Football repels taxman's bid to change creditors ruling

Fratton Park
Image caption Portsmouth FC is a club which has gone into administration twice

The High Court has rejected an attempt by HMRC to get the so-called "football creditors rule" abolished in England.

The rule means football clubs and players get preferential financial treatment when a team goes bust.

HMRC said it was unfair these groups should be at the head of the queue for payouts if a club went into administration, meaning there was often little left for other creditors.

Now MP Damian Collins says he will move to legislate to remove the rule.

Mr Collins was a member of the House of Commons' Culture Media and Sport Committee which looked at ways to improve the running of sport, including football, in the UK.

One of its recommendations was to remove the football creditors rule.

Now the Folkstone MP has told the BBC news website that, targeting changes to the 1986 Insolvency Act, he would "be pushing to legislate to remove the rule".


The decision by Mr Justice David Richards to find against HMRC follows a five-day trial in November and December 2011.

"We are naturally disappointed with today's judgment," said the HMRC.

"Our view remains that the football creditor rule is unfair to all other unsecured creditors who are forced to make do with much smaller returns - if anything - on monies owed to them by football clubs which enter administration," the spokesman from HM Revenue and Customs added.

"We will carefully consider the detail of the judgment before deciding whether an appeal is in the public interest."

The tax authorities had launched their case against the Football League's use of the rule, which is also in place in the Premier League.

HMRC, which says millions owed to the tax authorities has been lost by the rule, argued that the most fundamental principle of insolvency law is that creditors share equally in a loss.


"The judgment confirms that The Football League's rules and insolvency policy do not breach the principles of existing insolvency law," said a Football League spokesman.

"We recognise that some regard the application of these rules as being imperfect.

"However, they remain an essential part of football's approach to handling insolvent clubs within the wider context of competitive league football."

Since 1992, clubs have gone into administration more than 50 times in English football.

HMRC has also presented more than two dozen winding-up petitions to football clubs.

The football creditor rule, combined with the Enterprise Act of 2002 which made reforms to the insolvency act, meant that the Crown's preferential right as a creditor was abolished.


When the football creditor rule was introduced, the intention was to help safeguard players with lower league clubs.

It was also intended to help fellow clubs who were owed money, to overcome the danger that there could be a domino effect of one club going into administration, then affecting others.

The changes meant HMRC lost its position as a priority creditor.

Pete Hackleton is a partner in the sports group at accountancy firm Saffery Champness, which has worked with a number of Premier League, and other, clubs on tax issues.

"Given the huge tax contribution it [the football industry] makes to the economy, perhaps it deserves some slack," he said.

The Premier League and the government had been interested parties in the case, as any judgement against the Football League would have set a precedent for any subsequent court action against the Premier League.

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