R3 welcomes the recommendation of legislation to ban the use of the Football Creditors’ Rule.
We believe this will ensure a level playing field for all creditors.
The Football League argues the rule ensures all money remains in the game and preserves the integrity of competition.
But here is the truth – many clubs are insolvent, few exist under a sustainable business model and, off the pitch, professional football is far removed from an ethos of ‘fair competition’.
The impact of the rule contains several anomalies, which challenge the suggestion that the rule is intended to preserve the integrity of the game.
While it ensures the totality of a player’s contract is paid, it does not extend to those working in the club shop, the groundsman, other coaching staff and other trade creditors.
The impact of the rule challenges the general principle in insolvency that all creditors of the same class should be treated equally.
In football club insolvencies, under the rule, players’ contractual obligations and other clubs owed money from players they have sold are paid ahead of all others.
The cost of meeting this obligation is invariably so significant that it substantially erodes the ‘pot’ of funds available for the unsecured creditors.
In addition, the rule also reduces the value of any offer made by a potential purchaser of the club who was obliged to fulfil these financial obligations.
As a matter of policy the rule is unfair. In an ordinary business sale an Insolvency Practitioner sells a business for the benefit of all creditors, whereas a football club is sold principally for the benefit of football creditors.
Small businesses are the lifeblood of the UK economy and are likely to play an important role in any economic recovery.
It would therefore seem counter-productive to create a situation where unsecured creditors, who are typically small businesses, lose out to football creditors, especially as many of the latter are often highly-paid footballers.
Indeed, whilst much is made of the importance of football clubs to the community, suppliers are often the unsecured creditors in an insolvency situation, along with HMRC and consequently suffer the greatest losses.