Sugar ignored advice to recover 'illegal' loans

ALAN SUGAR, chairman of Tottenham Hotspur, ignored legal advice that he might have a duty to pursue a claim against former directors responsible for making 'illegal' payments to Spurs players.

Documents seen by The Independent on Sunday show that at least two lawyers alerted Mr Sugar to the possibility that he should pursue a claim on behalf of shareholders.

However, the Tottenham board made no attempt to recover hundreds of thousands of pounds paid to players in the form of unsecured, interest-free so-called 'loans', which did not have to be repaid. Shareholders were left in the dark.

For years, Spurs made these ex-gratia payments to players. Management accounts show that at 21 May 1991, 'loans' totalling pounds 405,803 were outstanding to 12 players, the biggest being for pounds 75,000.

The payments were revealed in a World In Action documentary in December.

The Premier League is investigating possible breaches of its rules, but there has been no parallel inquiry into possible irregularities under the Companies Act

Bryan Fugler, a partner at solicitors Fuglers, wrote to Mr Sugar and Terry Venables, then a director, on 3 February 1992, warning them that 'there appears to be misfeasance by a former director of the company, Mr (Irving) Scholar.'

'I think it is only right that I bring this matter to your attention although I appreciate that it may be distasteful to sue a former director and there may in any event be difficulties in pursuing Mr Scholar who I believe is resident abroad.

'Be that as it may, I do believe that the board ought to consider whether or not it wishes to pursue a claim against Mr Scholar.'

The board also took counsel's advice from Elizabeth Gloster QC, who on 11 August 1992, advised that the 'loans' were illegal. She said if the board believed a prima facie case lay against directors involved in the transactions, 'then proceedings or other steps ought to be taken to recover the company's losses from such directors'. She also warned that the board ran the risk of being sued itself by shareholders if it did nothing.

Tottenham, which disappointed the stock market last week with a collapse in interim profits, has also not disclosed a possible tax liability of pounds 500,000. An internal memo dated 13 November 1992, advised directors that the Inland Revenue was demanding pounds 500,000 in back tax, excluding interest penalties. But this was not mentioned in the accounts for the year to May 1993.

A spokesman for Mr Sugar claimed that other members of the board persuaded Mr Sugar not to pursue the matter. On the tax question, part of the liability was included in a general provision. The sum suggested by the Revenue was 'cloud cuckoo land'. Colin Sandy, the finance director and a former tax inspector himself, was well placed to make a proper judgement, the spokesman added.

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