Broken Dreams

by Tom Bower

  By any measure Bates was a fringe player, profiting from the crumbs of the phoney boom unleashed by the Conservative government. To join the bandwagon, he sought a substantial stake in Moore Holdings, an Irish property company managed by Robert Noonan. ‘I want to appoint directors,’ said Bates, convinced that the company was a rich picking. Noonan liked Bates but perceived all his self-destructive weaknesses. ‘Buy more shares or quit,’ Noonan challenged his banker. ‘It’s a fantastic deal.’ Bates, certain that he understood property better than anyone, swallowed the bait and paid £300,000. Noonan took the money, bid farewell and smiled, ‘He’s bought dead stock.’ Shortly after, Moore Holdings crashed. Like many other property dealers in Britain, Bates’s dreams were shattering.

  In 1975, the Irish Trust Bank was in difficulties. The bank had advanced long-term loans to property companies at fixed rates but was borrowing short-term to cover the debts. Interest rates on the short-term loans were rising sharply, propelling the bank towards insolvency. To conceal its plight, the bank’s accounts presented the unpaid interest payments from its borrowers as assets. That ploy was detected.

  Since 1972, the Central Bank in Dublin had warily supervised the bank’s accounts. A new law had closed the loopholes which had originally allowed Bates to obtain a licence. An inspection by Adrian Byrne’s staff in late 1975 raised the alarm that too many loans were connected to anonymous offshore entities, that the loans’ security was not properly perfected, that the loans were not being repaid and that there was insufficient income to repay the depositors. In particular, loans to Agamemnon and Temeraire, two companies with nominee shareholdings and unknown directors, were of special interest to the Central Bank’s investigators. Both were buying derelict land in Dublin as a speculative ‘site assembly’. Neither were paying any interest to the bank, and none of the bank’s employees appeared to be able to name the owner of the sites. To verify his conclusions, Byrne asked Charles Russell of Coopers and Lybrand to investigate the bank’s loan book. Russell confirmed that the bank was heading towards insolvency. ‘You’re taking big risks with other people’s money,’ Russell told Mel Kennedy, the bank’s general manager, ‘and that’s against the rules of safe banking.’

  Adrian Byrne, on behalf of the Central Bank, applied to the court to revoke the Irish Trust Bank’s licence. Furiously, Bates counter-attacked. Although he was not a shareholder or director, he presented the evidence that the bank’s loans were sound. He appeared outraged that anyone should question his talent or probity. Bates’s plea was successful; and to Byrne’s irritation, Bates appeared to leave the court with a swagger. Byrne was outraged that Ireland’s most venerable institution had been embarrassed. On 19 February 1976, Byrne again applied to the High Court to close down the bank and appoint Paddy Shortall as the liquidator.

  The court considered the application on 23 March 1976. During the hearing Bates and two other men, described in newspapers as ‘heavies’, entered the bank’s premises in Dawson Street, and climbed a back staircase to the boardroom. Pushing past a female assistant, Bates seized a sack of documents. ‘You can’t do that,’ an accountant shouted. ‘See you in court,’ replied Bates, leaving the building like Santa Claus, to be driven off by his wife. His appearance in court was sooner than he expected; thirty minutes after he had driven away, the judge issued a warrant for Bates’s arrest. Later that afternoon Bates voluntarily sauntered into the courtroom. ‘I believe you’re looking for me,’ he smiled. He explained that he had taken personal papers unconnected with the Irish bank and had not been a director since 1972. He had, he said, leased the premises to the bank and worked in an adjoining office. The judge ordered Bates to return the papers and granted the application to close the bank.

  During their investigation of the bank’s loans, Shortall and Russell discovered that the finances were worse than expected. Their most important witness was Bates, but he was occasionally unhelpful, storming out of the accountants’ office when challenged to explain the flawed loans, whose consequences in 1977 were more serious than the banker had anticipated. Across Ireland, the tearful plight of the devastated savers had become an issue during the country’s election campaign. Both major Irish political parties, anxious to deflect the bad publicity in the United States, promised to repay the depositors in full. ‘Why don’t you compensate the depositors?’ shouted Shortall to Bates after the businessman denied once again all knowledge or responsibility for the fate of the money. ‘Honour your guarantees at least,’ roared Shortall. In Shortall’s version Bates pulled out his cheque book and wrote a cheque for £280,000. Bates says it was paid through his lawyers but agrees, ‘I was normally obstructive to Shortall.’ That was an exceptional victory for Shortall. Over the following twenty-five years, Shortall would pursue the trail of the bank’s loans across the world. Never once could he prove that a single loan had been made to a company associated with Bates, yet he reported to his superiors notable coincidences. In London, he met Bates at the Montcalm Hotel and the offices of Trafalgar Travel in Buckingham Palace Road, which had been bought by Stanley Tollman with loans from the bank; and in a remote hotel in Cairns, Australia, he was surprised to meet Tom Proctor, Bates’s assistant, who offered to drive the liquidator to the land in Queensland which had been bought through a succession of nominee companies linked to Gibraltar and the Isle of Man. All of those investments, Bates told Shortall, were unconnected to himself.

  The debacle did not embarrass Bates. On the contrary, he strutted with the pride of a victorious warrior. He had defeated the British government and he had outwitted the Irish government. His remorseless ability to dominate officials and employees proved his mettle. Liquidation also imprinted no stigma, only opportunities, for the businessman.

  Two coach companies he controlled, Kirby Coaches and Transworld, were heading towards insolvency. Transworld’s liquidation, on the petition of Trafalgar Leisure International, a company registered in the Isle of Man, caused some concern. Transworld’s finances had been secured by his personal guarantee to Lloyds Bank. Bates asked John Papi and Stoy Hayward to help avoid the worst effects. The insolvency expert produced an astute and legal lifebelt. In a technical paper chase, Bates became a preferred creditor of his own company by converting his debt to the bank into a debenture. He borrowed money to repay Lloyds and once Transworld was in liquidation, he was assured by Papi, acting as the liquidator, that the debenture holder, namely Bates, would have first call on the assets. ‘I’ve taught you how to become a preferred creditor,’ Papi told Bates. ‘To reduce your costs.’

  In John Papi’s informed judgement Bates emerged from the 1970s with about £5 million. At fifty, compared with many businessmen in London, Bates’s limited wealth testified to his limited skills. He possessed sufficient money to live moderately well, spending only on a regular cruise and the occasional charter of a yacht. His survival owed a debt to the astute and legal management of his taxes through an offshore company in Hong Kong and a bank account in Guernsey, and to Derek Evans, a partner of a small firm of accountants, Hargreaves Brown Benson in Lincolnshire. But most of all, in John Papi’s self-interested opinion, to the insolvency expert.

  In 1979, Papi flew to Nice. A maroon Rolls Royce was parked on the quay beside a yacht chartered by Bates. Papi was offering Osborne Marketing Communications, a company which was rich in assets but technically insolvent. ‘You can make £4 to £5 million,’ said Papi. Bates returned to England to meet the staff. The encounter proved disastrous. ‘Right, let’s meet tonight,’ he told the truculent staff. Drawing a line down the room he barked, ‘Right, those who want to stay, stand on that side. All who want to leave go to the other side and collect your P45s.’ As usual, the nomad mistakenly thought that abrasiveness was the same as confidence. ‘You’ve been so rude that they’ve rejected you,’ reported Papi. Unconcerned, Bates temporarily fled from Europe. He grew his hair and flew to Queensland to cultivate sugar cane in the outback. On his return, he worked anonymously at Trafalgar Travel’s offices
near Buckingham Palace until a fateful visit by John Papi.

  In November 1981, Papi took a taxi to Bates’s office to offer the biggest prize. ‘Chelsea Football Club,’ the insolvency expert said, ‘is looking for an investor.’ Papi had heard the news from Martin Spencer, his former employer who had become Chelsea’s chief executive. ‘For £1,’ said Papi, ‘you can have the club and all its debts.’ Bates, the frustrated tycoon yearning for applause, visibly gasped. Disbarred from invitations to any lucrative commercial party, he still ranked as a sprat, unknown among the City players who were earning real fortunes. Chelsea Football Club offered the final opportunity to wreak revenge against his imagined enemies.

  For the first fifty years after its creation in 1905, the Chelsea Football and Athletic Club had languished, despite employing a handful of stars. The transformation had been achieved during the 1960s by Tommy Docherty. In successive seasons, Chelsea was promoted to the First Division, won the FA Cup and attracted new fans from the inhabitants of the King’s Road, the stars of London’s Swinging Sixties. During the 1970s the glamour faded. By 1982, the club had been relegated to the Second Division, was bankrupt and appeared to be doomed.

  There was some irony in Papi’s offer of a poisoned chalice. One year earlier, Martin Spencer had unsuccessfully offered Chelsea to Bates. ‘They wouldn’t entertain me,’ replied Bates, aware that the club’s owners were unimpressed by his pedigree. ‘I’m not interested,’ he said self-defensively. Twelve months later, the new circumstances dissipated his timidity. Barclays Bank were compelling Chelsea’s owners to sell. John Papi’s offer to Bates was an opportunity to recover from a humiliation in 1969: his resignation from Oldham FC. On that occasion, Harry Massey, the club’s vice-chairman, said, ‘Bates was too ambitious too quickly. His pace was too fast.’ Nothing had changed in Bates’s style over the years.

  Acting on Papi’s suggestion, Bates paid £1 for the football club and its debts of £600,000. His partner was Stanley Tollman, who became a fellow director. Curiously, in registering his ownership of at least two companies, Bates submitted a wrong date of birth – 8 April 1929 instead of 4 December 1931. The expert in insolvency had reason to anticipate acrimony during his management of the football club, although years later he explained his purpose at Stamford Bridge in romantic terms as one of ‘a dreamer who is determined to make his dreams come true’.

  Not having sufficient money, Bates did not buy a second company which owned the stadium and surrounding land. ‘The club had debts of £2 million and was losing £12,000 a week,’ explained Bates twenty years later. ‘I couldn’t face the exposure of greater debts.’ Instead, Bates paid for an option to buy the stadium and land within seven years. To his critics, however, it appeared that Bates had been unable to understand properly the real consequences of the deal. Robert Noonan and David Mears, the vendors, had sold the club but had retained the freehold of the stadium and, soon after signing the deal with Bates, they sold the freehold of the ground to Marler, a property development company. Marler gave the football club notice to leave the stadium when the lease expired in 1989.

  The next years for Chelsea FC were rancorous and perilous. The team, playing in a shabby stadium, languished in the Second Division while Bates fought bitterly against his own kind – property developers – to obtain control of the ground and prevent its redevelopment for housing. The feeling among the public towards football was hostile. Hooliganism and violence had erupted among vicious fans and the finances of many clubs were dire. Irving Scholar paid just £500,000 for Tottenham and Robert Maxwell paid £120,000 for Oxford United. Investors in a sport which spawned calamities were hardly idealists, but indulgent egocentrics. They enjoyed the fame but ignored their responsibilities. Bates appeared to be no different. On the contrary, Bates perfectly mirrored so many characteristics of Britain’s football executives and, in turn, of modern Britain itself. His experience of rescuing some small businesses and teetering into insolvency with others was scant preparation to devise a business plan to improve Chelsea’s financial predicament. Similarly, his reaction to the extreme hooliganism at Stamford Bridge was to apply to the council to erect an electrified fence in front of one stand. His application was rejected by the local authority. Unapologetic, Bates disregarded the continuing public protests. His fight against the ground’s sale for development continued to win the sympathy of Chelsea’s most truculent fans.

  Bates was saved by two insolvencies. Among the casualties of the 1991 property recession was Marler, the owner of the stadium’s freehold. Then Cabra Estates, the purchaser of the freehold, also fell victim to the plummeting property values and spiralled towards bankruptcy. In 1992, the freehold was assumed by the Royal Bank of Scotland, who in turn granted Bates a twenty year lease and an option to buy the stadium. Bates’s stubbornness had won that particular battle, embellished by promotion to the Premier League. By any measure, securing Chelsea’s revival and glory was a remarkable success. Basking in the gratitude and adulation of Chelsea fans, Bates went for glory.

  Certain of the freehold Bates applied for permission to redevelop the stadium as a location not only for football but also a hotel and restaurants. ‘Chelsea Village’ would amalgamate all his talents: property, construction, travel, hotels and good living. But at that moment, a new recession in the British economy also hit Bates; he faced disaster. Over the previous decade, Bates had failed to improve Chelsea’s finances. In common with so many football club owners, Bates was criticized for spending money without sufficient care. The last accounts for Chelsea Football and Athletic Club in March 1992 reported a pre-tax operating loss of £157,693 and an accumulated deficit of £1.5 million. In the report, Bates stated, ‘The directors consider that the result for the year is satisfactory but the position at the end of the year remains unsatisfactory.’ That caution proved to be understated.

  Maybanks, the club’s printers, were facing dire financial problems and issued a demand for the payment of £50,000 owed to them by the club. Chelsea was unable to pay many creditors, including the repayment of a £1.75 million unsecured loan to the Royal Bank of Scotland which was also pressing for repayment. The club owed a further £418,000 against tangible assets of £620,000 and a football team who were legally worthless if the club ceased to trade. Technically, Chelsea was playing football while insolvent, an infringement of the FA’s rules, but Bates could safely rely on the FA failing to enforce its own rules.

  The natural source of advice was John Papi, his best hope of keeping the club. They met for lunch at the Sheraton Park Hotel. By then Papi was personally on the verge of bankruptcy and under suspicion by the Insolvency Practitioners’ Association for ‘gross professional misconduct’.

  Papi’s solution to save Chelsea was a variation of the ‘debenture’ method which he had previously applied to save Bates’s investment in the bankrupt coach company. The key to Papi’s scheme was to obtain the support of the Royal Bank of Scotland, which risked losing its unsecured loan to the club. Papi negotiated to guarantee the loan’s repayment if the bank agreed that Bates should become a preferred creditor over Chelsea’s suppliers. In effect, in this scheme, which was approved by the courts, everyone in theory risked losing money except Bates and the bank.

  Papi’s plan was aided by an unnoticed mistake. The club’s contracts with its football players, approved by the FA, were wrongly issued in the name of the Chelsea Football Club rather than the Chelsea Football and Athletic Club. ‘You’ve fallen on your feet,’ smiled Papi. ‘It’s a fortunate mistake. But we have to move fast to save the club.’

  Papi set to work. Two new companies were created: Chelsea Village and CFAC. Under Papi’s plan, the assets of Chelsea Football and Athletic Club would eventually be transferred to CFAC Ltd on 14 August 1992, saving the club but threatening all the creditors with the exception of the Royal Bank of Scotland.

  Under the plan, for which both Bates and Papi claim individual credit, Chelsea Village should guarantee to the Royal Bank of Scotland the o
riginal loan of £1.75 million to Chelsea Football and Athletic Club. Bates, on behalf of Chelsea Village, would secure a new loan of £1.75 million from the Royal Bank of Scotland to Chelsea Village. That new money was advanced to the Chelsea Football and Athletic Club and was secured on the club’s assets. The new advance was classed as a debenture and would, in the event of insolvency, make Chelsea Village a preferred creditor. Next, the Chelsea Football and Athletic Club would be renamed CFAC Ltd, protecting the name ‘Chelsea Football Club’. Next, the £1.75 million in cash would be repaid by CFAC to the Royal Bank of Scotland, protecting the bank’s interest in the original loan. The final stage would be to transfer all of CFAC’s assets to Chelsea Village. Everything was therefore set for CFAC to be placed into receivership, bequeathing the club to Bates free of the threat of insolvency. After taking legal advice, subsequently upheld in court, Bates approved the plan. On 17 August 1992, Bates and Tollman formally resigned as directors of CFAC.

  Without notification to the club’s creditors, Papi, on CFAC’s behalf, transferred Chelsea’s players, worth £7 million, from CFAC to Chelsea Village. That transfer would later be criticized by Christopher Morris of Touche Ross, the accountants, as ‘unlawful’. The stadium was also transferred to Chelsea Village. Two-thirds of Chelsea Village’s shareholders were anonymous offshore trusts, among them, it was repeatedly speculated, Stanley Tollman. In public, Bates spoke for 100 million of the club’s 102 million shares. Among the casualties of the arrangement was the FA rule forbidding the anonymous ownership of over 10 per cent of a club’s shares, but again Bates could rely on the FA’s failure to enforce the rules.