THE GOVERNMENT should legislate to scrap a football super creditor rule, a parliamentary committee has recommended.
The Culture Media and Sport Committee has recommended that “the government legislate to ban the use of the Football Creditors Rule at the earliest opportunity”, according to a football governance report published this week.
The football creditor rule (FCR) prioritises the payment of football creditors, such as players, managers and clubs, in the event of a club entering administration.
If a club enters administration, the football creditors are paid in full with the remaining funds divided between the creditors, treating them differently. An example given in the report is the administration and sale of Crystal Palace FC.
The unsecured creditors were owed about £27m, with about £1.9m attributable to the football creditors. The administrators managed to recover just £2.4m to repay the unsecured creditors, with the football creditors paid their £1.9m in full and the remaining unsecured creditors, such as the taxman, repaid just 2p for every pound owed.
John Whittingdale MP, chair of the committee, said: “We recommend that the DCMS make it clear to the football authorities that further progress on these issues is expected within twelve months. If football cannot reform itself, the government should introduce legislation as soon as practically possible.”
However, according to a committee clerk, the government has two months to respond and the FCR recommendation could be added to changes to insolvency law, as opposed to changes to football governance. Because it can be added to amendments in insolvency law, a change could come about quicker than any of the other recommendations made by the committee.
“The FCR arguably doesn’t have to await any bills or legislation changes,” she said.
If the football authorities show a degree of unwillingness to get rid of it, the committee recommends the introduction of legislation, but that would not have to wait for a football or sports bill, she added.
Alex Horne, general secretary to the Football Association, said in when giving evidence in July: “It is a moral quandary for all of us, but balancing the protection of the other members in that competition, protecting them arguably from themselves in terms of debts they have exposed themselves to and a club that finds itself in difficulty, is a fundamental rule that they all signed up to when they joined the league.”
He argued there is no obvious alternative to the FCR and there needed to be consensus on any change: “The Regulatory Policy Group, the Professional Game Board and the leagues can consider this and come to a view. If they do not come to a view, status quo prevails.”
The committee previously said in July 2011 that the FCR should be scrapped but held back from making any recommendations pending an HM Revenue & Customs legal challenge against the Football League and Premier League.
HMRC labelled the FCR “unlawful” and said it worked outside the laws of insolvency.
However, the attempt to overturn the rule was dismissed by Judge David Richards at the Royal Courts of Justice as the technical legal challenge which was argued in court had not been violated.
Head of Editorial Kevin Reed looks at the week's news, including the BHS and Austin Reed administration, Accountex and much more.
MPs launch probe into the sale of BHS that will look at role of auditors and accountancy firms in sale process
A short moratorium will give struggling companies a chance to be open with their creditors and negotiate a way out of their problems transparently, says Sykes
Out of a dozen sectors profiled only oil and gas and manufacturing were deemed to have a higher than normal risk of insolvency