By Dan Chapman
The ‘Football Creditors Rule’ is an all encompassing title referring to the various (and controversial) provisions which regulate professional football and provide that for a Premier League or Football League club to exit administration and retain their league status, they must first of all pay in full their “football creditors”.
Football creditors tend to be monies owed to players and other football clubs (in respect of transfer fees).
The Rule has often resulted in the HMRC, and other creditors which might include local businesses and public bodies, receiving a fraction of what they are owed whereas the football creditors are pain in full. A recent example of this would be at Crystal Palace where the non football creditors were paid less than a penny in respect of each pound they were owed, but all football creditors were indeed paid substantial sums in full.
The HMRC have at various times in the past sought to challenge the legal validity of the ‘Football Creditors Rule’ and their latest challenge, most notably following the administrations of Wimbledon (2004), Leeds United (2007) and Portsmouth(2010). Having been unsuccessful on each occasion, the HMRC launched legal action against the Football League (with the Premier League being joined to the proceedings as an interested party, since any judgement against the Football League would have set precedent for future action against the Premier League).
The High Court have now handed down their judgment after a five day trial in late 2011, and Mr Justice David Richards concluded that he had to decide whether the Football Creditors Rule actually breaches insolvency law as it is drafted by statute, not make a moral judgment on how it affects creditors: “These proceedings are not concerned with whether giving priority to football creditors is socially or morally justified. The issue is one purely of law.” Broadening insolvency’s legal principles to outlaw the Football Creditors Rule as HMRC argued he should would, the judge said, “require statutory intervention“.
Welcoming the judgment, the Football League said it recognised that “Some regard the application of these rules as being imperfect. However, they remain an essential part of football’s approach to handing insolvent clubs.”
HMRC say they are considering an appeal, and indeed leave to appeal has been granted, but the view of Full Contact is that they are unlikely to be successful. After multiple failures to challenge the Football Creditors Rule over the years, it seems clear to us that only legislative change will come to their (and other non football creditors) aid and that, with the advent of Financial Fair Play, it may well be that there will be sufficient parliamentary and political will to see that change in the law brought about.
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The spearhead and Senior Partner of Full Contact, Dan is an experienced solicitor and advocate, with a specialist background in employment law and sports.
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