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Tax man matches up to Football League at High Court 30 November 2011

HMRC is challenging the current arrangement, governed by the football creditors' rule which gives preferential treatment to football creditors when clubs succumb to administration.

Other unsecured creditors, such as HMRC and businesses outside of the game are left to pick up the remnants of monies recovered after football creditors have been paid in full.

Describing it as the "ugly side of the beautiful game" Gregory Mitchell QC, for HMRC began the hearing by arguing why the controversial rule should be scrapped.

"Insolvency is a very real hazard in the football league," he said. "As a result of the operation of the (football creditor) rule all of the football creditors are paid in full while others who are unsecured receive, if they’re lucky, a small dividend if nothing at all.

"We say these rules are contrary to the fundamental principles of insolvency laws and are void.

"Football clubs are substantial businesses – when a football club becomes insolvent there is a long list of businesses whose interests are prejudiced by the rules."

Mitchell explained that, since 2002, there had been 36 football insolvencies while HMRC had also produced 25 petitions to wind-up various football league clubs in the last two years alone – with some sides being repeat offenders.

HMRC has long argued that ensuring tax is paid in full and on time should be at the centre of football’s business strategy – just the same as for other enterprises.

However, Mitchell added: "We acknowledge that the football league has made real progress and has tightened up their rules and we accept that the Football League is trying to deal with the difficulties.

"Of those football league clubs with recent difficulties only I believe Crystal Palace and Plymouth Argyle have entered administration under the Insolvency Act 1986.  

"Of course we hope that other clubs will not be forced to take the same route but on the basis of the track record it’s all too likely there will be further insolvencies.

"Whenever the football creditors' rule is applied there is always a loss to the tax payer."

The Premier League is also represented at the trial and both leagues argue the rule is fair.

The long-awaited case was originally due to take place in February this year but was adjourned. Only yesterday, the parent company of troubled Portsmouth FC, Convers Sports Initiatives plc (CSI), fell into administration.

By Andy Pearce



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