14th December 2012


Greg Mitchell QC, acting for HMRC, recently confirmed that his client had issued 25 winding up petitions against Football League Clubs in the past 2 years.  Current statistics show that since the commencement of the Premier League in 1992, 46 Football/Premier League Clubs have entered Administration (including repeat insolvencies). This, at a time when the English Premier League generates record annual revenues of around £2 billion and is the world’s most lucrative domestic competition.

Relationships between football and HMRC are at an all time low mainly due to policy makers in each organisation being diametrically opposed on fundamental issues when football clubs face insolvency.

The Football Creditor Rule

A football club’s right to compete in the Football League depends upon it holding a share in each of the Football League (“FL”) and the Football Association (“FA”).  The FL and FA therefore dictate the terms upon which any purchaser of a club can continue to operate as a football club.  In simple terms, the old club must exit from Administration by entering into a Company Voluntary Arrangement (“CVA”) with its creditors.  In addition, the terms of the CVA must be such that all creditors classified by the FL as “football creditors” must be paid in full.  If the above is not achieved then the club will not be able to continue its participation in the FL and FA (other than in exceptional circumstances which still remain undefined).  In practice, failure to comply will result in further points deductions and/or demotions.  An automatic 10 point penalty deduction (9 points in Premiership) is triggered on Administration in any event.

The FA and FL defend the football creditor rule on the basis of protection of the entire league and the need to avoid a domino effect on other clubs.  Premier League head Richard Scudamore defended the position rather bluntly  “we will defend it on the basis  of the chaos that will ensue if we don’t have it. We are a closed system, we trade on a close basis between each other”.  Clearly HMRC beg to differ on this view.

HMRC CVA position

HMRC have stated definitively that, where the CVA proposals for a football club contain provisions to pay football creditors in full, then they will use their vote to reject the proposals unless they too are paid in full which is highly unlikely to be the case.  As a reminder, a CVA proposal is rejected if 25% by value of votes reject, or if 50% by value of votes reject having excluded any connected votes such as inter company loans or directors loans. There will be clubs therefore that by simple virtue of the mathematics, will enter Administration with no feasible CVA exit.  The Club would then be at the mercy of the FA and FL regarding its future.

In order to understand how we have arrived at this impasse we need to look at recent events;

February 1992        
English Premier League formed in a break-away from the Football League.  BSky B and BT Group TV deal now worth £3 billion.

March 2002  
ITV Digital, sponsors of the FL enter Administration reneging on a £900 million sponsorship deal and causing financial difficulties to many FL Clubs.

October 2002      
Leicester City enter Administration

September 2003    
HMRC lose preferential status of claims in an insolvency by amendments to the Insolvency Act 1986.

May 2004      
Leicester City CVA approved with football creditors paid in full, Leicester go on to obtain promotion back to Premier League in 2004, culminating in FL and FA introducing the points deduction rules after complaints from other League Clubs.

December 2004     
Wrexham receive first 10 points deduction for going into Administration.

December 2004     
IRC V Wimbledon: HMRC challenge the football creditors rule in Wimbledon CVA. HMRC lose on ground that funds paying football creditors in full are third party funds which would not be available to HMRC in any event.

May 2008    
HMRC v Leeds Utd:  HMRC challenge outcome of CVA on grounds that  votes used to obtain the necessary majority were actually connected and therefore disallowed.  Case never gets to Court as Administrators fail the CVA.  Leeds deducted additional 15 points for failing to exit Administration via CVA.

August 2010   
HMRC V Portsmouth: HMRC challenge outcome of CVA, again challenging voting values, but lose on all accounts.

May 2012     
HMRC v Football League: HMRC challenge FL’s rights to withdraw membership on insolvency and the football creditors rule.  HMRC lose on both issues and do not appeal.

November 2012   
Rangers (In Administration) win in a tax tribunal against assessments of £43m by HMRC over its use of Employee Benefits Trust (“EBT’s”) to pay players between 2001 and 2010.

December 2012  
HMRC appeal against Rangers decision… to be continued.

The high profile casualties of Portsmouth, Crystal Palace, Southampton, Leeds United, Wimbledon, Ipswich Town, Derby County, Leicester City, Barnsley, Bradford City, QPR and Hull City all share the misfortune of relegation from the lucrative Premier League.  The football industry is fundamentally different from other industries in that, however carefully managed, a club is dependent upon results over 38 games in a season.  In 2008 none of the Newcastle United’s business plans envisaged relegation from the Premier League for the first time – only the wealth and support of owner Mike Ashley prevented Newcastle from joining the above statistics.  One has to ask therefore whether the fortunes of Leicester who avoided a points penalty really justify the spiral of punishment meted out to the likes of Portsmouth, Southampton, Leeds, Wimbledon and Bradford.

The football creditor rule was designed to protect member clubs from the fall out from the collapse of one of its members.  Its impact has now however;

  • Encouraged football clubs to take risks in buying players when in danger of relegation with the benefit of an insurance policy funded by TV monies due in the future; and
  • Placed many football clubs in danger of extinction by virtue of a zero tolerance stance from HMRC who can block its ability to remain in business.

It is not practical to withdraw the football creditor rule overnight as this would leave clubs exposed unfairly.  Most transfers are paid over a 4 year period and therefore it could be withdrawn over time, forcing clubs to sell players to clubs who can afford to pay for them regardless of relegation.  In the recent case of Crystal Palace when the Administrators sold their most valuable player, the FA dictated which other clubs were paid from the proceeds.  When another Championship club faced a winding up petition from HMRC their zero tolerance attitude resulted in several football clubs, which were due payments, agreeing to defer payment in favour of HMRC as if the Club had gone out of existence there was no guarantee that parachute payments would be forthcoming.  The football creditors therefore became subrogated behind HMRC.

There are no easy solutions. However until the football authorities and HMRC cease hostilities and seek to fund a workable solution, then it is only a matter of time before a  significant football club becomes extinct. This cannot be in the interests of the industry and will deprive HMRC of future income.


Paul Ellison is a partner in KRE Corporate Recovery LLP and in recent years has been involved in advising three football Championship clubs, all of who were sold and avoided any form of insolvency.