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Thursday, 26 May 2011

Football Creditor Rule - Is it Fair?

So, what is the "Football Creditor Rule" and is it fair?

If a Premier League football club enters into administration, or any other insolvency process such as a CVA, the club is suspended from the league until certain "football creditors" are paid in full.  This includes transfer fees and players wages.  Any remaining monies are paid to the other creditors such as HMRC and trade creditors.  Funnily enough, HMRC are not particularly happy that the wealthy footballers receive all their money whereas the tax payer gets the crumbs.  Mind you, most footballers are paying tax at 50% so they are getting something but that is not the point!  HMRC also argues that it goes against the established principal that "unsecured creditors" should all be treated equally as originally envisaged in the Insolvency Act.

HMRC are taking their argument to the High Court on the 28th of November.  Will they win?  Possibly.

The argument by the Football League and the Premier League is that they are a closed community of businesses and they have liabilities to each other (ie transfer fees) and if one can start shedding these then the knock on effects to other clubs will be to the detriment of the league as a whole.  There is some merit in this argument as the clubs do not operate like normal businesses.  Also the Leagues argue that there are further rules in their regulations that benefit HMRC ( we wont go into them here)

However,  it looks like HMRC may win as the players and managers themselves already feel embarrased that they get full pay while less well off businesses that depend on their club receive precious little if the club goes into an insolvency process.

We will keep a close watch on developments!

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