Vol 9 (2012) - Issue 1

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Is it Time for the Football Creditors’ Rule to Hang Up its Boots for Good?

Introduction

The year 2010 was a bad one for football in England. Whether it was England’s dismal World Cup performance, controversy surrounding Manchester United’s highly leveraged debt or the high profile insolvencies of Portsmouth and Crystal Palace, the way clubs are financed and the rules governing insolvency in the sport have once again generated much public and academic debate.2 More recently, Hugh Robertson, the Minster for Sport, has called football 'the worst governed sport in this country'. These comments were made in relation to the FA and Premier League facing questions from a Commons Select Committee on governance within the sport, including the level of debt in football and the validity of the football creditors’ rule ('FCR'). The FCR operates so that all football creditors (clubs, players, agents and other requisite authorities) must be paid in full or are secured in the event the club becomes insolvent. This is to the detriment of other unsecured creditors, including HM Revenue and Customs ('HMRC') and other smaller businesses who form part of the local community and play an important role in supporting the club. They will receive nothing, or pennies in the pound, due to the operation of the rule. HMRC has tried to challenge the rule several times, but, to date, the courts have upheld its validity. In the previous cases, HMRC has challenged the rule via the Company Voluntary Arrangement ('CVA') clubs are forced to enter into, but, in the wake of the recent Portsmouth FC case, it seems unlikely that any future challenges will be successful. As a result, HMRC has now launched a direct challenge against the rule claiming:

'… there is nothing in insolvency legislation that provides for unsecured debts due to 'football creditors' to be paid in preference to other unsecured creditors such as HMRC.'

The Premier League and Football Association claimed they would staunchly defend the rule when the case was due to be heard by the High Court on 28 November 2011.