Post by Macmoish on Nov 5, 2010 6:26:15 GMT
Guardian/Digger - Matt Scott
HMRC challenge to creditors rule could cause chaos in football
• Rule protects players and staff ahead of other creditors
• Change could lead to more clubs facing financial problems
HM Revenue & Customs will mount a high court challenge against the football creditors rule in February which, if successful, could cause chaos across the game. Both the Premier and Football Leagues believe undermining the system could lead to an epidemic of insolvencies as the financial collapse of one club would have a cascade effect on its other football creditors.
"We only have to look back at Portsmouth," said a Premier League source. "Had the football creditors rule not ensured that their debts to Watford were paid then we could have seen another administration and a further set of small businesses, and indeed HMRC itself, not being paid in full.
"Of course clubs should pay their taxes and of course it isn't fair when small businesses don't get paid in full. But it's absolutely right that professional football is defending the football creditors rule as it contains the impact of a club going into administration."
The rule ensures that when a debtor club becomes insolvent, all players, coaching staff and other clubs owed money in transfer fees receive payment in full. This is despite them holding no formal security over the insolvent club's assets.
With clubs and footballers taking the lions' share, other unsecured creditors – such as the ambulance services, caterers, schools and police – typically receive only pence for each pound they are due.
But the Premier League believes it can successfully argue that money comes from central funds and cannot be assigned to clubs unless they are deemed solvent and operating within league rules. A spokesman said last night: "We will robustly defend our position."
Digger can reveal HMRC's case relies on a 35-year-old landmark ruling by three law lords. HMRC will point to the findings of Lords Cross, Diplock and Davies in the 1975 British Eagle case as the basis of their attack. HMRC has summarised the judgment in that case as follows: "A party cannot obtain the status of a secured creditor without having a properly registered charge."
The finding in the British Eagle case relied on what is generally called the "anti-deprivation principle" of law. In the event of insolvency this principle attempts to prevent cash or assets being transferred to a third party while other unsecured creditors miss out.
The Premier League and Football League enforce the football creditors' rule by withholding the transfer of the "golden" share in their competitions, unless all football creditors are paid in full when insolvent clubs are taken over.
In setting out its argument, HMRC – which will rely on submissions from Portsmouth's administrator, Andrew Andronikou – said it considers this unlawful. "The PL/FL may not lawfully strip an insolvent club of its golden share because that offends against the 'anti-deprivation principle'," HMRC has said. "The contractual rights to refuse a transfer of the golden share fall foul of the above principle. These rights are according to Andronikou used expressly by the PL/FL so as to achieve preferential treatment of football creditors over all others."
The Revenue set out its sense of injustice during the failed court challenge to Portsmouth's company voluntary arrangement in August. It added in that trial: "It is plainly harmful to the interests of non-football unsecured creditors that an organisation such as the Premier League should try to insist upon unsecured creditors who happen to be its members being given a dividend of 100p in the pound when other unsecured creditors are being offered a lesser dividend."
Indeed, Portsmouth's own administrator, UHY Hacker Young, was quoted in HMRC's evidence as having stated that the rule "goes against all normal principles of insolvency law".
However, the judge in the August case relating to Portsmouth, Mr Justice Mann, did not feel equipped to rule on that specific point of HMRC's complaint, preferring to leave it to the separate hearing that will consider all the implications of the rule. The new trial will take place at the high court over two days in the week beginning 14 February next year.
Notts in wage drain
As Paul Ince attempts to make it third time lucky tomorrow after two defeats as the manager of Notts County, the League One club have made history of sorts this year. Their promotion as champions from football's fourth tier last season was done in flagrant breach of the Football League's salary cap. County's promotion came as their then owners, Qadbak, crashed the club through the 60% wages-to-turnover ceiling. When Qadbak vanished, Ray Trew, the owner who rescued the club, said it had been left with almost £6m of debt. Now the League has taken steps to toughen up the salary cost management protocol, requiring copies of agreements between clubs and funders.
Manchester's mad men
Manchester City have lost their two top marketing people in a month. The former brand-and-marketing manager, David Pullan, quit last month after a restructure of his department and now the head of marketing, Chris Kay, has joined him. The pair helped come up with the "Welcome to Manchester" poster featuring Carlos Tevez that so angered Sir Alex Ferguson. Do the changes indicate a more conciliatory stance? Not a bit of it. The departures are pure coincidence – Kay has emigrated to Australia – but although no new poster campaign is planned, neither is one being ruled out.
www.guardian.co.uk/football/2010/nov/05/hmrc-football-creditors-rule-challenge
HMRC challenge to creditors rule could cause chaos in football
• Rule protects players and staff ahead of other creditors
• Change could lead to more clubs facing financial problems
HM Revenue & Customs will mount a high court challenge against the football creditors rule in February which, if successful, could cause chaos across the game. Both the Premier and Football Leagues believe undermining the system could lead to an epidemic of insolvencies as the financial collapse of one club would have a cascade effect on its other football creditors.
"We only have to look back at Portsmouth," said a Premier League source. "Had the football creditors rule not ensured that their debts to Watford were paid then we could have seen another administration and a further set of small businesses, and indeed HMRC itself, not being paid in full.
"Of course clubs should pay their taxes and of course it isn't fair when small businesses don't get paid in full. But it's absolutely right that professional football is defending the football creditors rule as it contains the impact of a club going into administration."
The rule ensures that when a debtor club becomes insolvent, all players, coaching staff and other clubs owed money in transfer fees receive payment in full. This is despite them holding no formal security over the insolvent club's assets.
With clubs and footballers taking the lions' share, other unsecured creditors – such as the ambulance services, caterers, schools and police – typically receive only pence for each pound they are due.
But the Premier League believes it can successfully argue that money comes from central funds and cannot be assigned to clubs unless they are deemed solvent and operating within league rules. A spokesman said last night: "We will robustly defend our position."
Digger can reveal HMRC's case relies on a 35-year-old landmark ruling by three law lords. HMRC will point to the findings of Lords Cross, Diplock and Davies in the 1975 British Eagle case as the basis of their attack. HMRC has summarised the judgment in that case as follows: "A party cannot obtain the status of a secured creditor without having a properly registered charge."
The finding in the British Eagle case relied on what is generally called the "anti-deprivation principle" of law. In the event of insolvency this principle attempts to prevent cash or assets being transferred to a third party while other unsecured creditors miss out.
The Premier League and Football League enforce the football creditors' rule by withholding the transfer of the "golden" share in their competitions, unless all football creditors are paid in full when insolvent clubs are taken over.
In setting out its argument, HMRC – which will rely on submissions from Portsmouth's administrator, Andrew Andronikou – said it considers this unlawful. "The PL/FL may not lawfully strip an insolvent club of its golden share because that offends against the 'anti-deprivation principle'," HMRC has said. "The contractual rights to refuse a transfer of the golden share fall foul of the above principle. These rights are according to Andronikou used expressly by the PL/FL so as to achieve preferential treatment of football creditors over all others."
The Revenue set out its sense of injustice during the failed court challenge to Portsmouth's company voluntary arrangement in August. It added in that trial: "It is plainly harmful to the interests of non-football unsecured creditors that an organisation such as the Premier League should try to insist upon unsecured creditors who happen to be its members being given a dividend of 100p in the pound when other unsecured creditors are being offered a lesser dividend."
Indeed, Portsmouth's own administrator, UHY Hacker Young, was quoted in HMRC's evidence as having stated that the rule "goes against all normal principles of insolvency law".
However, the judge in the August case relating to Portsmouth, Mr Justice Mann, did not feel equipped to rule on that specific point of HMRC's complaint, preferring to leave it to the separate hearing that will consider all the implications of the rule. The new trial will take place at the high court over two days in the week beginning 14 February next year.
Notts in wage drain
As Paul Ince attempts to make it third time lucky tomorrow after two defeats as the manager of Notts County, the League One club have made history of sorts this year. Their promotion as champions from football's fourth tier last season was done in flagrant breach of the Football League's salary cap. County's promotion came as their then owners, Qadbak, crashed the club through the 60% wages-to-turnover ceiling. When Qadbak vanished, Ray Trew, the owner who rescued the club, said it had been left with almost £6m of debt. Now the League has taken steps to toughen up the salary cost management protocol, requiring copies of agreements between clubs and funders.
Manchester's mad men
Manchester City have lost their two top marketing people in a month. The former brand-and-marketing manager, David Pullan, quit last month after a restructure of his department and now the head of marketing, Chris Kay, has joined him. The pair helped come up with the "Welcome to Manchester" poster featuring Carlos Tevez that so angered Sir Alex Ferguson. Do the changes indicate a more conciliatory stance? Not a bit of it. The departures are pure coincidence – Kay has emigrated to Australia – but although no new poster campaign is planned, neither is one being ruled out.
www.guardian.co.uk/football/2010/nov/05/hmrc-football-creditors-rule-challenge
