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FCR reaction: R3 warns of risk to "loyal, local" football suppliers 28 May 2012

Insolvency trade body R3 has branded the Football Creditors Rule prejudicial to “loyal, local” suppliers.

Last week the Football League saw off an attempt from the taxman to abolish the controversial rule.

HMRC had been challenging the current arrangement which gives preferential treatment to football creditors when clubs succumb to administration.

However, Mr justice David Richards judged that the rule should remain citing it was “a decision on a challenge brought on a particular legal basis”.

Yet R3 said the Football Creditors Rule means unsecured creditors ‘remain in a particularly vulnerable position’.

“Football clubs are substantial businesses, with particularly significant employment liabilities and when they become insolvent there is typically a long list of creditors – often loyal, local suppliers – that are prejudiced by ‘The Rule’,” said R3 president Lee Manning.

“When a club is sold, the football league and premier league will only approve the club’s retention of its membership if it makes the provision to settle with, or continue to pay, all of its football creditors.

“Typically, this absorbs all of the money available for creditors.

“Arguably the best way to amend the rule is by legislation or at a minimum the government should highlight the risks of giving credit to a football club.”

Meanwhile, law firm Chadbourne & Parke LLP, which represented the Football League during the case, hailed the decision to preserve the ruling.

Insolvency and financial restructuring partner, John Verrill, said: “This critical judgment was widely awaited by the football community in England, and will bring legal certainty to provisions that have been questioned almost from their introduction.

“The decision also provides clarity on a number of important legal principles unconnected with football.”

 

 

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