HMRC takes another kicking over football creditors
Many of my
readers will know that I was deeply involved in the rescue of Wimbledon Football
Club from administration, as it went on to become the mighty MK Dons. I was there, in the Court of Appeal, when HMRC’s
challenge to the CVA, and indirectly of the Football League’s football creditor
rule, took a 3-0 drubbing. [1]
Leading Treasury Counsel had his legs taken out from under him by the Lord
Chief Justice in the first five minutes.
So I was a
bit surprised that HMRC has had another go, this time in proceedings against
the Football League itself. HMRC was knocked out in the first round by Mr
Justice David Richards. [2]
The football
creditors rule has been deeply unpopular with HMRC and other non-football creditors
for many years, because it requires football creditors (players, managers,
other clubs and the League itself) to be paid in priority when clubs go into administration,
leaving less (or nothing) for the unsecured creditors. It offends against the
usual principle that unsecured creditors rank equally and get paid
proportionately. It works by not allowing the club to play in the League unless
the football creditors have been paid. So any buyer will pay off the football
creditors and knock the cost off what he would otherwise have paid for the
club. Because the money does not go through the administrator’s hands, he
cannot distribute it equally. To add insult to injury, the creditors are then
asked to agree a CVA (company voluntary arrangement) that prevents them from
pursuing their claims; if they don’t agree, the club goes into liquidation and
they get nothing.
HMRC tried
to use the anti-deprivation rule, which invalidates arrangements that deprive a
debtor of assets on bankruptcy. The court held that this can apply to an
administration, but its scope is narrow and the funds in question in this case
are not assets of the club at the time of administration.
It remains to
be seen whether HMRC seeks a return match in the Court of Appeal, but there is
not much in the judgment of David Richards J. [3]
to give them any hope.
[2]
I’m getting old. I remember instructing David Richards as (very) junior
counsel.
The football creditors rule has been brought into sharp focus by what happened at Glasgow Rangers. Pursuing their policy of challenging it in any way possible, HMRC voted against and defeated the CVA. That left the administrators no alternative but to put the company into liquidation, though they bravely sold the assets first. Because a CVA is a requirement of the football creditors rule, Rangers loses its place in the SPL and the new club will have to re-apply.
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