Football creditor rule under review
IBB Solicitors' Funke Abimbola examines claims by HMRC that league rules governing the way football clubs clear debts are unfair.
When a football club starts a formal insolvency procedure (usually administration), its membership of or share in the league is suspended.
The suspension is not lifted (and the club remains ineligible to participate in league football) until certain “football creditors”, for example other clubs (transfer fees), players (salaries) and managers are paid in full. The remaining money is then divided between the unsecured creditors including HMRC who lost preferential creditor status when the 2002 Enterprise Act became law.
The rule applies irrespective of the position of any other unsecured creditors of the club. The rule is known as the “football creditor rule”.
Even where there is no formal insolvency, the league can use monies due to the club from central funds (including television monies such as revenue from broadcasting rights) to pay those football creditors. In an administration, leagues have been known to pay out image rights revenues to football creditors mid-season, effectively ring fencing those funds away from other creditors.
HMRC has been relentless in its efforts to force changes to the football creditor rule, arguing that by giving football creditors preferential treatment when football clubs get into financial difficulties, the football creditor rule offends the principle that all unsecured creditors should share equally in the assets of the company in proportion to the debts due to them (an application of the “anti-deprivation” principle). HMRC’s latest claim against both the Football League and the Premier League, which will be a direct challenge to the football creditor rule, will be tried at the High Court on 28 November.