I have blogged before about the iniquity of the Football League’s ‘football creditor rule’, which requires the following creditors to be paid in full before any other creditors:
Other league clubs
The Football League itself
Not surprisingly, my views on this are shared by HM Revenue & Customs, which tends to be by far the largest creditor when football clubs, as is increasingly their wont, go into administration, as such clubs are often inclined to use their customers’ VAT and their employees’ PAYE and national insurance as an emergency source of finance.
However, rather oddly, HMRC did not challenge the application of the rule in a specific case, but rather sought a general declaration from the courts that the rule contravened fundamental principles of insolvency law (an assertion with which I entirely agree).
The High Court, however, did not see fit to make the general declaration requested, on the basis that the matter could only be tested in a real case. It did, however, say that in most circumstances in which the Football League’s insolvency policy operated, actions consistent with that policy would not be rendered void by the principles of insolvency law. I will ponder why that might be the case below, but it seems to rely on a rather circular argument.
However, before I do that, it now seems inevitable that HMRC will take the point in a specific case (it is unlikely to have to wait too long for an opportunity, I suspect) which could throw the cozy old boys’ network of football clubs into a large degree of confusion, with potential for serial insolvencies arising.
The only basis I can see for the opinion expressed by the High Court would be that football clubs habitually give preference to other football creditors in the normal course of business, even when not stalked by the spectre of insolvency, and thus cannot be said to be unfairly favouring them when administration looms. But then given the football creditor rule, if you were a football club you would do that, wouldn’t you?
I hope and expect that the upshot of these legal manouverings will be that the football creditor rule will be brought into disrepute (to borrow a football term), to the great benefit of HMRC, and thus the UK population at large. Whether it likes it or not, football is gradually becoming exposed to the harsh realities of the commercial world, and is certainly now firmly on HMRC’s list of targets, both for debt enforcement action and for review of some of the more esoteric methods used to pay players their exorbitant remuneration.
Rangers was only the tip of a very large iceberg, which threatens to hole British football below the waterline. And, typically, football and those who run it and its clubs have only themselves to blame. Happy new season!