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22/09/2015

Football insolvencies - levelling the playing field

A new football season brings with it new players, new managers and new odds on who will win trophies. There is also something else new for all Football League clubs this season; a better deal for unsecured creditors in football insolvencies as a result of an R3 led campaign.

Since 1992 approximately 46% of clubs in the Football and Premier Leagues have been through a formal insolvency procedure, many on more than one occasion. In League insolvencies, the ‘Football Creditors Rule’ means that ‘football creditors’ are paid all that they are owed, at the expense of ‘unsecured creditors’ e.g. HMRC, small local businesses, local schools and the St. John’s Ambulance Service. As an example, in the 2010 Crystal Palace administration, the football creditors were paid in full, whilst the unsecured creditors received 1.95p in the pound. In the 2011 Plymouth Argyle administration, the football creditors were paid in full while the unsecured creditors were offered a dividend of 0.77p in the pound.

R3 recognised that the ‘Football Creditor Rule’ is considered an important part of maintaining a competitive league but believe that the football authorities should be doing more to protect and improve the position of unsecured creditors. So in January 2014, R3 launched a campaign calling for more to be done to protect and improve the position of unsecured creditors when a football club is insolvent. R3’s key recommendation was to introduce a minimum dividend for unsecured creditors to ensure they receive some of what they are owed.

R3’s proposals were discussed and welcomed by leading cross-party parliamentarians at an R3 parliamentary roundtable with the All-Party Parliamentary Group on Football at the end of 2014. The event was a key-turning point for R3’s campaign. With the CEO of the Football League and other senior representatives from other football organisations in attendance, the event was the first of its kind for while where football insolvency rules had been discussed with all key stakeholders.

Following this campaign, R3 was delighted to see the Football League announce on 5th June 2015 that on exit the purchaser will be required to pay unsecured creditors a minimum dividend of 35 pence in the pound over three years (or 25 pence on transfer of share), or face a further 15 point deduction at the start of the season following the insolvency event. The Football League also announced that it no longer requires an insolvent club to exit insolvency by a CVA but instead through an arm’s length ‘going concern’ sale, providing that the obligations to the Football Creditors and the minimum dividend are met by the purchaser.

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.