The financial troubles of Yorkshire Carnegie are now well-known. The Championship side announced in April 2019 that it was to go part-time in order to save costs after its principal investor pulled out, but it was revealed in June that the club was desperately trying to reach a compromise with its creditors to avoid insolvency.

On 28 June, Leeds RUFC Ltd (the trading company of Yorkshire Carnegie) successfully obtained approval from 100% of its creditors for a Company Voluntary Arrangement (“CVA”), allowing them to remain solvent. Such an “Insolvency Event” carries a potential points deduction under RFU Regulation 5, which could have seen the club facing relegation.

However, on 26 July, the RFU announced that the Carnegie could remain a participant of the Greene King IPA Championship (the “Championship”) for the 2019/20 season, subject to certain conditions relating to the CVA. The RFU’s statement added that “the case remains subject to review”.

Indeed, concerns remain. There are inevitable question marks over the Carnegie’s long-term viability but, above all, there are concerns over the way that the club has treated its players throughout the financial upheaval.

I spoke to Antonio Kiri Kiri, a former All Blacks Sevens player who represented the club during the 2018/19 season, who revealed that players have had their contracts cut short and are being asked to pay outstanding medical bills.

“The Club played down the severity of situation for a very long time, leaving a lot of us with a false sense of security…By the time we were told they would not be able to honour the remainder of our contracts, it was very late in the signing season, and there weren’t many places available in squads throughout the Championship,” Kiri Kiri said.

He had moved to Leeds from New Zealand, with his girlfriend and dog, on the basis of a two-year contract with the club. He is one of the lucky few who has been able to pick up a contract elsewhere – at Cornish Pirates – but his new salary is only “66 per cent of the salary that originally attracted [him] to move [his] life to the UK”.

The CVA process has offered Kiri Kiri 15% of the difference between his contract with Carnegie, and his new contract – a sum which he notes “doesn’t even cover the cost of moving everything down to Cornwall”.

Perhaps worst of all, Kiri Kiri told me that he is now “receiving medical bills from radiology departments in Leeds saying that Carnegie are refusing to cover these bills”. Though he says that the hospital has been very understanding, he is clearly incredibly disappointed at the state of affairs:

“I moved from the other side of the world to play for Carnegie – who were last in the Championship at the time – and I held up my end of the contract. As soon as things went wrong, I felt I was kicked to the curb without any sign of remorse from the board”.

Yet the players are not the only ones unhappy with the current situation. Richmond – the club relegated from the Championship at the end of the 2018/19 season – put out a strong statement in response to the RFU’s statement of 28 June. It read:

“Richmond are disappointed with the decision of the RFU Board that Yorkshire Carnegie can remain a Championship Club and will be seeking a review of that decision.

…Richmond believe that Yorkshire Carnegie should be relegated from the Championship and that Richmond (who have remained financially solvent for many years) should be reinstated…”

The club had made submissions to a sub-committee of the RFU Board and note that they will be asking for written reasons in relation to the decision.

This article will analyse the position of Yorkshire Carnegie under RFU Regulation 5 and will consider how (if at all) Richmond might be able to challenge the RFU’s decision. It will also consider whether Carnegie could face sanction for the way it has treated its players.

What is a CVA?

A CVA (Company Voluntary Arrangement) is a legally binding agreement between a company and its creditors to allow a proportion of its debts to be paid back over time. To gain approval, the proposed CVA must be voted for by 75% of all creditors (by value) but, once approved, all unsecured creditors will be bound by the arrangement, regardless of whether they voted for it or not. A CVA thus allows creditors to get some of their debt back over time and allows the Company to continue existing.

In the case of Leeds RUFC Ltd, 100% of its creditors (including the players who were still under contract for the 2019/20 season) voted in favour of the proposed CVA, which re-structured the club’s debts such that they would pay back just 15% of what they originally owed.

The binding nature of a CVA prevents any creditors from taking action to recover their original debts in full. As of 28 June, there was no longer a chance for players like Kiri Kiri to get what they had originally bargained for.

RFU Regulation 5 and the RFU Decision

RFU Regulation 5 governs the financial matters of clubs and ‘constituent bodies’ of the RFU. Regulation 5.3.2 states:

Without prejudice to any other action that the RFU may take or require to be taken, and without prejudice to requirements under any Regulation or Rule of the RFU, in the event that a Club playing: 

…

b. at Level 2 or below suffers an Insolvency Event, that club shall suffer a points deduction equal to 25 per cent.; 

of the total number of available points (including bonus points) to a Club in the League in which that Club plays.  In the case of a fraction, the points to be deducted shall be rounded up to the nearest point in the following Season…

An “Insolvency Event” is defined in RFU Regulation 1 as including:

(i) the suspension of payments, a moratorium of any indebtedness, winding-up, dissolution, administration or reorganisation (by way of voluntary arrangement, scheme of arrangement or otherwise) of the Club; or

(ii) a composition, compromise, assignment or arrangement with its creditors;

Under either of these provisions, the realisation of the CVA on 28 June qualifies as an “Insolvency Event”.

The Championship is a “Level 2” competition (Regulation 1) and, therefore, under Regulation 5.3.2, Carnegie should, prima facie, be facing a 25% points deduction. The Championship is a 12-team competition, meaning there are 110 points available during the season. 25% of 110 is 27.5. Hence, the appropriate deduction is 28 points – as the RFU statement noted.

Importantly, according to Regulation 5.3.5, if the Insolvency Event occurs after “the date at which the fixtures for the Level at which the Club plays [sic]”, the points deduction shall take effect “either before the start of the next Season, or at the end of the next Season”. Despite the drafting error, the presumed meaning of this provision is that if the Insolvency Event occurs after the fixtures for the following season have been finalised/published, the deduction shall take effect in the following season – not the previous one.

The 2019/20 Championship fixtures were announced on 24 June 2019; four days before the club’s Insolvency Event took place. Thus, any points deduction would take place in the 2019/20 season – it would not be retroactive.

Furthermore, Regulation 5.3.3 provides that, following a deduction under Regulation 5.3.2:

(a) if the points deducted from a Club were to be added back to that Club’s points total at the end of the Season in which they were deducted, the Club would have finished in the relegation zone of its league; or. 

(b) if the Club is not relegated in the Season in which those points were deducted, 

then that Club shall suffer a deduction of league points equal to 15 per cent. …of the total number of available points (including bonus points) to a Club in the League in which that Club plays in the following Season…

Therefore, even if the club survived the 2019/20 Championship season with a points deduction, it would then receive another deduction of 17 points for the 2020/21 season.

However, under Regulation 5.3.9, where a Club suffers an Insolvency Event, provided that:

(a) all outstanding creditors of that Club are paid in full (or the outstanding creditors agree to waive or a repayment programme for outstanding amounts)…

…

within six weeks of the Insolvency Event occurring, then the Club shall not suffer a points deduction…

It was on this basis that the RFU decided that the club would not face the points deduction if “all creditors agree to the terms of the CVA by 9 August 2019”. Of course, this is a somewhat absurd position in the instant case, given that the Insolvency Event in question saw 100% of the club’s creditors approve the CVA on 28 June. Carnegie is therefore safe and, unless it suffers another Insolvency Event, will escape sanction under Regulation 5.

Could Richmond challenge the RFU Decision?

In their statement dated 26 July, Richmond made clear their intention to apply for a review of the RFU’s decision. This raises two questions: how, and on what grounds?

RFU Regulation 13

There appears to be an internal review process provided for in RFU Regulation 13 (Adult Competitions). Regulation 13.10.1(a) states that:

…subject always to a right of appeal to an Appeal Panel by any Club or affected person, the Committee shall have power to discipline any Club for breach of any of these Regulations

The “Committee” is the Governance Standing Committee (or its sub-committees), according to Regulation 1. The language “any of these Regulations” appears to include all RFU Regulations, given the reference to solely Regulation 13 in 13.10.1 are explicit.

Regulation 13.10.4 appears to give participants the right to make a complaint in relation to Regulation 13 and Regulation 13.10.5 provides that:

if…either party to the complaint or dispute or any other person or Club (in respect of 13.10.4 above) is dissatisfied with any ruling made under Regulations 13.10.1 or 13.10.4 above there shall be a right to request a review of the decision.

However, Regulation 13.10.2(b) states that “no complaint can be made under RFU Regulation…13.10.4…more than 14 days after the end of the final League Match of the Season…”. Thus, the review process in 13.10.5 does not appear open to Richmond.

That said, Regulation 13.10.2(a) provides that:

The Committee shall have discretion and may vary the procedure specified in RFU Regulation 13.10…where it considers this to be in the interests of an RFU Competition generally or the RFU.

Richmond might seek to argue that this provision ought to be engaged, such that they should be given a right to review in this case.

In the alternative, Richmond might simply seek to request an informal review of the decision. There is no other provision for review under the RFU Rules and Regulations, but that is not to say that the RFU could not allow for a review of its decision-making procedure in the interests of good governance.

Nonetheless, Regulation 13.10.1(a) does provide for a “right of appeal” by “any Club”. Richmond could thus make the argument that the Committee ought to have disciplined Carnegie for a breach of the RFU Regulations and that their failure to do so gives Richmond grounds of appeal under Regulation 13.10.1(a).

RFU Regulation 2.5

In any event, under Regulation 2.5, there is a general right “to make a complaint to the RFU relating to a suspected breach of an RFU Regulation”. Richmond might seek to use this provision to complain that the RFU has breached its own Regulations in reaching the decision, or that Carnegie has breached an RFU Regulation (see ‘Grounds’ below).

A Legal Challenge?

The Richmond statement did not necessarily suggest that it was seeking a review of the RFU decision by the courts, but that could be a possibility, once all internal review/appeal mechanisms are exhausted.

This might be done as a claim for breach of contract by the RFU. In line with cases such as Korda v ITF (1999), Jones v WRFU (The Times, 6 March 1997) and Modahl v British Athletics Federation (2001), the regulations of Sports Governing Bodies (“SGBs”) are readily construed as contracts and, as such, a breach of them can attract the contractual remedies of damages, a declaration or an injunction. The determination of whether a breach has occurred would amount to a review of the RFU decision.

Secondly, Richmond might seek a review under the so-called “private law supervisory jurisdiction”, or the “Bradley jurisdiction”, which follows the decision in Bradley v Jockey Club (2004). This essentially provides for a ‘judicial review’ of SGB decisions, applying public law principles to private bodies such as SGBs.

Thirdly, Richmond could consider an application for (public law) Judicial Review under Part 54 of the Civil Procedure Rules 1998. The current English authorities do not permit Judicial Review of SGBs (R v Disciplinary Committee of the Jockey Club, ex p Aga Khan (1992)), but I have argued previously (and in my undergraduate dissertation) that this ought not to be the case. However, the probable time constraints mean that this is unlikely to be the occasion to mount a challenge to such a long-standing precedent.

Grounds – Misconduct by Carnegie?

The reality is that the RFU appear to have applied Regulation 5 to the letter. The only way that Richmond could avoid relegation on this basis would be to argue that the Insolvency Event in fact occurred before the 2019/20 fixtures were finalised. However, even if they were able to do so – which seems unlikely on both the facts and the definition of Insolvency Event provided – Carnegie would still be safe under Regulation 5.3.9, as the CVA has been backed by all the club’s creditors.

There seems no ground to attack the substantive decision on Regulation 5 per se, nor does it seem likely that a challenge on any procedural grounds would succeed.

However, Richmond might have greater success in arguing that the RFU failed to take into account relevant considerations, aside from Regulation 5 itself. Richmond may argue that the conduct of Carnegie constitutes “Misconduct” or conduct “prejudicial to the interest of the Union or the game” in accordance with RFU Regulations 19.1.9, 19.6.4 and Rule 5.12, such that the club should receive a disciplinary sanction in addition to any sanction under Regulation 5.

According to Regulation 19.1.5, the “overriding objective of RFU Regulation 19” includes protecting the “welfare of Players”. Given the way in which financial conduct inevitably affects the welfare of players, it is submitted that Regulation 19 ought to cover financial and contractual matters.

Indeed, “Misconduct” is defined by Regulation 1 as:

any conduct, behaviour or practices on or off the playing enclosure, in connection with a match or the Game generally, that is unsporting, unruly, ill-disciplined, brings or has the potential to bring the sport of Rugby Union, the RFU, or its commercial partners into disrepute, or which is prejudicial to the interests of the RFU or the Game…

The way in which the club has treated its players – not honouring fixed-term contracts, refusing to pay outstanding medical bills, leaving players in the dark over their futures for so long, and yet now signing Premiership players – arguably constitutes conduct which is (at best) “unruly” and which has brought the sport, the Championship and the RFU into disrepute. Equally, this is surely “prejudicial to the interests of the RFU [and] the Game”.

With regard to a possible sanction for breaches under Regulations 19.1.9, 19.6.4 or Rules 5.12, Regulation 19.11.7 provides that this shall include:

(a) for a person, a reprimand, a financial penalty or suspension from playing, coaching and/or administration.

(b) for a Club, in addition to the sanction set out in RFU Regulation 19.11.7(a), financial or other compensation, deduction of league points or relegation, exclusion or disqualification from any competition.

Whether the conduct in question merits “exclusion or disqualification” from the Championship is difficult to say, but a points deduction may be appropriate.

However, given the aforementioned Regulation 5 provisions, it seems likely that any such points deduction would be prospective only, as the fixtures for the upcoming season have been finalised. Therefore, it seems more likely than not that Richmond will be condemned to relegation and that, at least for now, Carnegie will remain in the Championship.

It is worth noting that the extent of Richmond’s submissions to the RFU are not known. It may well be that such arguments have already been made. Their arguments in any appeal or review may thus be that these points have not been properly considered or (procedurally) that the RFU has failed in a duty to give reasons for why it has not sanctioned Carnegie in this regard. It is worth noting that, in respect of the latter, English administrative law does not impose an overarching duty to give reasons in all circumstances (Oakley v South Cambridgeshire DC) such that this argument would be somewhat speculative.

Could the Players make a challenge?

Given the impact that the situation at Yorkshire Carnegie has had on individuals like Antonio Kiri Kiri, it is worth noting that the right to complain established by Regulation 2.5 is also open to players. It might be that the RFU would be more inclined to act if it received multiple complaints about the club’s conduct.

Ordinary legal challenges to Yorkshire Carnegie are out of the question for players – as explained above. It is now up to the RFU to take action via its disciplinary process.