s a football club more than the company operating it? Most fans would answer yes in the blink of an eye, without even thinking about it. And of course, fans always see their club as much more than a legal entity. But the question raised in this article is not that obvious to answer. Can a creditor (i.e. player, coach, club, intermediary, etc.) who sees his debtor club disappearing or being winded up, take action against a new club that for all purposes seems to be the same exact club as the one disappeared?
These situations have become more and more common during the financial crisis. The list of clubs that disappeared with a ‘phoenix bird’ “miraculously” coming back from its ashes under the form of a new legal entity is large, and the temptation to use these mechanisms to generate confusion or fraud creditors to escape payment obligations, can sometimes be too appealing for clubs under high financial stress.
In countries such as Greece, the succession of clubs is even contemplated by State Law, where the national Sports Act 1 provides for the legal obligation of clubs to wind up when they are relegated to amateur divisions, their position being automatically taken by the so-called funding sports association that substitutes the limited liability company that ran the club until then. If the club, managed by the association is later promoted back to professional divisions it must necessarily re-adopt the form of a limited liability company.
The idiosyncrasy of football clubs originally stems from the FIFA Statutes. 2 In particular, from the definition of “club”, recognized as members of National Associations and also, from Article 20, which regulates the “Status of Clubs”, imposing obligations on National Associations to ensure their independence regardless of the corporate structure they adopt. The FIFA Statutes aware of the different legal systems of their member associations, identify football clubs in a general manner as entities with personality, irrespective of the legal form they adopt to exist.
That is the point of departure for the institution herein subject to analysis.
FIFA and CAS have delved into the legal personality of football clubs in the past years and there is currently a rich variety of case law, which allows to identify some of the key elements to grasp the essence of this very particular legal institution known as “succession of clubs”, developed under the lex sportiva that dares to challenge the pillars of company law, intellectual property law, insolvency law and in general, the very nature of a limited liability company.
Below, I present a chronological summary of the most relevant cases on this issue in an attempt to understand its evolution over time and outline those common features that will help to identify a potential situation of succession of clubs in our practice.
Decision of the Dispute Resolution Chamber ref. no. 04152285 of 15 January 2004
One of the first cases on succession of clubs is, to my knowledge, this DRC Decision of 2004. The question is unfortunately not analysed in-depth, although it is necessary to do so in order to understand FIFA’s approach to the succession of clubs. The case consists of a player’s claim against his club for a premature termination of contract following his initiative after the expiration of his permit to stay and work.
The club was pronounced bankrupt short after the player left the club. The next season, pending the case before the DRC, the club was taken over by a new company. The player informed this fact to FIFA.
The Chamber considered that the new entity had to be considered the same club as the bankrupt club and therefore had to be held liable for the actions of the previous club.
In the eyes of the Chamber, the fact that the club had continued to play in the same division as the old bankrupt club, and not in the lowest division of the national championship was the factor determining the liability of the new club. One can also infer from this decision that both clubs had the same name and could essentially be identified as the same club.
CAS 2007/A/1355 FC Politehnica Timisoara SA v. FIFA & RFF & Politehnica Stinta 1921 Timisoara Invest SA
The Timisoara saga is a twisted and complicated soap opera evidencing that reality often surpasses fiction. Briefly, the dispute confronts three different Romanian clubs having basically the same identity.
The first of them, the Appellant, took action against the second club for the illegal use of intellectual property rights (i.e. the use of name, colours, hymn, history, track record and colours) and had its claim admitted before the CAS (cf. CAS 2006/A/1109).
Pending such proceedings however, the second club transferred the right to participate in League 1 to a third club, that was a new company, purportedly incorporated to escape the effects of the first CAS decision.
The case therefore, circled around the possibility to enforce the previous CAS decision against a legal person having a separate juridical personality than the club initially bound by said decision.
The key element for the Panel to answer the question above was whether the new entity operating the club could be considered as the successor “for all practical issues”. As far as I am aware, this is the first reference of a Panel to the criteria of “for all practical purposes”.
The Panel admitted the appeal and considered the third club also bound by the CAS decision arguing the following:
”33. So far as the SA’s claim that it is not the same legal person as the CS, this is plainly correct. The two legal persons have separate juridical personalities and are different kinds of artificial legal person: one is a joint stock company and the other is a registered non-profit association. It does not however follow that the SA is not bound by the original CAS decision.
The SA acquired the rights of the CS (with which it is plainly closely connected) to participate in Liga 1 and thereafter treated itself as being bound by the Award. It was for all practical purposes the successor of the CS which was then reduced to turning out junior and youth teams. The original CAS Award envisaged that the award might be enforceable against a successor to the SA at par 6.19 where it stated: ‘In case the sum [of compensation] has not been paid to [Timisoara] by this deadline, FCU Politehnica Timisoara or whoever might be its legal successor at present is ordered to pay 5% interest p.a’” [emphasis added].
This award identifies some interesting elements that allowed the party seeking relief to enforce a decision against the successor club. These are:
- The acquisition of the right of the former club to participate in the league for which it qualified (League 1);
- Being for all practical purposes the successor of the legal person;
- The original CAS award envisaged that the award might be enforceable also against the legal successor club (cf. par. 24 of the award in the case 2006/A/1109, footnote 4).
CAS 2011/A/2646 Club Rangers de Talca v. FIFA
In this third case, the FIFA Disciplinary Committee decided to extend disciplinary proceedings and sanction a new legal entity that had previously acquired a football club from its former bankrupt ownership.
The company initially managing the Club was winded up and sold its assets (the economic unit) in public auction to a newly incorporated legal entity the purpose of which was to develop the sporting endeavours related to the club (i.e. participating in professional sporting activities, etc.).
The key elements for the FIFA Disciplinary Committee to decide on the issue of succession of clubs can be summarized in the questions that were submitted by FIFA to the Chilean Football Federation (see p. 8 of the award) in the course of the disciplinary proceedings, which were:
- Whether the new entity remained in the same division as the bankrupt entity;
- Whether the new entity maintained the same name, colours and sporting rights over players that previously belonged to the bankrupt entity.
In the subsequent CAS appeal to the FIFA decision, the new entity denied the existence of a succession of clubs on the basis of national insolvency and corporate law, arguing in essence, that all liabilities of the previous entity managing the club were dealt within the frame of the bankruptcy proceedings, and that there were no corporate, economic, sporting or disciplinary relationships with the former entity.
To decide on the question of succession, the adjudicating panel refined the criteria of previous awards and focused the attention in the following aspects:
- The purpose of the new entity regarded the management of the club.
- The new entity purchased the economic unit, which included the federative rights at the National Association, the players’ transfers, trophies, sporting equipment, and it committed to maintain unaltered the name, badges, hymns, emblems, t-shirts and colours red and black of the club.
- The club remained in the same city.
An explicit mention to the new entity as the sporting successor was made in the national law and in the terms of the acquisition.
The Panel concluded that the “new club” took, in practice, the position and activities performed by the former one with the consent and approval of the Chilean Football Federation, and that such circumstances entitled FIFA to legitimately continue disciplinary proceedings against the new entity.
The summary of the award is clarifying: “1. [If] an entity purchases in a public auction the assets of a bankrupt club, continues the activity formerly developed by the bankrupt club with the same image, badge, hymn, representative colours, emblems and placements, and is on the basis of the federative rights acquired in the auction participating in the national competitions, replacing the former club, with the consent and approval of the national federation is to be understood as the legal successor of the bankrupt club.”
TAS 2013/A/3425 Adelante Tiburones A.C. v. Club Santa Fe CD
Very briefly, on 5 January 2009, the Colombian Club Santa Fe CD and the Mexican club Tiburones Rojos de Veracruz concluded a transfer agreement whereby a football player was transferred to the Mexican club against the payment of a substantial fee. The Mexican club, however, failed to pay one of the instalments leading the Colombian club filing a claim before the FIFA PSC requesting the payment of the full amount by means of an acceleration clause, and the interests agreed for late payment.
During the FIFA proceedings the Mexican Football Federation (FMF) informed that the company holding the Club Tiburones Rojos de Veracruz had been disaffiliated for failing to fulfil its payment obligations with the FMF and other affiliated members. In parallel, a new legal entity (i.e. the Appellant) had acquired the affiliation certificate of Tiburones Rojos de Veracruz and was to take the vacant place in the league.
The Single Judge of the Players’ Status Committee relied on the cited CAS award 2011/A/2646 Club Rangers de Talca v. FIFA and explicitly defined a football club as being a sporting entity identifiable by itself transcending the legal entities that operate them and for that reason the obligations assumed by any of its administrating companies must be respected, and thus, the claim of Santa Fe CD against Tiburones Rojos de Veracruz was admitted.
To that purpose, the Single Judge of the PSC highlighted the following “essential elements”:
- The clubs had the same sporting name (i.e. Club Tiburones Rojos de Veracruz);
- They both had the same foundational year in the clubs’ website;
- They had the same crest and kit;
- They played in the same stadium;
- The claimed the same sporting merits and titles;
- Their headquarters were also, in the same premises.
In its defence before CAS, the Appellant contended it had not subrogated in the rights and obligations of the former entity, relying on the affiliation system of the FMF and on the fact that the name and other identity symbols belonged to the Municipality of Veracruz and not to the former entity, who had used them by virtue of a brand assignment agreement.
The Colombian club instead alleged that the appellant was primarily subject to lex sportiva, and that legal personality belonged in reality to the club and not the legal entity administrating it. The Panel rejected the appeal and confirmed the FIFA decision, considering the appellant club as the legal successor of Tiburones Rojos de Veracruz in the following terms:
“139. Hecha esta aclaración, el Árbitro Único destaca que las decisiones que han abordado la cuestión de la sucesión de club deportivo en sede del TAD (CAS 2007/A/1355; TAS 2011/A/2614; TAS 2011/A/2646; TAS 2012/A/2778) y en sede de los órganos jurisdiccionales de la FIFA (Jugador Guido Virgilio Alvarenga Torales, Paraguay / Club Fútbol de León (Promotora Deportiva de Fútbol de León S.A. de CV), México Ref. 05- 00652/mve; decisión de la Comisión Disciplinaria de la FIFA de 13 de octubre de 2011, en el asunto Horacio José Chiorazzo, Argentina contra Club Rangers de Talca, Chile; y la propia Decisión) han venido a establecer, por un lado, que un club es una entidad deportiva identificable por sí misma que, por regla general, trasciende a las personas jurídicas que la administran y que, por tanto, las obligaciones asumidas por cualquiera de las sociedades a cargo de su administración en relación con su actividad deben ser respetadas; y, por otro lado, que la identidad de un club la constituyen elementos tales como su nombre, colores, hinchada, historia, logros deportivos, escudo, trofeos, estadio, plantel, ídolos históricos, etc., que permiten distinguirlo de otro club. Así, se ha reconocido la prevalencia de la continuidad y permanencia en el tiempo de la institución deportiva frente al cambio de administrador, aun tratándose de la alternancia en la administración de sociedades completamente distintas entre sí.”
Decision of the Dispute Resolution Chamber ref. no. 04152285 of 10 April 2015
This other case confronted the Korean club Seoul FC and the Australian club Newcastle Jets FC, with the dispute revolving around the training compensation rights over a player transferred from the first club to the second club.
The DRC rejected the claim as being prescribed under the statutes of limitations of two years in the Regulations on the Status and Transfers of Players. The Korean club, discontent with the outcome, appealed the decision before the CAS.
The Australian club opposed to the CAS proceedings mainly arguing that it was managed by a new legal entity operating under a new license and thus, it was not liable for the debts of the previous owner, who was undergoing bankruptcy proceedings.
The Sole Arbitrator declared the claim of the Korean club admissible in terms of prescription, setting aside the supporting FIFA decision and referred the case back to the DRC to decide on whether, under the circumstances above (i.e. a new legal entity managing the club), the Australian club had standing to be sued or not.
Following the CAS instructions, the DRC resumed proceedings and explicitly endorsed the reasoning in the above CAS award 2013/A/3425 to decide in favour of the Korean club dissecting the sporting succession of clubs from a legal standpoint:
- A club is a sporting entity identifiable by itself that is formed by a combined set of elements that constitute its image;
- Clubs transcend the legal entities that operate them;
- The obligations acquired by any of the entities in charge of its activity must be respected;
- The identity of a clubs is constituted by: name, colours, fans, history, sporting achievements, shield, trophies, stadium, roster of players, historic figures, etc. that allow it to distinguish from all other clubs;
- The prevalence of the continuity and permanence in time of the sporting institution in front of the entity that manages it has been recognized, even when managing companies change and completely differ from themselves.
The DRC concluded that “[There] are sufficient elements to establish that Club C has been the same club throughout its history, despite of the change of the management company behind the operation of the team.” (Cf. par. 16 a., p. 8).
According to the Chamber, by keeping the same name, the same crest, the same stadium and the same players, there was a clear will to maintain the identity and image of the club in order to be perceived by any third party as the same club [Newcastle Jets FC].
CAS 2016/A/4550 Darwin Zamfir Andrade Marmolejo v. Club Deportivo La Equidad Seguros SA & FIFA – CAS 2016/A/4576 FC Ujpest 1885 v. FIFA
Finally, possibly the most recent award in the matter involves a case of succession of the Hungarian club Ujpest.
In the context of a contract termination without just cause by a player, the Panel had to decide whether it extended a sanction consisting of the ban on registering new players (cf. Art. 17.4 RSTP) to a new legal entity called Ujpest 1885, that had substituted the initial club Ujpest FC, with whom the player had signed for and that had entered into liquidation proceedings.
The adjudicating Panel in this case referred once more to the reasoning in the CAS award 2013/A/3245 (par. 139) to conclude that Ujpest 1885 was the sporting successor of Ujpest FC, irrespective of any change of management or legal entity operating the club, paying special consideration to the aspects indicated below:
- Both clubs, Ujpest 1885 and Ujpest FC competed in the first division of the Hungarian championship under the same name Ujpest FC;
- The logo and the colours of Ujpest FC remained identical;
- Both the new club and the old club were registered to the same address;
- Both had the same sporting director.
From a legal standpoint, the notion of succession of clubs is probably easier to understand in the context of the protection of employees’ rights, rather than the rights of other creditors such as football clubs, particularly in the context of the European Union where the EU Directive 2001/23/EC of 12 March 2001 “Relating to the safeguarding of employees’ rights in the event of transfers of undertakings, businesses or parts of undertakings or businesses” explicitly addresses situations that can be assimilated.
However, the existing case law in FIFA and CAS extends and refers indistinctively to both situations, and so, the conclusions also extend to both, without prejudice to the specificities of EU labour law and the alternative legal avenues it offers to employees to claim their rights.
The decisions and awards above identify common features revealing a sporting succession of clubs and evidence a true evolution of the institution over the years.
The first of them is that in all these cases, the substituting entity takes the exact position, from a strictly sporting perspective, of the allegedly substituted club, affecting the essential principle in organized football of promotion and relegation.
The study of the CAS jurisprudence nevertheless leads to conclude that the different adjudicating panels have gone beyond a purely sporting criteria by establishing a broader range of circumstances that can also indicate the existence of a “succession of clubs”. Indeed, there can be situations in which a club is effectively substituted “for all practical purposes” by a new legal entity and still start from the lowest sporting division, be that because the club relegated voluntarily, due to disciplinary issues or following poor sporting results; or because it re-affiliates de novo using the same name, crest, supported by the same fans, playing the same stadium, etc.
It is my view that the CAS jurisprudence tells us that there is not one single question to answer when deciding on a succession of clubs, but rather a whole range of situations that can indistinctively help identifying whether there is a true and evident continuity of the club or not.
By only looking at the sporting criteria, FIFA is falling short as it fails to analyse other particularities of each case and the laws and regulations of each country and national association. The sporting criteria must of course not be neglected and it obviously helps the invoking party to substantiate the claim, but a comprehensive assessment must necessarily go beyond and not be limited to the participation of the new club in the same division as the former club. In addition, other objective circumstances can demonstrate a de facto “continuity of the club.”
Further, the subjective element such as the intention of to fraud creditors, particularly against employees (footballers), should in my view play a predominant role when deciding whether to hold the substituting club responsible for the obligations assumed by the previous entity.