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25/05/2012

The High Court rejects HMRC bid to abolish ‘Football Creditors Rule’

- Potentially far-reaching consequences for small businesses supplying to football clubs


The decision by the High Court to allow the ‘Football Creditors Rule’ to continue to operate means that in a football insolvency, unsecured creditors remain in a particularly vulnerable position.

Lee Manning, R3 President and football insolvency expert comments:

“The football league argues the ‘Football Creditors Rule’ ensures all money stays in the game and preserves the integrity of competition. But here is the truth - most football clubs are loss-making, few exist under a sustainable business model and off the pitch, professional football is far removed from an ethos of ‘fair competition’.

“The rule produces unfair returns to ordinary creditors because Insolvency Practitioners (IPs) cannot restructure a football club’s cost base (particularly employee costs) in the same manner they would any other business. IPs sell a business for the benefit of all creditors whereas, because of ‘The Rule’, a football club is sold principally for the benefit of football creditors. When a club is sold, the football league and premier league will only approve the Club’s retention of its membership if it makes the provision to settle with, or continue to pay, all of its football creditors. Typically, this absorbs all of the money available for creditors.

Football creditors are all players contract obligations and other football clubs who are owed money.

“In a conventional insolvency, all creditors in the same class are treated equally, however, ‘The Rule’ offends this principle and leaves non-football creditors at a particular disadvantage. These rules are contrary to the fundamental principles of parity in insolvency law.

“Arguably the best way to amend the rule is by legislation or at a minimum the Government should highlight the risks of giving credit to a football club. Football clubs are substantial businesses, with particularly significant employment liabilities and when they become insolvent there is typically a long list of creditors – often loyal, local suppliers - that are prejudiced by ‘The Rule’. Providing credit to a football club should carry a financial health warning.”

Notes to Editors
Lee Manning has been involved with at least a dozen football clubs over as many years as administrator of Southampton FC, Millwall, Bradford City and Swindon Town, as well as Richmond Professional rugby club when it was in the Rugby Premiership.
 


 


R3 Press Office

Notes to editors:

  • R3 is the trade body for Insolvency Professionals and represents the UK’s Insolvency Practitioners.

  • R3 comments on a wide variety of personal and corporate insolvency issues. Contact the press office, or see www.r3.org.uk for further information.

  • R3 promotes best practice for professionals working with financially troubled individuals and businesses; all R3 members are regulated by recognised professional bodies
     
  • R3 stands for 'Rescue, Recovery, and Renewal' and is also known as the Association of Business Recovery Professionals.