Is the Football super creditors rule legal under the Insolvency Act?

Insolvency and the Insolvency Act 1986

When any form of business has gone into such financial trouble that it has become insolvent the revenues recouped during the insolvency proceedings must be distributed between the creditors in accordance with the Insolvency Act 1986.

Football clubs and insolvency

When football clubs go through insolvency proceedings is there anything which is done differently?

Football clubs in many ways are regarded by the law of England and Wales as a business along the same lines as any other company operating in any industry in the United Kingdom. This means that when a football club suffers insolvency this must be done in accordance with the Insolvency Act 1986.

This means that the law does not impose anything different on the football clubs. However, the football regulators do impose something different upon football clubs going through insolvency proceedings. This is termed the football super creditors rule.

What is the football super creditors rule?

The football super creditors rule is a rule imposed by the football authorities through the Football Association Premier League (for clubs playing in that league) and says that when a football club suffers insolvency the Premier League itself may divert the club’s share of revenues from media right and sponsorship to football creditors.

What is meant by football creditors?

Football creditors will include the following bodies:

• The clubs
• The players
• The management
• The Premier League

What is the problem with this?

The problem with this is that this is done over the priorities of other unsecured creditors such as HM Revenue and Customs which will be owed sums through the non-payment of tax.

As a consequence of this when a Premier League club recently went into administration HM Revenue and Customs will probably only see around 20 per cent of the £17 million of which it is owed by the football club.

Is it legal for the Premier League to do this?

HM Revenue and Customs intend to take the Premier League to court claiming that it is illegal for them to put in place the football super creditors rule.

On what grounds is it claimed that this rule is illegal?

HM Revenue and Customs claim that this rule is illegal as there is nothing in the Insolvency Act 1986 which states that it is legal to impose conditions in this manner.

What does the Premier League have to say on this matter?

The case has not as yet come before court with HM Revenue and Customs simply stating their intention to take the Premier League to court. The Premier League has countered stating that they plan to robustly defend their position as they claim that they have not contravened the Act.

Is the claim of HM Revenue and Customs likely to succeed?

When looking at a previous case involving a similar issue in 2004 we can see that HM Revenue and Customs may have problems in showing that the Premier League’s actions are illegal.

What happened in the previous case?

In the case from 2004 the Inland Revenue failed in a legal bid to overturn a voluntary arrangement made by a football club on the grounds that it infringed the Insolvency Act as football creditors received payment in full whereas the Inland Revenue, in the position of a preferred creditor did not.

In this case the High Court ruled that the power of the League to secure full payment for the creditors of its choice was legal.

Following this decision it may therefore be difficult for HM Revenue and Customs to prove that the football super creditors rule is illegal under the Insolvency Act 1986.