Football creditors rule intact – for now
Posted: 9th July 2012
HM Revenue and Customs (HMRC) have failed in their bid to persuade the High Court that the 'football creditors' rule is a fundamental breach of insolvency law.
The rule, part of the regulations to which all clubs which belong to the Football League must adhere, puts creditors of insolvent football clubs 'first in the queue' for payment, giving them preferential status over other creditors. More than 60 per cent of League 1 clubs have at some item been in administration.
HMRC argued that the rule operates against the rule that all creditors are treated equally and that it breaks the 'anti-deprivation rule', which renders void any provision that deprives a creditor of the right to assets in an insolvency because they have been made unavailable.
HMRC is normally a major creditor in football club insolvencies, as cash-flow problems normally lead to failures to pay PAYE and VAT.
Although the High Court ruled that in the circumstances of the particular case, the rules were not broken, the court was at pains to point out that the Football League should not regard the judgment as a blanket approval of the football creditors rule.