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The “Investment Mis-Selling” Controversy – What Should Footballers Do Next?

This article by Daniel Northall was first produced for and published by . Daniel examines the legal implications of the recent controversyconcerning
the mis-selling of investmentsto
high net worth individuals, notably footballers.Specifically,
it explores the nature of the problem, including the investments made, how they
might come to be mis-sold, and the avenues available to a footballer who has
sustained substantial losses through mis-sold investments. It will be
particularly relevant to footballers and their professional advisors.

An Explanation of Unregulated Collective Investment

mis-selling is not new; nor is it a problem restricted to the wealthy. But
there are few sections of society where the scale of the problem is
particularly acute as it appears amongst professional footballers.All
of the investments reported as “mis-sold
stem from the use of unregulated collective investment schemes (UCIS).

collective investment scheme, also known as a “pooled
”, is a fund which several investors
collectively contribute towards. A fund manager then uses the pooled money to
invest in one or more classes of asset, such as stocks or property. Its legal
definition can be found in s.235 of the Financial Services and Markets Act 2000(FSMA).

collective investment scheme may be regulated or unregulated. The rules on what
amounts to a regulated collective investment scheme are technical but, in
short, such a scheme is regulated if it is authorised or recognised by what is
now the Financial Conduct Authority (FCA).

unregulated scheme is simply one which does not fall within the defined
categories of regulated scheme. This is normally because the scheme does not
comply with the strict borrowing and investment criteria of regulated schemes.
They are often characterised by an investment portfolio which is not diverse,
with the pooled money being invested into a single asset, such as a foreign
property. This is why they are seen as high risk. If the asset fails, so will
everyone’s investment. More prudent investment would see a more diverse range
of asset classes in the fund so that the performance of the fund did not depend
on the performance of a single asset or asset class.

being unregulated, UCIS are not unlawful in the UK, but restrictions apply on
their promotion to the public consistent with the degree of risk that they
carry.Section 238 of the FSMA introduced a
general prohibition on the promotion of collective investment schemes by
persons authorised to conduct financial services by the FCA. A number of
exceptions to the general rule are then carved out through various statutory
instruments. A number of the important exemptions are set out in the CIS Promotion Order.6These

  • Certified high net-worth individuals
    article 21).
  • Sophisticated investors (article
  • Self-certified sophisticated investors
    article 23A).

Section 238 prohibition on the promotion of UCIS does not apply to persons not
authorised by the FCA, but the effect of Section 217FSMA
creates a similar result. An unauthorised person cannot promote a UCIS unless
the promotion is approved by an authorised person or is exempt under the Financial Promotion Order.8That
order creates similar exemptions relating to certified high net-worth
individuals, sophisticated investors and self-certified sophisticated

Why did Footballers Invest in UCIS?

are uniquely positioned in the accumulation of their wealth. If successful,
they may be paid large sums of money in a relatively short period of time.
However, that earning potential is time limited, with most footballers’ careers
at the highest level lasting no more than 10-15 years. Consequently, many
footballers seeking financial advice may:

  • have large amounts of disposable
  • be young and impressionable;
  • lack sophisticated investment
  • understand the need to plan for the
    future for when their footballing career is over;
  • be surrounded by advisers who exert
    an influence on their decision making.

factors combine to create a situation in which the pursuit of risky investment
strategies is made more likely. The collective nature of UCIS would appeal to
most footballers. If a team mate has already made an investment, why shouldn’t
they? The “clubbing together
of money might also give rise to a false sense of security – an individual’s exposure
would only be as great as the next person’s.

The influence of a footballer’s advisers is another
important factor. The originalSunday Timesstory9reported
that the financial advisers accused of mis-selling made undisclosed payments to
agents of the footballers making investments as “introducer
”, casting doubt on whether the financial adviser
and the footballer were genuinely operating at arm’s length.

Film Partnership Schemes

outlined above, the assets into which a UCIS invests can be many and varied and
are usually less traditional and riskier than assets found in more orthodox
funds. Many footballers have invested in, and since fallen foul of, UCISs
investing in film production.

film production? A film partnership scheme is designed to exploit generous tax
breaks created by the government (and which have existed for many years) in
order to promote investment in the UK film industry. Such schemes come in many
flavours, but a typical scheme involves the establishment of a limited liability
partnership (LLP) with each investor becoming a partner. The LLP would then
acquire the rights from a film production company to exploit and distribute
films for a defined period. The LLP would then lease those rights back to a
film distributor under a sub-licence which required the distributor to make
annual payments to the LLP for the same period. The lease agreement would
therefore generate revenue for the LLP.

original acquisition of the film rights by the LLP would be costly and would be
financed in one of two ways. Firstly, by a capital contribution by each
partner. Secondly, through each partner taking out a loan. Typically, the value
of the loan would be far greater than the capital contributions made. Up to 90%
of the acquisition cost of the film rights would be financed by a loan.

real advantage for investors arose from the interest repayable on the loan. It
was believed that this interest could be offset against each investor’s overall
tax liability notwithstanding the fact that their main sources of income (such
as player wages) were completely unrelated to film investment. The cost of the
loan repayments would also be financed by the income received under the lease
for the film rights. If the scheme worked in accordance with expectations, it
was a win, win situation: each investor saw a huge reduction in their income
tax liability through a self-financing debt obligation.

Challenges to their Validity

footballers were perhaps unaware of was the fact that the heavy tax reliefs
that the scheme relied upon to provide a financial benefit sat on an uncertain
legal footing and risked being scrutinised and challenged by HMRC.

for the footballers, that is exactly what occurred, and the ability to claim
tax relief through film partnership schemes have been dealt a number of body
blows this year through legal challenges mounted by HMRC.

most notable of such challenges, and the most bitterly fought, was to theEclipse
film partnership scheme.Eclipse 35was first
challenged by HMRC in April 2012. It argued that the partnership was not
trading and was specifically structured with the simple purpose of creating tax
relief for the individual partners. The first tier tax tribunal agreed and
consequently each partner lost their tax relief. The decision was further
upheld by the upper tribunal in December 2013. The matter came to the Court of
Appeal in Eclipse Film Partners No 35 LLP v Commissioners for Her
Majesty’s Revenue and Customs

sought to argue that the partnership was ‘trading’ and that the acquisition of
film rights and their sub-licensing inherently amounted to a trade. (Under the
relevant tax legislation, in order for its partners to claim tax relief,
Eclipse had to demonstrate that it was carrying on a trade and that the money
the partnership borrowed was wholly for the purpose of that trade). The Court
of Appeal roundly rejected Eclipse’s argument in a decision handed down in
February 2015. Its conclusions on Eclipse’s arguments were stated briefly:

proper characterisation of the business of Eclipse 35 depends upon the totality
of its activity and enterprise. Stripping the business down to its essential
elements, the transactions on which Eclipse 35 was engaged had two aspects. One
aspect was that a payment by Eclipse 35 of £503 million would be repaid with
interest over a 20 year term and would produce a profit unrelated to the
success or otherwise of the exploitation of the Rights sub-licensed. That
aspect had the character of an investment.

second aspect was the possibility of Eclipse 35 obtaining a share of Contingent
Receipts and the activity on the part of Eclipse 35 to secure such a share. The
FTT considered that this second aspect was in real and practical terms
insufficiently significant in the context of Eclipse 35’s business as a whole
to lead to a proper characterisation of Eclipse 35’s business as one of trade
within the meaning of the tax legislation.


Court of Appeal in Eclipse 35 rightly observed that the consequences of its
decision were fiscally calamitous for the investors in the scheme, and for
other investors in similar schemes.

are liable to face three serious and unforeseen consequences:


  1. Income tax will become payable on
    income which investors sought to shield through film partnership schemes. Tax
    relief will be transformed into a tax demand.
  2. Perhaps most disastrously, tax will
    also be payable on income received by the partnership under the licensing
    agreement, even though this ‘income’ was used to service the loan obligation
    and investors did not receive any of it. 
    The high debt to equity ratio in financing the partnership means that tax
    payable on partnership income may far exceed tax to be paid as a result of the
    loss of tax relief on other income. In some cases, an investor’s tax bill may
    be ten times their original capital contribution. In other words, if a partner
    invested capital of £100,000, they might expect a tax bill of £1 million. The
    more that has been invested, the more ruinous the tax bill and this will spell
    bankruptcy for many. 
  3. Since late 2014, HMRC has issued
    accelerated payment notices to investors within film partnership schemes. The
    notices require the upfront payment of outstanding tax before any tax tribunal
    has ruled against the scheme, with payment having to be made within 3 months of
    the date of the notice. HMRC will only refund the additional tax paid if the
    scheme is ruled valid. Investors are therefore presumed guilty, unless proved

    July of 2015, a judicial review of HMRC’s decision to issue 
    accelerated payment notices11 to
    investors in film partnership schemes failed. Investors will therefore be
    required to pay outstanding tax else face a bankruptcy petition.

Were the Schemes “Mis-Sold” to

is not a legally defined term. It is simply the sale of a product or service in
breach of a legal obligation. That may entail a misrepresentation, negligent
advice, a failure to assess the suitability of a product or service to a
customer’s needs, or a failure to comply with some other regulatory requirement.
Since UCIS are, by their nature, unregulated, this latter category of
mis-selling is unlikely to apply.

professional footballers’ complaints regarding the promotion and sale of UCIS,
notably in film partnership schemes, is likely to result from a lack of
adequate notification or advice of the risks that such schemes entailed.

in such schemes, and in particular investors whose day jobs were as
professional footballers, could not hold themselves out as tax experts. They
relied on the advice and guidance of those financial advisers who promoted
investment into the scheme. These schemes, which were otherwise highly complex
structures, may have been sold to investors as an entirely legitimate and safe
means of shielding earnings against income tax. They have proved to be anything

some sophisticated investors may have anticipated the possibility of losing tax
relief on their income (which, in the final analysis, would be fiscally
neutral) if the scheme was challenged by HMRC, few if any would have predicted
the disastrous consequences of being taxed on the profits of the partnership.

financial advice involves setting out both the reward and the risk associated
with an investment. A failure to do this, and in particular a failure to
identify so grave a risk as has materialised in film partnership schemes, may
be found to be negligent and give rise to a claim for compensation.

What are the Next Steps?

facing financial ruin through the mis-selling of UCIS are only likely to
recover some or all of the sums lost through litigation in the courts.

UCIS are unregulated investments, investors have no right of recourse through
the Financial Ombudsman or the Financial Services Compensation Scheme, although
claims under the scheme are capped at £50,000 and that is likely to be pocket
change in relation to the large sums lost.

claims for compensation are going to have to demonstrate a material
misrepresentation or negligent advice. The viability of such a claim will, of
course, depend on the continued solvency of the adviser or their firm, or the
presence of an adequate policy of insurance.

the nature of the advice given, and the circumstances in which it was given,
will be different case by case. Determining the prospects of a claim succeeding
will involve a detailed and lengthy consideration of the information that
passed between the investor and adviser, the basis of the contract between them
and the advice given. Obtaining necessary disclosure from the advisor or their
firm may of itself be a difficult and protracted process.

also have the issue of limitation to contend with. A claim against a
professional advisor must be brought within 6 years of the date of investment
into the scheme.12Since
film partnership schemes were at their most prevalent in 2005-2007, most
footballers seeking compensation will no doubt face an argument that their
claim has been brought too late.

limitation period may be extended where the claimant is unaware of facts
relevant to their cause of action. In such a case, they have three years from
acquiring that knowledge in order to bring a claim. However, ignorance is not
bliss. If it was reasonable for the claimant to acquire knowledge relevant to
their cause of action, whether personally or through a professional adviser
such as a lawyer, the three years will begin to run regardless. Given the
extensive reporting of the original Eclipse 35 decision in 2012, any further
extension of the limitation period may be set to expire.

footballer who has fallen foul of a film partnership scheme may have several
fires to fight at once, including responding to an accelerated payment notice,
fending off a bankruptcy petition, investigating the strength of a claim
against earlier advisers and issuing proceedings in order to protect their

has been reported that many footballers are too embarrassed to speak about the
position in which they find themselves.13 They
would be well advised to swallow their pride and to consult lawyers as soon as

the allegations of mis-selling to professional footballers reported in the
Sunday Times, on which this article is based, concern the advice given by
Kingsbridge Asset Management. This article does not, nor does it intend to,
comment on the competency of advice given by that organisation.


Tom Harper, Richard Belfield, Jon
Ungoed-Thomas and the Sunday Times Data Team,Footballers face £100m meltdown,
Sunday Times, 8 November 2015, viewed on 9 December 2015,

Corey Charlton, Top footballers
including Kevin Campbell, Andy Cole and Danny Murphy face £100million losses in
‘mis-selling’ investments scandal, Daily Mail, 8 November 2015, viewed on 23
December 2015,

Tom Harper, Richard Belfield and Jon
Ungoed-Thomas, ‘I’m not a bitter man but £7m is a lot to lose’, Sunday Times, 8
November 2015, last viewed 22 December 2015,

See footnote 1


The Financial Services and Markets
Act 2000 (Promotion of Collective Investment Schemes) (Exemptions) Order 2001,

Ibid at Section 21,

The Financial Services and Markets
Act 2000 (Financial Promotion) Order 2005

See footnote 1

10. [2015]
EWCA Civ 95

11. For
more on which see: Simon Concannon, ‘What HMRC’s “accelerated payment notices”
mean for athletes’ tax liabilities”,, 18 May 2015, last viewed
11 December 2015,

12. See
Sections 2 and 5 of the Limitation Act 1980,

13. Tom
Harper, Richard Belfield, Jon Ungoed-Thomas and the Sunday Times Data Team,Footballers
face £100m meltdown
, Sunday Times, 8 November 2015, viewed on 9 December


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