Require Immediate Support? Free Director Helpline: 0800 644 6080

Real Business Rescue

Free Director Helpline: 0800 644 6080

The Football Creditors Rule – What is it and what does it mean for all creditors?

Share:

Published:

Written by: Jonathan Munnery

The Football Creditors Rule and what does it mean for all creditors?

When a football club goes into administration, the players become preferential creditors and receive a payout ahead of unsecured trade creditors. This system has been strongly criticised by parties including HMRC, with questions being asked as to why this rule still exists.

After all, other insolvent businesses are required to treat employees as non-preferential creditors in the main, so why should football clubs be any different?

background curve

Take Our Free 60 Second Test

Get an instant understanding of your:

  • Debt and Asset Position
  • Formal Insolvency Options
  • Next steps

Plus much more ...

Start The 60 Second Test
apps on mobile screen

Why the football creditors rule was introduced

The original intention of the rule was to provide protection for clubs in the lower leagues. It was also intended to prevent a knock-on effect of other clubs not getting paid, and having to enter administration themselves.

This ‘domino effect’ was a real risk, and the threat was there that the sport could destabilise if the issue was not addressed. Defenders of the football creditors rule claim that some recognition should be given to the fact that the sport as a whole pays a huge amount in tax, and that some allowances should be made when clubs begin to struggle financially.

Mounting creditor pressure?

If your creditors are growing increasingly impatient, it is time to take action. Ignoring the situation is only likely to make it worse. Take the first step today by contacting Real Business Rescue for immediate help and advice.
The team are available now -  0800 644 6080

60 Second Test Find Your Nearest Office

How this rule is applied within the football and premier leagues

If a football club enters a Company Voluntary Arrangement, for example, as a way out of administration, the terms of their CVA mean that players’ wages, plus transfer fees between clubs, form part of the priority payout in administration.

These payments must be made in full before the club is allowed to play again in the football league. So who falls into the category of a football creditor?

  • Players
  • Management
  • Other clubs
  • The Premier League

HMRC has taken action previously

HMRC argues that these creditors should not receive a full payout, leaving other unsecured creditors out-of-pocket. In fact, HMRC attempted to have the rule abolished in 2012 by taking court action. They cited unfairness in the system that denies trade creditors an equal opportunity to recoup what is owed.

The Insolvency Act 1986 incorporates the ‘pari passu’ principle, which states that all unsecured creditors should be treated equally if a business becomes insolvent. In short, HMRC believes that the football creditors rule goes against this important principle.

The High Court ruled in 2012 that the football creditors rule was not a deliberate evasion of the laws of insolvency, however. HMRC has the power to move quickly against clubs in regard to tax arrears, and can potentially issue a winding-up petition early if they want to limit their losses.

HMRC has also reported losing millions of pounds in tax because of the football league’s use of the rule. Due to the introduction of the Enterprise Act in 2002, plus the effect of the football creditors rule, HMRC lost its place as a priority creditor in these cases of insolvency.

Can’t pay CBILS or Bounce Back Loan?

Don't worry - there are thousands of other company directors in the same position. If you are struggling to keep up with your Covid loan repayments, speak to a member of the Real Business Rescue team to discuss your options. It's Free & Confidential.
The team are available now -  0800 644 6080

Are there any measures in place to safeguard unsecured creditor interests?

A ‘fit and proper persons’ test was introduced to prevent directors and managers moving between clubs, and potentially becoming a ‘common denominator’ in insolvency. This is how it works:

A director would not be able to be a controlling shareholder of a club in the Football League if:

  • a club enters administration twice during a five-year period
  • a director has been involved with two clubs that have both entered administration during this timescale

Measures were also put in place to prevent football clubs remaining in administration for 18 months or more, or for two consecutive seasons.

What about the trade creditors?

Trade creditors lie further down the priority list for payment. Once the football creditors rule has been applied, players are entitled to receive 100% of monies owed to them. When all transfer fees have also been paid in full, there may be little money remaining to pay other unsecured creditors.

Suppliers, local businesses that have dealings with the club, charities such as St John’s Ambulance, and HMRC, are among those who lose out because of the rule - generally due to the high salaries paid to players. Unfortunately for unsecured creditors dealing with football clubs, it seems that a change in the law would be required before this rule can be amended or removed.

Need to speak to someone?

If your company is struggling with unmanageable debts, squeezed cash flow, or an uncertain future, you are far from alone. We speak to company directors just like you every single day, and we are here to give you the help and advice you need.
Call our team today on 0800 644 6080

Should the football creditors rule stay?

The rule has been defended by some, who say that football league clubs are a stand-alone group of businesses operating in a unique environment when compared with other organisations. Insolvency in this scenario brings with it unusual circumstances that require special measures.

There is a feeling within the football world that if one club is struggling financially, there is a high probability that not fulfilling its financial obligations to other clubs in the league would result in a catastrophic collapse of one or more leagues.

Real Business Rescue offers advice and support on business recovery and legal obligations in insolvency. 

reviews io logo

Real Business Rescue are here to help

Still unsure whether liquidation is right for your company? Don't worry, the experts at Real Business Rescue are here to help. Our licensed insolvency practitioners will take the time to understand the problems your company is facing before recommending the best course of action going forward based on your own unique circumstances.

  • UK’s Largest Liquidators
  • 100+ Offices Nationwide
  • 100% Confidential Advice
  • Supported 25,000+ Directors
Meet The Team
Team Of 4

Team of Qualified Experts

Trusted team of experts on hand to assist

Meet The Team
Rbr Accreditations Blue

Looking for immediate support?

Complete the below to get in touch

Here at Real Business Rescue we take your privacy seriously and will only use your personal information to contact you with regards to your enquiry. We will not use your information for marketing purposes. See PRIVACY POLICY
10,000+ Tests Completed

Free 60 Second Test

For Ltd Company Directors

Get An Instant Understanding Of Your:

  • Debt and Asset Position
  • Director and Liability Review
  • Next Steps

Plus much more ...

Real Business Rescue Recommended
  • UK's leading business funders
  • Free Brokerage Service
  • Full Market Access
  • Over 30 years' experience
  • Strong relationships with HMRC
  • Support from start to finish
  • 10,000 potential buyers
  • 12,000+ Businesses Sold
  • 60+ Years Experience
Next Steps

We provide free confidential advice with absolutely no obligation.
Our expert and non-judgemental team are ready to assist directors and stakeholders today.