Administration

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Administration (British football)

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In the United Kingdom, football clubs sometimes choose to enter administration when they are unable to pay off outstanding debts. Under the Insolvency Act 1986, a business will face a winding-up order bringing them to court and if it is shown that a business cannot pay debts as they fall due or cannot repay outstanding debts then the company will be classified as insolvent.[1] Administration puts accountants "in charge of pretty much everything apart from coaching the players and picking the team".[2] For a football club in administration, the "football creditors rule" requires football-related debts such as monies owed to players, staff and other clubs to be paid first.[3]

Contents

History

In 2000, ITV Digital bought the broadcasting rights to Football League and League Cup matches in a three-year, £315m deal.[4] In March 2002, the company went broke owing the League £180 million which it said it "cannot afford to pay".[5] As a result of this many Football League clubs had financial problems and entered administration.[6][7]

Prior to the implementation of a point deduction it was perceived that clubs had "manipulated and abused [administration] as a way of shedding debts then restructuring, and borrowing again once the hapless creditors had been fobbed off with their 8p in the pound".[2] In September 2003, it was proposed that clubs entering administration would be docked 10 points. A 'fit and proper persons' test was also introduced in an attempt to prevent fraudulent activities. If a person was previously director at a club which was in "administration twice during a five-year period" or at "two different clubs that have each gone into administration in a five-year period" then they would be prevented from becoming the controlling shareholder of a Football League club.[8] A 'fit and proper persons' test was also introduced for directors of Premier League clubs.[9] In November 2009, Stephen Vaughan, Sr. became the first director to fail the 'fit and proper persons' test.[10]

To ease financial problems for clubs that had been relegated, "parachute payments" were introduced to give time to adapt to the financial gulf between divisions.[11] The deductions of 10 points in the Football League and 9 points in the Premier League were ratified in 2004, with the rule in place from the start of the 2004–05 season.[12][13] The League also adopted rules that prevented any side from being in administration for either two successive seasons or eighteen consecutive months.[14] The reason for the deduction being a point less in the Premier League was due to the fact that the teams play eight fewer fixtures than Football League clubs.[13] The first club to incur this new penalty were League One side Wrexham F.C. who entered administration on 3 December 2004.[14]

In Scotland, following the adoption of a points sanction in the English Football League, a similar rule was mooted in December 2003.[15] It was announced in January 2004 that Scottish Premier League clubs going into administration in the 2004–05 season would be subject to a 10 point deduction and be prevented from signing new players. With Motherwell and Dundee already in administration at the time, it was decided that if "they are not in the process of coming out of administration by 31 May", the deduction would be applied at the start of the following season.[16] Furthermore, the Scottish FA would not allow clubs in administration to play in Europe.[17] Both Motherwell and Dundee met the required conditions to avoid the deduction of points.[18] Although the Scottish Football League has no automatic deduction of points for clubs going into administration, it reserves the right to "deduct championship points before or during a season and/or to impose a player registration embargo on any club".[19] The Scottish Football League also will place a team in the bottom tier (Division Three) if there are any doubts that they can fulfill their fixtures for the forthcoming season. Both times this has happened the Club has been in administration in the summer months. [20]

Leeds United filed for administration with only a few days remaining in the 2006–07 season, which automatically triggered a 10 point penalty. This placed Leeds at the bottom of the table and relegated the club, but they were extremely likely to have been relegated anyway. By entering administration during the 2006–07 season, they hoped to avoid starting the 2007–08 season on −10 points. The Football League saw this as a club trying to exploit a loophole and changed the rules. From 2007–08, any club entering administration after the fourth Thursday in March would have their 10 point deduction suspended until the following season. Similarly, if a club were relegated the deduction was also to be suspended until the start of the following season.[21]

On 26 February 2010, Portsmouth became the first Premier League club to enter administration.[22]

Football creditors rule

In a situation of insolvency, the "football creditors rule" means that debts to other clubs or players are prioritised and must be paid in full before the club is eligible to compete again in the league.[23] The football creditors rule does not apply in Scotland.[24]

The Enterprise Act 2002 made reforms to the insolvency act and, from 15 September 2003, the altered procedures for administration were implemented.[25] Most notably it abolished the Crown's preferential right to recover unpaid taxes ahead of other creditors.[26] As such, HM Revenue and Customs (HMRC) is now often not paid in full (between 2003–2010 outstanding unpaid taxes to the HMRC amounted to £30 million).[27] This legality of the football creditors rule was challenged in 2004 in Inland Revenue Commissioners v The Wimbledon Football Club Ltd. However, it was found that "full payment to football creditors (out of third party funds) ahead of preferential creditors did not infringe the provisions of section s4(4)(a) of the Act" and "differential treatment may be necessary to secure the continuation of the company’s business and may be regarded as supportable".[28]

In 2011 HMRC brought another challenge to the football creditors rule in the High Court, this time on the basis that it breached fundamental principles of insolvency law, including the pari passu rule that all unsecured creditors should be paid on a proportionate basis. However in May 2012 the court rejected the challenge as it found that the rule was not a deliberate evasion of insolvency law.[29]

Clubs in England & Wales that have entered administration

Club Entered
administration
Exited
administration
League(s) Deduction(s)
Charlton Athletic 01984-02-01 February 1984[30][31] 01984-03-01 March 1984
Liquidated[nb 1]
Second Division None
Middlesbrough 01986-05-2121 May 1986 01986-07-01 July 1986[32]
Liquidated[nb 2]
Third Division None
Tranmere Rovers 1987[citation needed] None
Newport County 1989[citation needed] None
Walsall 1990[citation needed] None
Northampton Town 1992[citation needed] None
Kettering Town 1992[citation needed] None
Aldershot 1992[citation needed] None
Maidstone 1992[citation needed] None
Hartlepool United 1994[citation needed] None
Barnet 1994[citation needed] None
Exeter United 1994[citation needed] None
Gillingham 1995[citation needed] None
Doncaster Rovers 1997[citation needed] None
Millwall 01997-01-2121 January 1997 01997-06-01 June 1997 Second Division None
Bournemouth 1997[citation needed] None
Darlington 1997[citation needed] None
Crystal Palace 1998[citation needed] 02000-07-01 July 2000 Second Division None
Chester City 01998-10-01 October 1998[33] 01999-07-01 July 1999[34] Third Division None
Hull City 02001-02-077 February 2001[35] 02001-03-1212 March 2001[36][nb 3] Third Division None
Queens Park Rangers 02001-04-022 April 2001[38] 02002-11-1717 November 2002[39] First Division None
Halifax Town 02002-04-099 April 2002[40] 02003-03-01March 2003[41] Third Division
Football Conference
None
Bradford City 02002-05-1616 May 2002[42] 02002-08-011 August 2002[43] First Division None
Leicester City 02002-10-2121 October 2002[44] 02004-11-1616 November 2004[45] First Division None
Port Vale 02002-12-1616 December 2002[46] 02003-01-012003 Second Division None
York City 02002-12-1818 December 2002[47] 02003-03-2626 March 2003[48] Third Division None
Derby County 02003-10-2020 October 2003[49] 02003-10-2020 October 2003[49] Championship None[nb 4]
Ipswich Town[nb 5] 02003-02-1010 February 2003[53] 02003-05-3030 May 2003[54] First Division None
Wimbledon 02003-06-055 June 2003[55] 02004-06-2121 June 2004[56] (As MK Dons) First Division None
Darlington 02003-12-2323 December 2003[57] 02004-05-2626 May 2004[58] Third Division None
Bradford City 02004-02-2727 February 2004[59] 02004-12-1010 December 2004[60] First Division
League One
None
Wrexham 02004-12-033 December 2004[14] 02006-08-033 August 2006[61] League One
League Two
&1000000000000001000000010 pts
Cambridge United 02005-04-2929 April 2005[62] 02005-07-2222 July 2005[63] League Two &1000000000000001000000010 pts
Rotherham United 02006-05-1313 May 2006[64] ??? League One &1000000000000001000000010 pts
Crawley Town 02006-06-055 June 2006[65] 02007-08-1010 August 2007[66] Conference National &100000000000000060000006 pts[nb 6]
Boston United 02007-04-2525 April 2007[68] 02008-05-2020 May 2008[69] League Two &1000000000000001000000010 pts[nb 7]
Leeds United 02007-05-044 May 2007[71] 02007-07-1111 July 2007[72] Championship
League One
&1000000000000002500000010 pts
−15 pts[nb 8]
Luton Town 02007-11-2222 November 2007[74] 02008-07-2828 July 2008[75] League One
League Two
&1000000000000003000000010 pts
−20 pts[nb 9]
Bournemouth 02008-02-088 February 2008[77] 02008-07-1818 July 2008[78] League One
League Two
&1000000000000002700000010 pts
−17 pts[nb 10]
Rotherham United 02008-03-1818 March 2008[79] 02008-01-012008[1] League Two &1000000000000002700000010 pts
−17 pts[nb 11]
Halifax Town 02008-03-2626 March 2008[80] 02008-06-1313 June 2008[81] Conference National &1000000000000001000000010 pts
Darlington 02009-02-2525 February 2009[82] 02009-08-077 August 2009[83] League Two &1000000000000001000000010 pts
Southampton 02009-04-022 April 2009[84][85] 02009-07-088 July 2009[86] Championship
League One
&10000000000000010000000N/A
−10 pts[nb 12]
Stockport County 02009-04-3030 April 2009[87] 02010-06-1818 June 2010[88] League One &1000000000000001000000010 pts
Chester City 02009-05-1717 May 2009[33] 02010-03-1010 March 2010[nb 13]
Liquidated
Conference National −25 pts[nb 14]
Northwich Victoria 02009-05-1515 May 2009[94] 02010-05-1616 May 2010[95][nb 15] Conference National −10 pts[nb 16]
Farsley Celtic 02009-06-3030 June 2009[99] 02010-03-1010 March 2010
Liquidated[100]
Conference North &1000000000000001000000010 pts[101]
Salisbury City 02009-09-033 September 2009[102] 02010-02-2626 February 2010[103][104] Conference National &1000000000000001000000010 pts[nb 17]
Weymouth 02009-10-2828 October 2009[106] 02009-11-2727 November 2009[107] Conference South None
Crystal Palace 02010-01-2727 January 2010[108] 20 August 2010[109] Championship &1000000000000001000000010 pts
Portsmouth 02010-02-2626 February 2010[22] 02010-10-2424 October 2010[110] Premier League &100000000000000090000009 pts
Plymouth Argyle 02011-03-044 March 2011[111] 02011-10-3131 October 2011[112] League One &1000000000000001000000010 pts
Rushden and Diamonds 02011-07-077 July 2011[113] 02011-07-088 July 2011
Liquidated[114]
Conference National None
Darlington 02012-01-033 January 2012[115] Present Conference National &1000000000000001000000010 pts
Portsmouth 02012-02-1717 February 2012[116] Present Championship &1000000000000001000000010 pts
Port Vale 02012-03-099 March 2012[117] Present League Two &1000000000000001000000010 pts

Scottish clubs that have entered administration

Club Entered
administration
Exited
administration
League(s) Deduction(s)
Greenock Morton 02000-12-1515 December 2000[118] 02001-08-088 August 2001[119] Scottish First Division None
Clydebank 02000-12-2323 December 2000[120] 02002-07-099 July 2002
Became Airdrie United[121]
Scottish Second Division None
Airdrieonians 02002-05-2121 May 2002
Liquidated[122]
Scottish First Division None
Motherwell 02002-04-2424 April 2002[123] 02004-04-2020 April 2004[124] Scottish Premier League None
Dundee 02003-11-2525 November 2003[125] 02004-08-066 August 2004[126] Scottish Premier League None
Livingston 02004-02-033 February 2004[127] 02005-05-1313 May 2005[128] Scottish Premier League None
Gretna 02008-03-1010 March 2008[129] 02008-08-088 August 2008
Liquidated[130]
Scottish Premier League &1000000000000001000000010 pts[2]
Demoted to Scottish Third Division[131]
Livingston 02009-07-2424 July 2009[132] 02009-08-1313 August 2009[133] Scottish First Division Demoted to Scottish Third Division[134]
Clachnacuddin 02009-10-2727 October 2009[135] Present Highland League None
Dundee 02010-10-1414 October 2010[136] 02011-05-1212 May 2011[137] Scottish First Division &1000000000000002500000025 pts[138]
Rangers 02012-02-1414 February 2012[139] Present Scottish Premier League &1000000000000001000000010 pts[139]

Clubs in other sports that have entered administration

Club Entered
administration
Exited
administration
Sport League(s) Deduction(s)
Crusaders Rugby League 02010-11-1212 November 2010[140] 02010-12-2727 December 2010[141] Rugby league Super League &100000000000000040000004 pts[142]
Wakefield Trinity Wildcats 02010-12-011 December 2010[143] 02011-02-1717 February 2011[144] Rugby league Super League &100000000000000040000004 pts[145]

Notes

  1. ^ Charlton was reformed under Charlton Athletic (1984) Ltd.[30]
  2. ^ Middlesbrough was reformed under Middlesbrough Football & Athletic Company (1986) Ltd.[32]
  3. ^ Hull were renamed under Hull City AFC (Tigers) Ltd.[37]
  4. ^ Derby County Football Club did not enter administration itself but holding company, "Derby County PLC", did enter administrative receivership.[50] The company was almost instantly taken over by newly formed company, Sharmine Limited.[49][51]
  5. ^ Ipswich Town only entered temporary administration, this allowed existing club management to stay in place while finances were being restructured.[52]
  6. ^ The Conference had no policy of automatic points deductions but, having failed to confirm payment of the previous season's CVA, the club were docked 6 points prior to the 2007–08 season for "bringing the Blue Square League into disrepute".[67]
  7. ^ Due to Boston United's financial problems they were not placed in the Conference National when they were relegated but demoted straight to the Conference North.[70]
  8. ^ Leeds United were originally deducted 10 pts,[71] but they were deducted 15 pts for not exiting administration via a Company Voluntary Arrangement.[73]
  9. ^ Luton Town were deducted 10 points in the 2007–08 League One season.[74] Unable to agree to a CVA and exit administration, Luton were deducted a further 20 points at the start of the 2008–09 League Two season (this was in addition to 10 more points deducted for misconduct).[76]
  10. ^ Bournemouth were originally deducted 10 pts for the 2007–08 season.[77] Having failed to exit administration before the start of the 2008–09 season, they started that side with −17 points.[77]
  11. ^ Rotherham were originally deducted 10 pts for the 2007–08 season.[79] Having failed to exit administration before the start of the 2008–09 season, they started that side with −17 points.[79]
  12. ^ Southampton were deducted 10 pts when it was found that the football club was "inextricably linked as one economic entity"[85] to the holding company Southampton Leisure Holdings PLC which had gone into administration on 2 April 2009.[84] As Southampton were relegated in the 2008–09 Championship season the points were deducted at the start of the 2009–10 League One season.
  13. ^ As Chester City were expelled from the Football Conference on 26 February 2010 having breached five Conference rules.[89] On 8 March 2010 there results were expunged[90] and on the 10 March 2010 the club was wound-up at the High Court.[91]
  14. ^ Chester City entered administration just weeks after they were relegated in the 2008–09 League Two season. The club were therefore deducted 25 points at the start of the 2009–10 Conference National season:[92] the automatic 10-point deduction and a further 15-point deduction due to investigations of financial irregularities by owner Stephen Vaughan, Sr.[93]
  15. ^ Northwich Victoria Football Club (2004) Ltd. was renamed Northwich Victoria Football Club (2007) Ltd.[96]
  16. ^ Northwich Victoria were initially subject to the automatic 10-point deduction. Furthermore, because they came out of administration "without paying its creditors (including but not limited to football creditors) in full",[97] they were expelled from the Conference and placed in the Northern Premier League Premier Division.[98]
  17. ^ Salisbury City were initially subject to the automatic 10-point deduction. Furthermore, they failed to "pay all creditors in full by the second Saturday in May" which carried a two division demotion placing them in the Southern Football League Premier Division.[105][104]

References

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