Beware the Gambling Commission’s change of corporate control process

Yesterday, the Gambling Commission announced that with, effect from 18 June 2019, it is revoking the operating licence of a Malta-based remote casino operator, Maxent Limited (trading most recently as MaxEnt, with the domain names betat.co.uk and slottyvegas.com).

Its regulatory sanctions register entry states as follows:

After a hearing before the Regulatory Panel, the Commission has decided to revoke the operating licence under section 102(4)(b) of the Gambling Act 2005. This is because the Commission is not satisfied that it would have … granted the operating licence to the licensee had the new controller been a controller of the company when the application for the operating licence was made.

In particular, the Commission is not satisfied as to the source of funds used to acquire and support the Licensee at the time of, and following, the change of corporate control. The Commission also identified concerns relating to the new controller’s suitability, in that it appeared that he had provided conflicting information and had failed to be full and frank in his dealings with the Commission.

In an article for SBC News entitled “Beware the Gambling Commission’s change of corporate control process” (that can be downloaded below), David Clifton warns that, amongst the major lessons to be learned from the experience of Maxent is that, when selling shares in a licence-holding company or its parent (particularly when they amount to 10% or more of the company’s shareholding), the vendor should:

  • undertake its own full due diligence enquiries on the intending purchaser, including in relation to the origin of the monies to be used for the purchase,
  • tread very carefully indeed if it senses that the purchaser is being less than fully transparent on that or any other relevant issue and
  • bear firmly in mind that its operating licence will be considerably less at risk of revocation if, instead of application for change of corporate control being made within five weeks after the transaction has completed, an advance such application is made with time allowed for determination of that application by the Commission before the transaction completes.

As David says in his article, this is an area in which Clifton Davies Consultancy Limited has had considerable experience, including the provision of advice when an operating licence-holder realises that it has inadvertently failed to submit a change of corporate control application within the required five-week period. This is also a potentially extremely serious position for a licence-holder, bearing in mind that section 102(5) of the 2005 Act provides that, if the Gambling Commission becomes aware of any such failure, it “shall revoke the relevant operating licence”.

Anyone requiring advice on the consequences of changes of corporate control when an operating licence-holding company is subject to a change of ownership (or funding by a new investor occurs) should not hesitate to contact us because, if matters are not approached properly, the same fate could befall that company as has just befallen Maxent Limited.

UPDATE: On 6 June 2019, Maxent Limited published on its website the following statement, indicating its intention to appeal against the Gambling Commission’s decision to revoke its operating licence:

Company Statement

As of the 4th June 2019 the UK Gambling Commission made public their intent to revoke Max Entertainment’s licence to offer online gambling in the United Kingdom.  Max Entertainment are in the process of lodging an appeal against this revocation, as permitted by the Commission.  The deadline for submission of an appeal is 18th June 2019. UKGC had an option to revoke the licence with immediate effect but have granted right of appeal.

In the Findings, as issued by the Commission, the Commission states that the business is adequately funded both now and for the future, and that they are happy with the source of funding.  Their concerns all relate to the transition period which happened prior to the change of management.  As part of the appeal we will seek to have proper regard of the change of management taken.

From the statement we received from UKGC after the Panel it is clear that, were Max Entertainment to apply for a licence today, it would be granted by the Commission.

We are disappointed that the Commission has chosen to write: “This follows identification of concerns relating to the operator’s finances and information supplied to the Commission” on their website as this is, in light of what was written in the findings, misleading.  Readers willing to click through for further details do however find an accurate statement, in full context.

The Commission’s issues with the controller are not connected with the way the business is run or with how customers are treated, but solely with availability of documentary evidence from two years ago.  We feel that the Commission’s decision is not sufficiently objective, hence why we are appealing.  We do not intend to leave the UK market at this time.

We are hopeful of a positive outcome following our appeal, but we will be carefully considering our position in the UK market, nonetheless.  We believe that other markets show great potential for a responsible, prudent operator such as ourselves.

MaxEnt Ltd.

Information on appeals to the First-tier Tribunal (Gambling), an independent body set up to hear appeals against decisions of the Gambling Commission, can be found here.