Football players benefit from economic immunity?

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One topic that contains a legal dimension, is also commercially prevalent and centres on a pastime that the North East as a region is extremely passionate about is that of the Football Creditors’ Rule.

This rule gives football players, in an insolvent club, the status of a preferential creditor, which is at the notable expense of other creditors. Football clubs are exempt from the usual rules of insolvency and they operate via procedures that are governed by the Rules of the Premier League. These rules dictate that for a football club to exit through administration it must do so by entering a Company Voluntary Arrangement (an agreement between a club and its creditors which dictates how the club will repay its debt).

The preferential status of footballers is acquired alongside other ‘football entities’; the Premier League makes the arbitrary distinction between preferred creditors (footballers, coaches and managers) and non-secured creditors (local businesses, private investors and HMRC). The issue becomes contentious as the Premier League stipulates that when a club enters a CVA the football creditors must be paid in full; in the event they are not the club will be expelled from the league. This gives football clubs the obvious incentive to comply with these regulations otherwise they will suffer further hardship.

The justification for this rule is due to the nature of the football leagues. The Premier League argues that it is common for a club to acquire debt throughout a season due to the unpredictable nature of ticket sales and transfer markets. If a football club, therefore, does become insolvent it has two options:-

To enter into a CVA and to continue operating – with this method the club will retain some of its value and all the creditors will receive a proportion of their investment.
The club is wound up and its assets are sold off – leaving creditors with less than they would receive in 1 above.
The justification for the Football Creditors’ Rule therefore centres upon damage limitation.

Although this does sound fairly logical, the practical consequences of this highlight how the rule is so contentious. In recent years a number of high profile football clubs have entered into administration namely; Wimbledon and Leeds United. None of these clubs have, however, received as much media attention as that of Portsmouth Football Club. This high profile case was an example of the Football Creditors’ Rule in action, where non-secured creditors suffered huge detriment, demonstrated by the fact that HMRC received 20p in the pound, which translates as a meagre £5 million out of a total of £24.5 million it was owed.

This shows that the Football Creditors’ Rule is unjust as it unfairly prejudices non-football creditors. This rule was not created by parliament and its effect is that a footballer will continue to earn his six figure salary a week uninterrupted, whereas an employee of a local business will not benefit from the same safeguard.

This issue also affects individuals and businesses alike. Since the revocation of HMRC’s status from preferential creditor millions of pounds have been lost, Portsmouth a relevant example, which comes directly from the tax payers’ pocket.

In the context of the bankers’ bonuses and the MPs’ expenses scandals society has demanded an age where freedom of information is easily attainable. However, this is a prime example of an exception to the rest of society which unfairly prejudices those that are not defined as a football creditor. Following bleak months of austerity, cuts and double dip recessions many of us are left wondering why footballers are rewarded with economic immunity due to their club’s irresponsible borrowing.

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