Football club dispute shows importance of shareholder agreements

Jack Stephenson outlines why the ex-owner of Sheffield United Football Club was refused the chance to appeal against a club ownership dispute.

Former owner of Sheffield United, Kevin McCabe, has been refused the chance to appeal against a decision that has forced him to sell his 50 per cent stake in the club.

He was told there were ‘no good grounds’ to appeal against the High Court’s decision in September 2019 enforcing him to sell his stake. This decision ends two years of contentious litigation regarding ownership of the club.

What happened in the High Court ruling?

It was ruled in September 2019 that McCabe must sell his 50 per cent stake in Sheffield United to Prince Abdullah Bin Mosaad Bin Abdulaziz Al Saud for £5m. This is in accordance with an investment and shareholders’ agreement signed between them in 2013.

Prince Abdullah had invested £10m in the club in 2013, however he subsequently fell out with McCabe. McCabe’s company then made an offer to buy out the Prince for £5m. However, it also gave the prince’s company the option to buy Mr McCabe’s shareholding at the same price. A counter notice was then served to Prince Abdullah in early 2018.

Despite Mr Justice Fancourt acknowledging that Mr McCabe had injected millions of pounds into the club out of love and loyalty, he ruled that the original shareholders’ agreement could not be set aside.

In reaching his judgment, Mr Justice Fancourt rejected claims that the parties were engaged in a quasi-partnership or that the agreement was subject to implied duties of good faith.

An unfair prejudice claim in respect of Prince Abdullah’s conduct was also dismissed.

Caution when entering shareholders’ agreements

This judgment again makes clear that where shareholders enter into an agreement, in most situations a court is likely to rule that the agreement is binding on the parties, even if they did not understand or appreciate what they were signing up to at the time.

It is therefore important that legal advice is sought before entering into a shareholders’ agreement, to ensure that all parties appreciate what they are signing up to and what their rights and obligations are.

If you would like to find out more about drawing up shareholder agreements, or to seek specialist legal advice from Harrison Drury’s corporate and commercial team please contact Jack Stephenson on 01772 258321.