Judge rules ‘play on’ as taxmen lose fight on football debts

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A High Court judge has declined to show the red card to a football industry debt rule described as revealing “the ugly side of the beautiful game”.

Mr Justice David Richards refused to declare the “football creditor rule” – which is operated by soccer industry governors and gives creditors from the football world preferential treatment when clubs get into financial difficulties – unlawful.

Tax officials had argued that the Football League’s rule was an attempt to “contract out of” provisions of insolvency legislation.

Lawyers representing HM Revenue and Customs (HMRC) had asked the judge to declare the rule – a feature of a Football League insolvency policy – legally “void and unenforceable”.

The HMRC – often a creditor when clubs become insolvent –said it had taken legal action in the hope of bringing about change and a spokesman said after the ruling that tax bosses were “disappointed”.

Lawyers representing the Football League – which had opposed the HMRC bid and argued that the rule was fair – said the judge’s decision was a “great outcome”.

Mr Justice David Richards, in a written ruling handed following a hearing in November, said: “The football creditor rule has been subject to a good deal of criticism. These proceedings are not concerned with whether giving priority to football creditors is socially or morally justified. The issue is purely one of law.”

He concluded that “in most circumstances” the relevant provisions of the Football League’s articles and insolvency policy would not be rendered void by insolvency legislation.

“The right course in the present proceedings is to refuse to make the declarations sought by HMRC,” added the judge.

“The Football League should not regard the result of this case as an endorsement of its approach to football creditors. It is ... a decision on a challenge brought on a particular legal basis.”

HMRC officials said they had yet to decide whether to appeal.

“Our view remains that the football creditor rule is unfair to all other unsecured creditors who are forced to make do with much smaller returns – if anything – on monies owed to them by football clubs which enter administration.”

John Verrill, an insolvency and financial restructuring specialist at law firm Chadbourne & Parke, which represented the Football League, said: “This decision is a great outcome for the Football League.”