English Football League Toughens Stance On Insolvency Administrations
Despite the fact that there have been no football club insolvencies in over two seasons, on 5 June 2015 the Football League voted to amend its rules on football insolvencies. The amendments to the existing rules were approved at the recent Football League Conference and will come into force from the start of the 2015-16 football season. They provide a range of changes to take a harder line on clubs (or their parent companies) that enter administration and to improve returns to creditors, both football and non-football related.
The new rules state that a club owned by a company that enters Administration will now have 12 league points deducted as a “Sporting Sanction” penalty. This is an increase from the previous 10 point deduction which has been in force for some time. If Administration occurs after the third Thursday in March the club’s points deduction is held over until the following season.
Once in Administration, the Administrator must market the club’s business for sale for at least 21 days. During this marketing period, the Administrator must meet the club’s supporters’ trust (if there is one) and give the trust the opportunity to bid for the club’s business and assets. At present there are only two football league clubs that have successfully been purchased from Administration by supporter’s trusts, Wycombe Wanderers and Portsmouth FC, but this new requirement may increase that figure, particularly further down the football pyramid where the capital required to purchase the club will not be as high.
Potential purchasers will now also need to bear in mind that they will be required to pay unsecured creditors a minimum of 25 pence in the pound immediately on the transfer or 35 pence in the pound within three years of the transfer or face a further 15-point deduction at the start of the next season. Whilst this will be seen as a positive step for unsecured creditors, in practice it could rule out a significant number of potential purchasers of a club if the unsecured creditor levels are significant. The principle itself conflicts with the general principles of the overarching insolvency legislation and there is no guidance yet on how this rule will interact with the existing prescribed part ring fencing of floating charge realisations for unsecured creditors.
The final significant change is the removal of the requirement for a club to exit administration by way of a Company Voluntary Arrangement. The aim of this change is both to reduce the time that clubs spend in insolvency and the associated costs.
The new rules are likely to be popular with supporters. An Administrator’s meeting with the supporters’ trust is a move to appeal to grassroots supporters and to make fan ownership a real possibility, particularly in the lower echelons of English football. When considered in light of the Localism Act 2011 which has allowed fans to register their stadiums as ‘Assets of Community Value’ that cannot be sold without the Local Authority being informed and community groups being given a chance to purchase the stadium, there are now several potential ways for fans to seek to gain control of their clubs.
Similarly the new rules will be popular with unsecured creditors, with the requirement to pay a minimum of 25 pence in the pound ensuring much improved returns for non-football creditors. But whether these two goals are compatible is a different question. Portsmouth’s new dawn as a fan owned club may never have materialised if the new owners had been asked to repay 25% of its £24M debt to unsecured creditors.
These changes only affect Football League Championship, League One and League Two clubs and do not affect Premier League clubs, whose rules remain unchanged.
R3, which is the leading professional organisation for insolvency, business recovery and turnaround specialists in the UK, has long been calling for changes to the Football Creditor Rule. In spite of these changes, there is no sign of the Football Creditor Rule, which requires 100% repayment of debts to players and other clubs for wages and transfers, coming to an end. This controversial rule still allows football clubs to circumvent the normal statutory order of priority and has been criticised in both Parliament and the Courts.