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.

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Comments
carnmores's picture

quite right we discussed this a couple of years ago

carnmores | | Permalink

the idea that highly paid players wages should rank over small creditors is increasingly distasteful - its not only UEFA /  FIFA that have a whiff aboutthem so does the FA (so approptaitely named)

This is a disgraceful rule and clearly contrary to insolvency le

brianheg | | Permalink

I don't understand how the directors and administrators of football clubs can operate this rule without breaching their other duties under Companies Act and insolvency legislation. If the Premier League and FA want to put in place a scheme to bail out the "football creditors" to ensure stability this should be put in place as a levy on all clubs to create a bail-out fund paid for by the eventual beneficiaries of the fund, not by taking money from all of the other creditors and giving it to the "football creditors".

Blue Osprey's picture

HMRC going after Football

Blue Osprey | | Permalink

Not before time. HMRC need to win this. This is one of the biggest swindles in the corporate world. If you can't afford to pay your 'normal' creditors when you lavish tens of thousands of pounds per week on overated and badly behaved neanderthals then you should be banned from all corporate life indefinetly. Alternatively why not have a rule that makes the FA, premier league or football league legally responsible for the debts of their members clubs should they default. Then they can use the TV money constructively.

Don't understand

chatman | | Permalink

I didn't really understand the argument in favour of the football creditor rule. How can it be legal?

Unbelievable shock

Arthur_Phillips | | Permalink

Football has deep roots in society, local fans will always turn out, look at Wimbledon. It should be a criminal offense for directors to allow a club to get to insolvency. This Football Creditor rule is new to me an explains why clubs run at a loss. The gamble is worth it as HMRC provides extra capital. I thought big money brought big tax benefits for society as a whole.   The "Football creditor rule" is nonesensical.      For once I am rooting for an HMRC victory.

 

carnmores's picture

no to one rule for them and one for us

carnmores | | Permalink

insolvency should not be a criminal offense

and as for those at FIFA far too many dodgy dealers , esp that walker bloke

 

ans the law of unintended consequence    ok guys we will waive the FEU rule so we can get the cjhampions league final - another sop to those dreadful people

Compliance with insolvency legislation

jonbryce | | Permalink

The Football Association can justify it on the grounds that they, like anyone else, are entitled to withhold services from people who don't pay for them.

Individual directors can justify going along with it on the basis that if they didn't, there would be no business, and that would be to the detriment of creditors.

In the case of teams like Gretna and Chester City who were expelled from the league, I would imagine normal insolvency rules apply, and there would be no preference given to football creditors.

I'm not saying I agree with any of this, but I believe it is the case the other side would make.

Disqualified directors

mikewhit | | Permalink

As I may have said before, I understood that company directors who gave preferential treatment to certain creditors during insolvency, were at risk of at least a 5 year disqualification ?

May be the recent riots sum

twickers | | Permalink

May be the recent riots sum it all up/ why bother to obey the law if the law can be avoided without normal consequences/  when trading business/ sole trade or company leaving tax upaid
winds up with CCJ or being wound up- it really does raise questions. The personalities involved in ownership from Maxwell who owned 2 and Bates who bought Chelsea.and Leeds(he currently is refused to explain the clubs finances) Veneables who bought Portmouth for allegedly a £1 and refused to hand it back. Manchester city bought by alleged fraudster, MU bought with it's own assets, Heats bought by mid euro billionaire (how did anyone living there ever make money ?).
and that lovely story years ago of the "spiv" who walked into Southend FC and practically bought the place before they discovered he was penniless.   God Save the Queen, I am taking up Bowls.  

If they get rid of the

Alice White | | Permalink

If they get rid of the football creditors rule that will honestly get rid of a lot of the financial issues facing clubs. For example, the likes of Tottenham wouldn't have sold players at inflated sums to Portsmouth if they weren't assured of having their debts protected.

People like Sol Campbell, Peter Crouch and Jermaine Defore wouldn't have signed contracts if they weren't guaranteed of receiving the sums and by the same token, players will be willing to accept £30k which they know a club can definitely afford rather than sign a contract for £50k with a club that may not actually have the money in the bank and payday loans UK won't be helpful in such situations.

Hopefully the government and HMRC will have the strength to challenge this rule in the courts or amend existing legislation to see it through.

Frequent

AlexReeves | | Permalink

Another downside to this rule is the frequency it's being used. People might not realize just how many football clubs go into administration each season and the amount of money that's at stake. Just look at this list of football clubs in administration. In 2009 there we 8 clubs in administration! 

I'm completely on the side of the HMRC here and will be doing my part to help campaign for changes.