own in October 1998. There was no binding commitment from Mr Goldberg to provide any funds. In September 1998 the bank refused to lend MGI any money, and expressed its doubts about MGI’s ability to service interest, let alone capital. It is right to say that following the failure to complete the second contract, a "dignified exit" was negotiated. The benefit to MGI was rent free occupation of the offices between about December 1997 and the autumn of 1998. But that benefit was not worth more than about £250,000.

Mr McAvoy said that entry into the first contract was before Mr Goldberg acquired CPFC. That is true, but the Secretary of State does not complain about the first contract. Mr McAvoy said that as regards the second contract there were competing demands, in the shape of Holwood House, and "we chose to complete on Holwood rather than complete on Albermarle Street." The purchase of Holwood House was in contemplation before MGI entered into the second contract, but there was no binding commitment. Mr McAvoy himself described Mr Goldberg’s purchase of Holwood House as plunging him into a cash crisis. However, the real complaint is that Mr Goldberg committed himself to buy Holwood House, at a time when MGI had already contracted to buy 28 Albermarle Street. But Mr McAvoy had no control over Mr Goldberg’s personal affairs. It was not alleged that Mr McAvoy should have tried harder to dissuade Mr Goldberg from taking over and completing the Holwood House contract; and, even if it had, that would not have been conduct "as a director".

Mr Downes argues that the allegation against Mr McAvoy under this head is confined to lack of proper financial control in the sense of an absence of procedures in place. He points to the evidence of Mr Barnes, who agreed in cross-examination that the failure to complete the purchase of 28 Albermarle Street was not attributable to a lack of financial control but to "the fact that there was not sufficient finance". He says, too, that if it had been clear that the real complaint was that MGI entered into a contract which it had no reasonable prospect of being able to perform, it would have been necessary to investigate Mr Goldberg’s means in July 1998. At that time he had only just bought CPFC and he still had a shareholding in MSB which had a substantial value. He had not yet demonstrated the unreliability which became evident later in the year.

I have come to the conclusion that Mr Downes’ complaint is a good one. Although a generous reading of Mr Boyall’s affidavit might justify the Secretary of State’s view that the allegation was not confined to a lack of proper procedures, I do not consider that this was made clear enough. In my judgment Mr McAvoy may well have suffered unjust prejudice in having to deal with the wider complaint. I might add that the full width of the complaint did not become clear until the oral opening.

Although it is clear that, as things turned out, entry into the second contract was a commercial misjudgement, I am not prepared to go further. In my judgment this part of the allegation is not made out against Mr McAvoy either.

The allegation: Mr McAvoy failed to ensure that Newcourt Leisure Ltd, Latercrew Ltd, Labra Investments Ltd, Student 24-7 plc, Internet Strategies & Solutions Ltd and Campus Broadband Ltd delivered to the Registrar of Companies accounts (in the case of Newcourt, Student, Internet and Campus) and annual returns when due or, in some instances, at all.

The basic facts are not, I think, in dispute. They can be summarised in tabular form as follows:

I will deal with Latercrew and Labra first. These companies were subsidiaries of MGI. Mr McAvoy says that he resigned as a director of these companies when he and Mr Goldberg parted company in early January 1999. There is no record of his resignation at Companies House. Nor has a resignation letter relating specifically to these companies survived. However, I accept that for practical purposes he did resign from these companies, I do not consider that it would be fair to lay the responsibility for the filing defaults of these companies at his door.

So far as the remaining companies are concerned, Mr Mcavoy concedes that his failure to file accounts and annual returns was unacceptable. The making of annual returns, in particular, is not an onerous or time-consuming task. However he says that the failures were, in effect, caused by the stress of the current proceedings and his attempts, since the collapse of CPFC in March 1999, to clear his name. I have a certain amount of sympathy for this, but it is no more than a plea in mitigation rather than a defence. My sympathy is lessened by Mr McAvoy’s written evidence that he had instructed accountants to prepare accounts for Internet, but which he accepted in the witness box was untrue. I note also that some of the filing defaults were committed before Mr McAvoy left MGI and CPFC; so that they, at least, cannot be attributed to the stress of the collapse of CPFC. Moreover, Mr McAvoy took no steps to rectify the defaults until the weekend of the third week of the trial, despite the existence of the allegations against him.

I find that this allegation is made out against Mr McAvoy.

Mr McAvoy clearly has many qualities. However, with the exception of the filing defaults, he was unable or unwilling to accept that some of his actions were unacceptable. I find also that he put forward implausible and unsustainable explanations for some of his actions. I also find that parts of his evidence were untruthful. I do not place great weight on this factor but it is something that I take into account.

In summary, I find that the following allegations are made out against Mr McAvoy:

I must now arrive at my value judgment. I recognise that Mr McAvoy has derived no personal gain from the facts that I have found proved against him. I do not think that he was consciously dishonest. Even though he signed the Padovano minute, I think he thought that it was just a formality. He did make efforts to control Mr Goldberg’s excesses. Mr Goldberg was clearly a difficult man to control. To some extent Mr McAvoy was placed in a position of fire-fighting, and attempting to prop up a crumbling empire. Do the allegations which I have found proved amount to unfitness? In my judgment they do. They show, to my mind, that Mr McAvoy did not respect the separate corporate personalities and interests of the various companies involved; and was oblivious to potential conflicts of interest between the companies and Mr Goldberg. Mr McAvoy’s conduct in relation to the Venables contract was a breach of his duty not to allow the board to be misled. They show that Mr McAvoy bypassed the board, thus ignoring CPFC’s structure of corporate governance. They show a number of breaches both of Mr McAvoy’s duties to CPFC and also breaches of his statutory duties as regards the keeping of accounts. They also show a pattern of ignoring statutory obligations relating to the filing of accounts and returns. Mr McAvoy also seemed to me to be unwilling to acknowledge any fault on his part (with the exception of the filing defaults). In view of my value judgment, I am required to disqualify Mr McAvoy from being concerned in the management of a company for a minimum period of two years. At the conclusion of the evidence it was agreed that I should reach a conclusion on the question of unfitness, leaving it to a later hearing to determine the period of disqualification if I found, as I have done, that Mr McAvoy must be disqualified. My provisional view is that the period of disqualification should fall within the lowest of the three bands conventionally applied, but I will hear counsel on the appropriate period of disqualification.