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football creditors rule retained, for now

2 July 2012

The High Court in Revenue and Customs Comrs v Football League Ltd, has confirmed the validity rule that a club in the Football League or Premier League that is entering insolvency proceedings must pay any football debts in full before any other creditors.

The rule (which is very unpopular with HMRC) states all football creditors including players and managers, other football clubs etc must be paid first when clubs go into administration, leaving little for other unsecured creditors.

Whilst a parliamentary report into the rule has stated that it is “morally unjustifiable” it is difficult to predict whether the rule will be eventually overturned.

The implications of scrapping the rule should be carefully thought through and legislators should pay close attention to the situation at Rangers (Scotland does not have a creditors rule). A balance should be sought where the rights of creditors are protected whilst ensuring that the most prized assets of the club are ring-fenced to enable the club’s continued existence.

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