HMRC Challenging Football Creditors Rule

The controversial Football Creditors Rule is being challenged in the high court by HMRC.  The ruling, whereby creditors involved in football receive super preferential status in football insolvency proceedings, has come under heavy scrutiny since it was introduced, from HMRC in particular.

HMRC had previously informally challenged the ruling by refusing to agree to any football CVA proposal until the FA and Premier League reviewed the ruling.  However now it seem they are looking to get rid of the rule in the courts once and for all.

"There is no legal basis for the football creditor rule," a spokesman for HMRC said. "Non-football creditors are being seriously short-changed and enough is enough."

The complaints surrounding the ruling are because it is essentially seen as unfair. All football debts are unsecured creditors in any normal case, meaning they are paid the same proportions of the debt as any other, however the super preferential status allows them to be one of the first paid and ensures they are paid in full.

The Premier League on the other hand has vowed to rigorously defend the rule, insisting that the football industry must protect its members by making sure all money owed stays in the game.  However, some believe that this is in fact adding to the problematic debt culture in football.

For example, under current rules a player could transfer between clubs for a fee of £10m, paid in 4 yearly instalments of £2.5m.  At present the receiving club will receive all of the monies no matter what happens, even if the buying club cannot afford it, because money will come in through insolvency proceedings.

This means that if the ruling is changed, under the same scenario, the selling club is more likely to demand some form of proof that these instalments will be met or they would reject the offer unsure if they would receive all the money, therefore meaning a change of the rule may see less cases of clubs spending money they haven’t got.

Furthermore, the rule also means that already rich footballers are ensured of getting all outstanding pay whereas poorer small businesses could end up writing off debt which would have a major impact on their business’ finances.

Posted at 04:34PM Jun 03, 2010 by Marc Stenton in Insolvency  |  Comments[0]