Customs' Legal Challenge May Force U-turn on Leeds Takeover

Ken Bates's last-ditch attempts to rescue his takeover of Leeds United from an HM Revenue and Customs (HMRC) challenge failed last night. A high court hearing has been set for Friday after the Inland Revenue snubbed a final 8p-in-the-pound offer lodged on Monday against the £7.7m that the taxman was owed when Leeds filed for administration in May. However, there were suggestions last night that the process might not reach the court.

One source said the administrator, KPMG, was considering annulling the arrangement under which Bates's consortium took over last month. It is thought that KPMG would then invite fresh offers. Under insolvency law, that would require the court proceedings to be withdrawn, so for KPMG to take that step it would require the prior approval of HMRC.

Leeds last night issued a statement confirming the challenge. "We do not have all the details as yet and do have a number of options available to us," it read. "We remain confident of a positive outcome despite this disappointing news and will carry on with business as usual in the meantime."

The Football League, which voted against Bates's initial 1p-in-the-pound proposal that gave him control last month, now has a major say in what happens next. It is believed it has the power to withhold the transfer of the "golden share" that permits Leeds to take part in the League One season. KPMG would then be obliged to restart the administration process in search of higher offers for creditors.

Senior officials at KPMG have privately stated that the initial Bates bid was permitted to succeed because the firm feared that alternatives would be blocked by the offshore companies that were owed about 45% of the total debts to creditors. It is understood that the "golden share" route would get round the need for a new creditors' ballot approving a fresh takeover, instead selling to the highest bidder.

Bates was entertaining the prospect of the club's collapse before HMRC's challenge became official yesterday. "If there is a legal challenge it could take two or three months to get to court and be decided," he said. "In the meantime who is going to pay to run the club? So far it's been funded by the 'new Leeds' but, if there is a challenge, the 'new Leeds' won't do it because it's a risk. The implications are that the club would close down. It's not about personalities, it's about Leeds United and the many people who support the club on and off the field."

A least one of the five other bids put to the administrator before last month's vote remains on the table. The Redbus Group last night confirmed its continued interest.