In the United Kingdom,football clubs sometimes choose to enteradministration (sanction) when they are unable to pay off outstandingdebts. Under theInsolvency Act 1986, a business will face a winding-up order bringing them to court and if it is shown that a business cannot pay debts as they fall due or cannot repay outstanding debts then the company will be classified asinsolvent.[1]Administration puts accountants "in charge of pretty much everything apart from coaching the players and picking the team".[2] For a football club in administration, the "football creditors rule" requires football-related debts such as wages owed to players and staff, and transfer fees owed to other clubs to be paid first.[3]
In 2000,ITV Digital bought the broadcasting rights toFootball League andLeague Cup matches in a three-year, £315m deal.[citation needed] In March 2002, the company went bankrupt owing the League £180 million which it said it "cannot afford to pay".[4] Because of this, many Football League clubs had financial problems and entered administration.[5][6]
Before the implementation of a points deduction it was perceived that clubs had "manipulated and abused [administration] as a way of shedding debts then restructuring, and borrowing again once the hapless creditors had been fobbed off with their 8p in the pound".[2] In September 2003, it was proposed that clubs entering administration would be docked 10 points. A'fit and proper persons' test was also introduced in an attempt to prevent fraudulent activities. If a person was previously director at a club which was in "administration twice during a five-year period" or at "two different clubs that have each gone into administration in a five-year period" then they would be prevented from becoming the controlling shareholder of aFootball League club.[7] A 'fit and proper persons' test was also introduced for directors ofPremier League clubs.[8] In November 2009,Stephen Vaughan, Sr. became the first director to fail the 'fit and proper persons' test.[9]
To ease financial problems for clubs that had been relegated, "parachute payments" were introduced to give time to adapt to the financial gulf between divisions.[10] The deductions of 10 points in theFootball League and 9 points in thePremier League were ratified in 2004, with the rule in place from the start of the 2004–05 season.[11][12] The League also adopted rules that prevented any side from being in administration for either two successive seasons or eighteen consecutive months.[13] The reason for the deduction being a point less in the Premier League was that the teams play eight fewer fixtures than Football League clubs.[12] The first club to incur this new penalty wereLeague One sideWrexham F.C. who entered administration on 3 December 2004.[13]
Leeds United filed for administration with only a few days remaining in the2006–07 season, which automatically triggered a 10-point penalty. This placed Leeds at the bottom of the table and relegated the club, but they were extremely likely to have been relegated anyway. By entering administration during the 2006–07 season, they hoped to avoid starting the2007–08 season on −10 points. The following week,Boston United entered administration in the final minutes of a defeat toWrexham which ensured they were relegated to theFootball Conference, meaning they likewise avoided starting the following season on -10 points (though they would find themselves being double-relegated to the Conference North for unrelated reasons).[14] The Football League saw both cases as clubs trying to exploit a loophole, and changed the rules. From 2007–08, any club entering administration after the fourth Thursday in March would have their 10-point deduction suspended until the following season. If the club is relegated the points will be deducted from their tally at the start of next season. If the club stays up the 10 points will be taken off their final total.[15]
On 26 February 2010,Portsmouth became the first Premier League club to enter administration.[16]
In a situation of insolvency, the "football creditors rule" means that debts to other clubs or players are prioritised and must be paid in full before the club is eligible to compete again in the league.[17] TheEnterprise Act 2002 made reforms to the insolvency act and, from 15 September 2003, the altered procedures for administration were implemented.[18] Most notably it abolished the Crown's preferential right to recover unpaid taxes ahead of other creditors.[19] As such,HM Revenue and Customs (HMRC) is now often not paid in full (between 2003 and 2010, outstanding unpaid taxes to the HMRC amounted to £30 million).[20] This legality of the football creditors rule was challenged in 2004 inInland Revenue Commissioners v The Wimbledon Football Club Ltd. However, it was found that "full payment to football creditors (out of third party funds) ahead of preferential creditors did not infringe the provisions of section s4(4)(a) of the Act" and "differential treatment may be necessary to secure the continuation of the company's business and may be regarded as supportable".[21]
In 2011 HMRC brought another challenge to the football creditors rule in the High Court, this time on the basis that it breached fundamental principles of insolvency law, including thepari passu rule that all unsecured creditors should be paid on a proportionate basis. However, in May 2012 the court rejected the challenge as it found that the rule was not a deliberate evasion of insolvency law.[22]
List of clubs in England and Wales that have entered administration or CVA
Football clubs may also negotiate aCompany voluntary arrangement (CVA). While not strictly the same as administration, the EFL regards a CVA as an insolvency event and imposes a 12-points deduction. Debts to football creditors also need to be settled in full, if league membership is to be retained.[173] In July 2019,Bury owner Steve Dale agreed a CVA with creditors to avoid the club going into administration; the club were deducted 12 points ahead of the 2019–20 season,[173] but Dale's failure to provide the EFL with full details of the CVA led to Bury's opening fixtures being suspended ahead of a possible expulsion from the League.[174] On 27 August 2019, the EFL announced that Bury's membership of the league had been withdrawn.[175][176] On 27 November 2020, Dale placed the club into administration.[164]
Following the adoption of a points sanction in theEnglish Football League, a similar rule was proposed for adoption by theScottish Premier League (SPL) in December 2003.[177] It was announced in January 2004 that SPL clubs going into administration in the2004–05 season would be subject to a 10-point deduction and be prevented from signing new players. WithMotherwell andDundee already in administration at the time, it was decided that if "they are not in the process of coming out of administration by 31 May", the deduction would be applied at the start of the following season.[178] Furthermore, theScottish Football Association would not allow clubs in administration to play in European competition.[179] Both Motherwell and Dundee met the required conditions to avoid the deduction of points.[180] The 10-point penalty was subsequently applied toGretna in the 2007–08 season[2] andRangers in 2011–12.[181]
Although theScottish Football League (SFL) had no automatic deduction of points for clubs going into administration, it reserved the right to "deduct championship points before or during a season and/or to impose a player registration embargo on any club".[182] This meant that its penalties for insolvency varied;Dundee were docked 25 points in the 2010–11 season because it was the second time they had entered administration in a relatively short period.[183] The SFL also had the power to place a team in the bottom tier (Third Division) if there were any doubts that the club could fulfill their fixtures for the forthcoming season.[184]
Theadministration and liquidation of The Rangers Football Club Plc prompted much discussion in Scotland about what sanctions (if any) are appropriate for an insolvent club.[185] When Rangers entered administration in February 2012, the club was docked 10 points in the2011–12 Scottish Premier League. The SPL clubs agreed to amend the penalty for administration to the greater of 10 points or one third of the club's tally in the previous season.[186] Rangers attempted to agree a CVA with its creditors, but this offer was rejected by HMRC in June 2012.[187] The business and assets of Rangers were instead sold to a new company.[187] One of Rangers' assets was its membership of the SPL, but this could not be transferred without the approval of the other SPL clubs.[187] Rangers' application for transfer was rejected by a 10–1 majority.[188] The SPL attempted to negotiate a deal with the SFL whereby Rangers would enter the First Division (second tier).[189] This was rejected by SFL clubs, who instead voted for Rangers to be granted associate membership of the SFL and a place in the Third Division (fourth tier).[189]
When the SPL and SFL merged to form theScottish Professional Football League (SPFL) in 2013, the penalty for entering administration was standardised as 15 points.[190]Hearts entered administration days before the leagues merged and were docked 15 points for the 2013–14 season under the old SPL rules, as they had earned 44 points in the 2012–13 season.[190]
List of clubs in Scotland that have entered administration
−10 pts[215] After the business and assets of Rangers were sold to a new company,[213] the SPL member clubs refused an application for the Rangers SPL membership share to also be transferred to the new Rangers company.[216] Rangers were instead accepted into theThird Division (fourth tier) for the2012–13 season.[217]
^Charlton was reformed under Charlton Athletic (1984) Ltd.[24]
^Middlesbrough was reformed under Middlesbrough Football & Athletic Company (1986) Ltd.[29]
^Hull were renamed under Hull City AFC (Tigers) Ltd.[39]
^Derby County Football Club did not enter administration itself but holding company, "Derby County PLC", did enteradministrative receivership.[61] The company was almost instantly taken over by newly formed company, Sharmine Limited.[60][62]
^Ipswich Town only entered temporary administration, this allowed existing club management to stay in place while finances were being restructured.[63]
^The Conference had no policy of automatic points deductions but, having failed to confirm payment ofthe previous season's CVA, the club were docked 6 points prior to the2007–08 season for "bringing the Blue Square League into disrepute".[82]
^Due to Boston United's financial problems they were not placed in theConference National when they were relegated but demoted straight to theConference North.[85]
^Luton Town were docked 10 points in the2007–08 League One season.[90] Unable to agree to a CVA and exit administration, Luton were docked a further 20 points at the start of the2008–09 League Two season (this was in addition to 10 more points deducted for misconduct).[93]
^Bournemouth were originally deducted 10 pts for the2007–08 season.[97] Having failed to exit administration or to agree to a CVA before the start of the2008–09 season, they started that side with −17 points.[97]
^Rotherham were originally deducted 10 pts for the2007–08 season.[98] Having failed to exit administration or to agree to a CVA before the start of the2008–09 season, they started that side with −17 points.[98]
^As Chester City were expelled from the Football Conference on 26 February 2010 having breached five Conference rules.[109] On 8 March 2010 their results were expunged[110] and on 10 March 2010 the club waswound-up at the High Court.[111]
^Northwich Victoria Football Club (2004) Ltd. was renamed Northwich Victoria Football Club (2007) Ltd.[116]
^Northwich Victoria were initially subject to the automatic 10-point deduction. Furthermore, because they came out of administration "without paying its creditors (including but not limited to football creditors) in full",[117] they were expelled from the Conference and placed in theNorthern Premier League Premier Division.[118]
^Salisbury City were initially subject to the automatic 10-point deduction. Furthermore, they failed to "pay all creditors in full by the second Saturday in May" which carried a two division demotion placing them in theSouthern Football League Premier Division.[124][125]
