David Conn: FA to devise 'fit and proper person' test for directors

New rules projected for 2005-06 season likely to disbar criminals and may include directors of insolvent companies

A new committee of the Football Association held its first meeting this week to plan the long-awaited "fit and proper person test" for directors taking over at football clubs.

The Finance Advisory Committee, chaired by the redoubtable economist Kate Barker, is pledging to introduce the test for next summer's FA AGM, ready to be implemented for the start of the 2005-06 season. The reform has long been urged on the FA by supporters' groups, who have been bemused by the way in which crooks and bankrupts are allowed to take over the nation's football clubs, with no questions asked.

Now, the football authorities have decided to make at least a statement of intent to sort out the game's financial chaos. The "fit and proper person test" will be only part of the work that the new committee will be expected to lead and oversee, which will include trying to encourage a more responsible approach to clubs' financial management.

"This is a very important development in an overall approach by the FA," promised Nic Coward, the FA's director of corporate and legal affairs. "The headline objective to which everybody is committed is to protect and promote the long-term stability of clubs in their communities."

Barker, a member of the Monetary Policy Committee of the Bank of England, will be able to appoint other independent members, to join on the committee the representatives of leagues from the Premier to the Isthmian, together with Coward and the FA's new chief executive, the former insolvency accountant Mark Palios.

Some work has already been done, by the FA's Financial Advisory Unit and by Matthew Holt, of Birkbeck College's Football Governance Research Centre, and a view of the proposed test has begun to crystallise. The test is likely to apply to directors, not to shareholders, because of the legal difficulty of regulating who can own shares in a football club. It is likely the FA committee will recommend that so-called "shadow directors" be vetted, too, but it is notoriously difficult to prove that somebody is acting as a director if they are not officially on the board. Restricting the test to directors, however, will not satisfy all fans. To cite a more notorious recent example, Stephen Hinchliffe, currently serving an 18-month prison sentence for fraud, following a five-year sentence for bribery and corruption offences, took over 38 per cent of Hull City in November 1999, two days before being disqualified from acting as a company director for seven years.

Hinchliffe advised the club and attended board meetings, and continued to be the club's biggest shareholder, but was not officially a director. Hull went into administration in February 2001. The governing body could not bar Hinchliffe from being involved and would, apparently, still not be able to in a similar future case.

The FA, anyway, will have to overcome a large degree of scepticism, having rejected the idea of firmer regulation for years. In 1997, Sir John Smith, the former Deputy Commissioner of the Metropolitan Police, recommended the introduction of a fit and proper person test, as part of a clean-up of football, in his report, which the FA itself commissioned. Then, four years ago, a majority of the Government's Football Task Force reached the same conclusion within a recommended firmer framework to harness football's new financial circumstances.

The FA, Premier League and Football League rejected that wholesale, producing their own separate report, adamantly denying the need for "any new rules and regulations". Instead, they argued that football should adopt "the contemporary principles of customer care and a more inclusionary approach to key stakeholders". Nobody has ever discovered whether the authorities achieved that aim because nobody ever found out what it was supposed to mean.

Terrified of the idea of having a regulator, or any legislation, imposed on them by the Government - which was then and looks now a remote possibility - the authorities did recommend the establishment of the Independent Football Commission, a body with no actual powers, funded by the FA itself, to report on how the game is being governed.

Up and running for 18 months, the staffing of the new FA committee can be counted as one of the IFC's successes; they noticed that the Finance Advisory Committee had been established two years ago, but had never met or been constituted. The IFC recommended the committee be constituted and for good measure, when the FA did so, it even poached Barker, one of the IFC's commissioners. The committee is now being presented as part of a new dawn, under Palios, to sort football's financial crisis out.

The FA expects to bar people from being club directors if they have recent convictions for relevant criminal offences including fraud and dishonesty, have been banned for misconduct from any other sports, or are undischarged bankrupts. The only mystery with this is how it can ever have been controversial.

Where there will be a debate is on the more common problem of directors who have run a company into insolvency. This would include a lot of football directors: 33 of the Football League's 72 clubs have been insolvent at various times since 1992. If such people are banned it could, for example, disbar Dave Richards, the chairman of the Premier League, whose own company, Three Star Engineering, went into administrative receivership in 2001, and David Sheepshanks, a member of the FA's own main board, who was the chairman of Ipswich Town when they went into administration this year owing £53m.

How the committee will consider the precedent set by Chelsea's owner, Roman Abramovich - or whether it will want to - is anybody's guess. It is one thing to decide that John Russell, who was convicted in 1999 of obtaining services by deception, should not in future be allowed to be a director of a club, as he did last season when he took over Exeter City. But what to make of Abramovich, who took over Sibneft, Russia's fifth-largest oil company with massive reserves, in 1997, for a snip, at $250m £165m), as part of a privatisation process which has since been attacked for being open to only a small group of men who were close to the then President Boris Yeltsin.

This week Vladimir Andreyev, a spokesman for the Russian embassy in London, said: "Ninety-nine per cent of the Russian public is angry about people who were in the right position in the 1990s to take what was not their property. However, the privatisations have happened and cannot be undone. Russia is a democratic country and private ownership is the basis of our economy today." People, he said, were outraged too about Sibneft's policy of paying all of their profits out in dividends, which meant that Abramovich, who owns around 50 per cent of Sibneft, was paid an eye-watering $450m in 2001, $504m earlier this year and $500m two weeks ago. At the end of the year he is due to merge Sibneft with Yukos, Russia's largest oil company, in a $15bn deal which will net him around $7.5bn.

Abramovich's spending on Chelsea is small change in this outlandish fortune, but it is interesting to note that were he the owner of a Third Division club, he could not lavish his fortune on paying the wages of star players. This season the Third Division clubs are piloting the "salary cost management protocol" - they are terrified of calling it a wage cap - in which their expenditure on total salaries must be limited to 75 per cent of their income. Specifically excluded from income is money loaned from directors, because the League recognises it as a major danger when clubs become too reliant on one person, however apparently rich. The Premier League, wallowing in the vast bulk of football's cash yet with several clubs sailing close to the wind, has no similar regulations in the offing.

On narrow principles designed to keep out criminals like Hinchliffe, Abramovich would walk through any scrutiny process. His takeover of Chelsea might be the most bizarre and far-reaching which the game has yet seen, but football's governing body, which has taken six years to set up a committee recommended by its own report, is a long way from finding a policy to deal with the latest unsettling phase of the game's commercial revolution.

davidconn@independent.co.uk