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The number of UK football clubs mired in financial difficulty has reached a two-year high, according to the Begbies Traynor Red Flag Football Distress Report (the Report). Published in March 2014, the Report suggests that as many as one in nine football league clubs are suffering from ‘serious financial distress’.

This will come as a serious blow to proponents of the Financial Fair Play rules, adopted by the Football League at the start of the 2012/2013 football season. The League set up the rules as a means to rein in the rampant overspending by many football clubs that is seen as harmful to the financial health of the beautiful game. The Report comes on the back of speculation that the Financial Fair Play rules will be challenged in the courts by unnamed clubs. Unless any challenge is successful, enforcement rules – including hefty fines – could be used for the first time in December 2014 against clubs that have made a financial loss of more than £8 million.

Of course, this is not the first time football’s finances have come under the legal spotlight. The sorry case of Portsmouth Football Club highlights the dangers of overspending and the results of chasing success through whatever financial means necessary. Now languishing in League 2 (the lowest division in the Football League), the club was as recently as 2010 in the Premier League, the country’s top football division. A series of relegations has ensued since then, caused by the club’s financial meltdown.

Even in these instances, the football fraternity still looks after its own, much to the chagrin of ‘non-football’ creditors. In one recent case [1] HMRC contested the ‘football creditors’ rule, arguing it was “unfairly prejudicial”. Under this rule, for example, players owed wages or other clubs owed transfer fees – are to be paid in full in an insolvency scenario. This rule is adopted by both the Premier League and the Football League. It is enforced through a process similar to an income payments order in bankruptcy; money owed to an insolvent club from either league (for example television revenue) is paid direct to the football creditors of the club.

HMRC’s challenge argued that this was unfairly prejudicial to other unsecured creditors and that football creditors, facing payment in full from a third party, should not be able to vote in any CVA proposal. The Court of Appeal rejected both submissions. Its grounds for rejection rested on the commercial realities of the case, which included the need to find a buyer for the stricken club, rather than an approval of the legality of the Football League creditor rules.

It appears that this will not be the last case which challenges how football is administered and run.

This post was edited by Christopher Basford. For more information, email blogs@gateleyuk.com.

[1] Revenue and Customs Commissioners v Portsmouth City Football Club Ltd (in administration) and others [2010] EWCH 2013 (Ch)


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This blog is intended only as a synopsis of certain recent developments. If any matter referred to in this blog is sought to be relied upon, further advice should be obtained.