By Hook Or By Crook, Football Has To Be Rid Of The Preferred Creditor Rule

By Hook Or By Crook, Football Has To Be Rid Of The Preferred Creditor Rule

By on Sep 9, 2010 in Finance, Latest | 0 comments

Poor old Ilkeston Town. They bit the dust over a debt of just £47,000 and it seems unlikely that they will be the last to be made to suffer this way. There will be plenty more clubs that find themselves at the High Court on The Strand in London having hunted down the back of the metaphorical sofa, gambling the very existence of their institution after having skipped paying one of their most basic obligations: their tax bill. What is becoming apparent is that there is no realistic likelihood of HMRC letting up in their pursuit of football clubs that have failed to meet this obligations and that there doesn’t seem to be any realistic likelihood of legislation changing back to before the 2002 Enterprise Act, when HMRC had the “preferred creditor” status that football clubs continue to enjoy under the rules of the game.

Considering this, it should be down to the FA itself to redraw the rules on what happens to a football club in the event of insolvency. It feels as if it is fruitless chase down a blind alley to try and appeal to clubs to “do the right thing” in this respect, and the prevailing attitude towards taxation in this country seems to be, if anything, a hardening attitude against paying it at all, where possible. The reasons for the aggressive behaviour of HMRC towards football clubs can be attributed to the fact that clubs have been treating their tax bills as an overdraft that they can disregard at will while paying players thousands of pounds every week. To HMRC, these clubs are insolvent and, in a legal sense, they are right. They are unable to meet their financial obligations as and when they fall due. They do not deserve to be trading.

Those within the game that seek to maintain this status quo use the example of “competitive balance” as being the primary reason for maintaining the preferred creditor status of football clubs within the rules of the game. They argue that football clubs shouldn’t be allowed to artificially distort events on the pitch by buying players from rivals and then not paying for them (or forcing other clubs, which would be by such a time just unsecured creditors, to accept of the contractually agreed amount as part of a CVA) should they enter into administration. It’s an appealing idea which taps into our hopes and ideals of fairness on and off the pitch. As time goes on, however, and more and more clubs find themselves in a spot of bother with their tax bills, it is starting to feel as if this explanation is something of a deliberate fallacy on the part of running the game in this country, because the current situation suits them down to the ground.

Ultimately, a “league”, or an “association” is exactly what it says it is. The FA, the Football League, the Football Conference and all the rest of them are trade bodies and they are in themselves made up of thevery people that run their member clubs. How can they be persuaded to give up something the insulates them from the realities of their business transactions with each other? After all, if the football authorities are so concerned with competitive balance, they have a funny way of showing it. They could have brought in a salary cap by now, but they haven’t. They could ensure that television money is distributed more equally or that away teams receive a proportion of gate receipts from league matches, but they don’t. Yet strangely, when it comes to something that allows them to carry on spend, spend, spending on players, a “level playing field” suddenly becomes very important.

HMRC did previously take action to try and get the football creditors rule declared unlawful in 2004, but they failed when they attempted to take a club – Wimbledon – to court. Their next legal case seems likely to be brought against the authorities themselves and in basic legal principle they have a case. Insolvency law is at least partly based upon two key principles: that creditors should be treated equally and paid on a pro-rata basis from the assets of a liquidated company and that a legal entity should not be deprived of its assets on the basis of insolvency. The next time they sue football, they will be likely to attack the authorities of the game itself – the FA or the Football League, for example – but for now it is more cost-effective for them to continue to try and force the arm of the authorities through seeking the closure of their member clubs.

Too many people within the game, however, continue to take a “there but for the grace of God go I” approach to it all. Too many clubs act recklessly in, for example, their transfer dealings when they should really be made to look more closely at who they are dealing with. Why shouldn’t football clubs themselves carry out due diligence when they are carrying out transfers worth hundreds of thousands or millions of pounds? Why are so many transfers completed with payments to be made in instalments rather than with money being paid in full and up front? It seems that much of this happens precisely because football clubs do not have to face the consequences of their financial actions when dealing with other clubs. Any change in this policy coming from within the game, though, would be like turkeys voting for Christmas.

Football needs to be rid of this rule, and if the FA can’t be trusted to get rid of it then we must hope that the law will recognise this obvious iniquity and act accordingly in the fullness time. If there isn’t a seismic shift in this respect, there will be plenty more like Ilkeston Town to follow. They may yet win their appeal, and in the event that they don’t it is likely (if not certain) that a new club will rise from the ashes of the old one. This, however, will not cleanse the soul of a game that has, from top to bottom, been living beyond its means for too long, and for anyone that doubts the extent to which British football is dirtied by such incidents, we’ll leave you with a quote from the story about Ilkeston that has been posted on This Is Derbyshire, the online version of the Derby Telegraph:

Alan Stevens, 86, of Kenilworth Drive, Kirk Hallam, has been watching the Robins for more than 60 years. He said: “Someone told me before the season not to buy a season ticket. I wish I had listened to them now because it looks like I haven’t got a club to support any more.”

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