Football Club Administration
The object of this dissertation is to examine whether, in relation to football clubs, administration is working effectively as a process which fosters corporate rescue. The examination of this will allow discussion and analysis of the current administration procedure in relation to real, well-recognised companies. This is also a current issue. This is due to the fact that modern football clubs are prone to financial difficulty as they strive to improve their standing. These days, of inflated player wages and transfer prices and wealthy foreign investors can make football a risky business.
There are a number of questions generated by the object of the dissertation. One of which is: ‘what is the current law relating to administration?' The rules and regulations of the Football Association (FA) and the Football League (FL) which apply to insolvency will also need to be examined. Problems which are encountered by the football clubs in financial difficulty need to be identified and analysed. Then it must be asked if, or to what extent the administration procedure, in its current form, is effective in relation to football clubs. Another question posed is ‘are there any alternatives to the administration procedure for football clubs that are companies?'
In order to achieve its objective this dissertation will firstly look at the current law in the relevant areas, i.e. administration and company voluntary arrangements. It will then look at any FA or FL rules that relate to insolvency. It will then describe the recent insolvencies of four football clubs that are companies. Next it will consider the problems highlighted in the descriptions of the clubs' insolvencies. Finally, by looking at the aims of the relevant legislation, the dissertation will examine the extent, if any, that administration fosters corporate rescue for football clubs that are companies. Conclusions will then be drawn from this and the question posed by the dissertation title will be answered.
This dissertation will aim to show that administration has proved to be a very successful procedure for football clubs in financial difficulty. This can be shown by the fact that very few football clubs that are held by limited companies are dissolved as a result of insolvency. There are some problems raised, however. The main problems are raised by slight disagreements in the FA or FL's Rules and the laws of the UK.
It should be noted here that the statistical sample on which this dissertation is drawing is very small. This is due to the lack of time and space available. Given more time and space it would be interesting to extend the study and this may highlight more trends and problems for discussion.
Chapter One – The Current Law
This chapter will be to look at the current law on administrations and Company Voluntary Arrangements (CVAs). Following this will be consideration of the Football Association (FA) and the Football League's (FL) Rules and Regulations regarding insolvency.
Looking at the relevant law here will provide the basis of the study of the insolvencies of the four football clubs in Chapter Two.
The Current Law on Administration
Administration, as it stands today, was introduced by the Enterprise Act 2002 and the provisions are noted in the Insolvency Act 1986, Schedule B1.
There are three ways a company can enter administration.
One is via an administration order granted by the court. An application can be made to the court by: the company itself; the company's directors; or by one or more of the company's creditors.
QFCHs are able to appoint an administrator out of court. There is no requirement for the QFCH to notify the company of the intention to appoint. Therefore a company could find itself in administration against its will.
The company or its directors may also appoint an administrator out of court.
Once appointed, the administrator of the company has a dual status. He is considered to be an officer of the court and, in the exercise of his functions he acts as the company's agent. In acting as an officer of the court the administrator is able to attack transactions which took place prior to his appointment on the grounds that “they amount to transactions at an undervalue, preferences, extortionate credit transactions, vulnerable floating charges or transactions defrauding creditors”.
The administrator must select the purpose or objective of the administration. There is a hierarchy for him to choose from and he is under certain duties that could enable an effected creditor or member to challenge a negligent decision judicially. The hierarchy states that the administrator must perform his functions with the objective:
(a) of rescuing the company as a going concern unless he thinks that it is not reasonably practicable or that objective (b) would achieve a better result for the creditors of the company as a whole; or
(b) that the administration must achieve a better result for the creditors of the company as a whole than if the company was wound up without previously having been in administration; or
(c) of the realisation of property in order to make a distribution to one or more preferential or secured creditor.
Objective (c) must only be chosen if it is not reasonably practicable to use objective (a) or (b) and it does not unnecessarily harm the interests of the creditors of the company as a whole.
The administrator of the company has to carry out his functions with certain duties in mind. The administrator must notify the company, known creditors and members, and the Registrar of Companies of his appointment. He must also obtain a statement of the company's affairs and state his proposals for achieving the purpose of administration. The administrator must take control of the property of the company. This is all the property to which the company is, or appears to be entitled to. The administrator has a duty to call a meeting of the company's creditors. Once the administrator's proposals have been accepted he must manage the affairs, property and business of the company in accordance with them. The administrator is also under a duty to obtain the best price for any of the company's property that is disposed of and must also report on the conclusion of the administration.
In order to effectively perform his functions and duties the administrator is given quite extensive powers. The administrator may:
- Do anything which is necessary for the management of the affairs, property and business of the company;
- Call meetings of the company's creditors and members;
- Apply to the court for directions;
- Dispose of property subject to a floating or fixed charge;
- Dispose of property subject to a hire-purchase agreement;
- Make a distribution to creditors of the company.
The administrator also has all of the powers specified in the Insolvency Act 1986, Schedule 1.
The administrator must produce proposals. The statement of proposals must be accompanied by an invitation to attend an initial creditor's meeting at which the proposals will be considered.
A creditors meeting will be called by the administrator in order to discuss the administrator's proposals.The creditors will decide whether to approve the administrator's proposals at the meeting. The meeting can accept the proposals in full, they can reject them or they can modify them. The modifications require the consent of the administrator. In the event of a continued disagreement the matter is referred to the court. The required majority to pass a resolution to approve the proposals depends upon whether or not the proposal is for a CVA. In the event of an agreement, the administrator must report the outcome to the court, the company's creditors and the Registrar of Companies. He must then manage the company and it's affairs in accordance with the accepted proposals. The administrator has the power to call further meetings.
The creditors are afforded some protection under the legislation. Any creditor or member of the company has the right to apply to the court claiming that the administrator is, has or proposes to act so as to unfairly harm the interests of the applicant. Any creditor or member may also apply to the court claiming that the administrator is not performing his functions as quickly or as effectively as is reasonably practicable. In response to an application under section 74 the court may make any such order that it thinks fit. There are also onerous duties placed upon the administrator. One commentator stated that: the “creditors may take comfort in the new onerous duties imposed upon the administrator”.
The creditors' meeting may also establish a creditors' committee. The committee may request the administrator to provide it with information about the execution of his functions and could request the administrator to attend on the committee at any reasonable time.
Another important feature of the administration procedure is the statutory moratorium. The commencement of the administration procedure imposes a freeze in proceedings or executions against the company and its assets. This provides the company with breathing space to make arrangements to restructure the company, reorganise or reschedule their debts.
The moratorium ensures that:
- No resolution may be passed or order made for the winding-up of the company.
- No steps may be taken to repossess any goods under hire-purchase agreements that are in the company's possession or to enforce any security over property of the company.
- No legal process may be instituted or continued against the company or its property unless the court gives leave.
- Section 11 (3) of the Insolvency Act 1986 states that no steps could be taken to enforce any security over the company's property.
With the leave of the court or with the administrators consent the statutory moratorium may be relaxed. Under the old provisions several test cases have arisen and have been used by the courts to spell out their approach to the granting of the relaxation of the statutory moratorium.
There are nine possible exit routes from administration:
- One year after the company enters administration, administration comes to an end automatically.
- By court order made by the administrator.
- By the administrator, who was appointed out of court, filing a notice that the purpose of administration had been achieved sufficiently.
- On an application made to the court, by a creditor claiming that there was an improper motive on the part of an administrative applicant, for an order under paragraph 81.
- The court making a winding-up provision on the grounds of public interest.
- Where a notice for a creditors' voluntary liquidation is filed by the administrator.
- Where a notice is filed by the administrator for the dissolution of the company.
- Where the court makes a termination order as the creditors failed to agree to the administrator's proposals or the revised proposals.
- By court order where the administrator's actions have unfairly harmed either creditors or members.
The Current Law on Company Voluntary Arrangements
A company voluntary arrangement (CVA) made by a company with its creditors and members under the Insolvency Act 1986 Part I is a “composition in satisfaction of the company's debts”. This is where the company's creditors agree to accept a lesser amount than that which is owed to them in discharge of their claims. It could also be a scheme of arrangement of the company's affairs.
A company may make a CVA whether or not it is insolvent or is likely to become insolvent. Therefore a CVA may proceed, follow, or run alongside an administration or winding-up or may be conducted without prior or subsequent insolvency proceedings.
CVAs typically involve either a sale of the company's assets and then a distribution of the proceeds to the company's creditors, or a distribution in accordance to the terms of the CVA by its supervisor from the periodic payments to him made by the company as it continues to trade.
There are now two types of voluntary arrangement procedure: CVAs without a moratorium; and CVAs with a moratorium.
This dissertation will concentrate on the CVAs without moratoria. This is due to the fact that all of the football clubs that are companies, studied here are ineligible in terms of a CVA with a moratorium. CVAs with a moratorium will not be discussed further in this dissertation and the discussion below will refer to CVAs without a moratorium.
A CVA is initiated by a proposal by the directors to the company and its creditors, followed by delivery of the proposal and a statement of the company's affairs to the intended nominee. The nominee is the person whom the directors intend to nominate as the supervisor of the CVA. The nominee must be a licensed insolvency practitioner.
The proposals may be made by: the directors of the company when the company is not in administration or being wound up; by an administrator; or by a liquidator.
The nominee must summon meetings of the members and creditors of the company. The creditors and members meet to decide whether to approve the proposed CVA. The meetings are given the scope to modify the proposal. The meetings must not approve any proposal that would interfere with: the priority of a debt afforded preferential status by the Insolvency Act 1986, or the rights of a secured creditor to enforce his security. If there is a different decision at the creditors' meeting and the meeting of the members, the decision at the creditors' meeting is the one that prevails. The voting at the meetings is governed by the Insolvency Rules 1986. The Rules broadly state that for the creditors' meeting to approve the proposal more than seventy five percent in value of the creditors present, in person or by proxy, and voting on the resolution must support the arrangement. The members' meeting requires only an approval of over fifty percent of the members. If the CVA is approved by the required majorities at both meetings it: takes effect as if made by the company at the creditors' meeting.
Once the CVA has been approved the nominee becomes the supervisor of the CVA. The supervisor now has the role of carrying out the functions that the CVA confers on him. When the CVA is complete the supervisor must notify and provide with an account of receipts and payments, all of the company's members and creditors who are bound by the arrangement, the Registrar of Companies and the court.
Certain people have the specific right to challenge the decision to approve the CVA. The following are the people who are able to challenge the decision: those who were entitled to vote at either of the meetings; the administrator or liquidator of the company; or the nominee or replacement nominee. The challenge may relate to any material irregularities in relation to or at any of the meetings. It could also be based on the substantive ground that the interests of a member, creditor or contributory of the company had been unfairly prejudiced by the arrangement. If the court is satisfied that either one of the grounds is made, it could revoke or suspend the approvals given by the meetings. It could then summon further meetings and may also give supplemental directions.
One of the most common challengers to CVAs is Her Majesty's Revenue and Customs (HMRC). HMRC is a non-ministerial department of the British Government. It is primarily responsible for: the collection of taxes; import controls; some aspects of UK frontier protection; and some forms of state support. HMRC was formed when the Inland Revenue merged with HM Customs and Excise on 18th April 2005. Therefore, prior to this date it would be the Inland Revenue who challenged the CVAs of insolvent companies for tax purposes. HMRC used to be a preferential creditor. However, the Enterprise Act 2002 removed the Crown's preferential rights in insolvencies. The effect of this is that HMRC now have to sit alongside other unsecured creditors of the insolvent companies and may get a lesser percentage of their debt than they used to. This could make them more likely to challenge a CVA as an unsecured creditor.
A CVA may be completed at the end of the period specified in the terms on the CVA or it may be concluded earlier if all of the payments requested by the CVA have been made. The supervisor also has the general right to apply to the court for a winding-up or administration order to be made. Following the completion or termination of the CVA the supervisor must send notice to all the creditors and members bound by the CVA together with a report summarising all his receipts and payments. The Registrar of Companies and the court must also be notified by the supervisor.
The Rules and Regulations of the FA and FL
The clubs operating in the Football League and within the Football Association are bound to operate in accordance with the rules and regulations of the FA (the “Rules”). The Rules require certain general provisions to be entered into the football clubs' Articles of Association. This ensures that the clubs are legally bound, as a matter of company law, by some relevant rules and regulations of the FA as well as to the laws of the UK.
The Rules mention that a club should not “alter its constitution or make a material change to its financial structure without prior notification to the Association”. The Rules go on to name the appointment of an administrator as an alteration to the company's constitution or a material change in financial structure. This ensures that the FA and FL are informed if a club go into administration or are involved in other financial difficulties. This allows them to sanction the club in accordance with their rules. The FL deducts a club ten points if it undertakes any insolvency proceedings. The club in question is allowed to appeal, but only on the grounds of ‘Force Majeure'.
When a football club enters insolvency proceedings the FL has three key priorities:
- The continuation of the football club if at all possible;
- Payment in full of the football creditors;
- The best possible return for all of the other creditors.
These should also be the priorities of the club involved and it's insolvency practitioner.
The Rules stipulate that when an English Football League team goes into administration they lose their ‘football share'. In essence this means that they cease to be members of the Football League and cannot compete. However, the Rules allow the ‘football share' to be transferred back to the club if the club follows the Football League's policy when exiting the insolvency proceedings. This includes exiting administration only via a Company Voluntary Agreement (CVA); and within eighteen months of the club entering administration. The Football League do have an ‘exceptional circumstances' exception.
Another Rule is the ‘Super Creditor Rule'. This rule states that ‘football creditors' (these include the FA, the Football League, players, etc) must be paid in full as part of any CVA entered into by the club. The football creditors are often very substantial creditors. In effect this gives the ‘football creditors' preferential status over the other unsecured creditors and operates in practice as a specific distortion to pari passu. This will inevitably substantially reduce the pot of money for the other unsecured creditors.
This chapter has looked at the current law on administration and CVAs.
Administration is a mechanism to protect insolvent companies from their creditors whilst a restructuring plan is completed. It is designed to foster corporate rescue. However, the administrator will select the most appropriate purpose of administration for the company in question from the statutory hierarchy. The selected purpose is then put to the company's creditors and members in the form of a proposal to be decided upon at the respective meetings called by the administrator.
A CVA is a “composition in satisfaction of the company's debts”. It aims to give a structured plan for the company in question to repay the agreed amount of the creditors' debts back to them over a set period of time.
The Rules and Regulations, regarding insolvency, of the FA and FL have the main aim of ensuring the insolvent club's ‘football creditor' debts are paid in full. This is done in order to ensure that fair competition is maintained.
There have been recent reforms of the administration procedure and some areas of the provisions relating to CVAs. In relation to the reforms on administration the story so far has been mixed. It is faster than administrative receivership and is widely used. However, it is “used often as a substitute for liquidation rather than as a genuine corporate rescue vehicle and possibly to escape the level of scrutiny that liquidation normally entails”.
This discussion of the current law was undertaken to enable the educated discussion of the administrations of four football clubs that are companies in relation to the relevant law in the next chapter.
Chapter Two - Description of the Administrations of Four Football Clubs that are Companies
Chapter one considered the relevant legal procedures to effect corporate rescue for insolvent companies. The relevant law was examined and it was found that administration is a mechanism to protect insolvent companies from their creditors whilst a restructuring plan is completed. A CVA is a “composition in satisfaction of the company's debts”. It was also found that the FA and the FL's Rules regarding insolvency have the main aim of ensuring the insolvent club's ‘football creditor' debts are paid in full.
This chapter will now consider what happens in a particular industry: the modern football club. Most football clubs are now limited companies and therefore operate within full body of company law (including insolvency law). However, football clubs are also subject to the rules and regulations of the governing bodies of the sport, the FA and the FL.
This chapter will consider how these legal procedures have related in practice to four football clubs facing insolvency in the last six years. The football clubs which will be studied are: Leeds United Football Club; Wrexham Football Club; Bradford City Football Club; and Carlisle United Football club. First brief comments will be made about why they got into financial trouble. Then the legal processes used by the clubs whilst they were nearing insolvency and in administration will be examined. Finally some analysis is undertaken to extract the common practical and legal issues that were encountered in the process of administration.
Leeds United Football Club
To start there will be a summary of how Leeds United Football Club (LUFC) got into administration.
LUFC was held in a limited company called ‘Leeds United Association Football Club Ltd' (LUAFC). In the 2002/03 season the club had debts of £79 million. This forced player sales and the club were relegated from the Premier League in 2004 with debts of £103million. In 2004/05 Elland Road, the club's stadium, and the club's training ground were sold. This was not sufficient to alleviate the financial position and in the 2005/06 season Ken Bates bought a 50% stake of LUFC for £10million and became the director of: Leeds United Football Club Ltd (company number 05334247); LUAFC; Leeds United Stadium Ltd; Leeds United Retail Ltd; and Leeds United Investments Ltd. On the 28th April 2007 Leeds' relegation to League One appeared certain. On 4th May 2007 administrators KPMG were appointed as the administrators of LUAFC by the directors out of court under Insolvency Act 1986, Schedule B1, paragraph 22. LUFC were docked ten points and were relegated to League One.
The administration process of LUFC will now be examined in detail.
The administrators KPMG were appointed on the 4th May 2007. They were appointed by the directors of LUAFC. The administrator quickly agreed to sell the business, for an undisclosed sum, to a newly formed company called Leeds United Football Club Ltd (company number 05765697) (Directors – K. Bates, S. Harvey and M. Taylor). The administrator had received bids from other parties but had decided that Bates' offer was the best option for the creditors and LUFC. The administrators proposed a CVA based on this offer and called a creditors' meeting in which the creditors would consider the offer and decide whether to approve it or not. If the CVA was approved this would comply with the FL's insolvency policy which states that a football club which is in administration must exit administration via a CVA.
On 1st June 2007 Bates' offer was narrowly accepted at a stormy creditors meeting. Bates needed 75% of creditors in value of the creditors present, in person or by proxy, and voting to accept the proposed CVA. He received 75.02%. A recount was ordered due to the extremely narrow acceptance. There were no reports of a meeting of the clubs members being held.
The CVA proposal was approved by the recount as 75.2% of creditors had voted in its' favour. Therefore as long as there were no challengers to the CVA acceptance in the statutory 28 day period and the FL approved the sale, the sale would be complete. The FL's approval was required in order for the ‘football share' to be transferred back to the new company which would hold LUFC.
On the 3rd July 2007, one hour before the end of the 28 day period to challenge the CVA, HMRC lodged a challenge to the CVA “based on procedural matters relating to the way which KPMG conducted the creditors' vote”. As a result of this, the administrators announced that they would be putting the club back up for sale on the 6th July 2007. This was due to the fact that the legal challenge would have stretched into the pending football season and LUFC may have been prohibited from starting the season whilst the club was in legal turmoil. The CVA challenge of HMRC was avoided due to the club being put back up for sale.
The Football League announced that Leeds could start the new season (the 2007/2008 season in the FL League One).
On the 8th of July Bates stated that he would take legal action if the club was sold to a rival bidder.
On the 11th July 2007 the administrators announced that they had sold the club to Newco (Bates' consortium) for an undisclosed sum. It was unknown how much of the club's debt Bates intends to pay off. The club's administrator stated “The approved deal represents the best result for creditors in the circumstances and we believe provides the club with the best chance of survival”.
On 3rd August 2007 the Newco was transferred the ‘football share' for LUFC by the FL, allowing LUFC to start the season. However, the FL gave LUFC a fifteen point deduction as they had failed to come out of administration via a CVA. LUFC appealed, but their appeal was rejected on 9th August 2007 by the FL chairmen at a meeting in London. However, LUFC did not accept this decision and decided to issue the FL with a High Court writ claiming that the FL acted ‘outside of their jurisdiction' in handing LUFC an additional fifteen point deduction. LUFC accepted an offer from the FL of a three man independent arbitration hearing in private. The matter is still ongoing.
I will now summarise the main facts of LUFC's administration.
The administrators KPMG where appointed on 4th May 2007 by the directors of LUAFC and an administration order was obtained. The club was sold to the Newco on July 11th 2007. This means the club was in administration for nine weeks and five days.
A CVA was agreed but was discarded after a challenge brought by the Inland Revenue. The club was subsequently sold without a CVA.
The Football League's Insolvency policy was not followed, therefore LUFC were deducted fifteen points from the next season (2007/2008) as well as the original ten points from entering administration. However, LUFC have appealed against the deduction of the additional fifteen points and have agreed to a three man arbitration in private to decide the issue. This issue is still ongoing.
Wrexham Football Club
To start there will be a brief account of the circumstances that led to the financial difficulties and ultimately the administration of Wrexham Football Club (WFC).
WFC was held in the limited company Wrexham Association Football Club Limited (WAFC). In May 2004 the property developer, Alex Hamilton, took over as chairman of WFC after acquiring its stadium, the Racecourse Ground through his company Crucialmove Limited, in June 2002. In August 2004 the club revealed it had debts of over £3 million. Then in October 2004 the Inland Revenue, as a creditor of the company, issued a petition to wind-up the company compulsorily. Hamilton also resigned as chairman of the board of directors, but remained the owner of WFC. On the 3rd of December 2004, with debts of over £4 million WAFC were placed in administration by the High Court after the company's directors applied for an administration order to protect the club from liquidation. The club became the first to be deducted ten points under to the Football League's rule change.
There will now be a detailed examination of the administration process of WFC.
On the 3rd December 2004 WAFC were placed in administration after being granted an order by the High Court. The administrators, Begbies Traynor were appointed.
In June 2005 the administrators of WAFC began legal proceedings to seek an order from the court that the legal and beneficial ownership of the freehold to the Racecourse Ground be vested in the club. Ownership was vested in Mr. Hamilton's company, Crucialmove Limited. This could be done as the administrator of a company is given the status of an officer of the court. This enables the administrator to attack transactions which took place prior to his appointment on the grounds that “they amount to transactions at an undervalue, preferences, extortionate credit transactions, vulnerable floating charges or transactions defrauding creditors”. It is not clear under which of the grounds was brought against Crucialmove Limited. Crucialmove Limited had 28 days to defend itself in the proceedings.
In September 2005 the Surrey property developer Andy Smith and a consortium headed by Wrexham car dealer Neville Dickens emerged as possible buyers for the club.
On 20th October 2005 the administrators of WAFC announced that they had won the battle to regain ownership of the Racecourse Ground. A judge at Birmingham High Court found against the club owner, Hamilton's company Crucialmove Limited stating that they should not have bought the freehold to the stadium as the evidence was clear that Crucialmove Limited, the buyer of the Racecourse Ground, had notice that a director of the company was making the sale in breach of his fiduciary duty and without WAFC's informed consent; the buyer was therefore not acting in good faith and so could not rely on the common law rules or statutory provisions protecting third parties in such situations. The sale of the WAFC was now clear to go ahead; however, £300,000 of the proceeds from the sale of the assets of WAFC must be given to Crucialmove Limited. This was the amount which Crucialmove Limited originally paid for the Racecourse Ground.
On 19th December 2005 Crucialmove Limited won the right to appeal against the Birmingham High Court's decision.
The 14th March 2006 saw Crucialmove Limited lose their appeal and the Racecourse Ground remained under the control of the administrators.
The administrators of WAFC offered the company's assets, including WFC for sale. The administrators made a proposal of a CVA and arranged meetings of the company's creditors and members. WAFC's creditors unanimously backed the takeover bid by Wrexham Football Club (2006) Ltd (the Dickens consortium) on 30th May 2006. The creditors agreed a £3.25 million deal. In a separate meeting the company's members voted in favour of the takeover.
In June 2006 the FL Board voted to accept that the accepted CVA, which saw WFC(2006) takeover WAFC, had satisfied the FL's insolvency policy. There was some question as to whether the CVA had been approved inside the eighteen month deadline. Therefore the FL would grant WFC their ‘football share'.
On 3rd August 2006 WFC(2006) took over the assets of WAFC.
The main points of the administration process of WFC will now be summarised.
On 3rd December 2004 WAFC were granted an administration order requested by the club's directors and the administrators Begbies Traynor were appointed. The club was sold to WFC(2006) on 3rd August 2006. This means that the club was in administration for twenty months. This is longer than the FL allows, however, the League was satisfied that the deal was in place in time.
The Club was sold via a CVA where the clubs creditors unanimously voted in favour of the proposal of WFC(2006).
Bradford City Football Club
To start there will be a brief account of the circumstances that led to the administration of Bradford City Football Club (BCFC).
BCFC were held by the limited company Bradford City AFC (1983) Ltd (BCAFC), who went in administration on 16th May 2002. A CVA was proposed and agreed by the clubs creditors and members at their respective meetings and implemented on 1st August 2002. BCAFC exited administration on 31st January 2003. However, BCAFC defaulted on its payments to its creditors under the accepted CVA. Therefore, on 27th February 2004 the clubs creditors applied for an administration order and BCAFC was placed back in administration.
The administration process of BCFC will now be examined in detail.
On the 27th February 2004 BCAFC were placed back into administration after the club's creditors filed for a court order.
Neil Brackenbury and Mike Moore of Kroll's Corporate Advisory and Restructuring Group were reappointed as the administrators of BCAFC. One of the administrators stated that the club had to “seek the protection afforded by administration” while it attempts to solve its current financial situation. The administration was a result of the club failing to make the repayments of their CVA.
BCFC began to fear that their effort to save the club was under threat as the Inland Revenue had challenged a similar rescue package for Wimbledon Football Club Ltd.
The administrators put together a proposal of a CVA which would see Bradford City Football Club Limited (Newco) buy the assets of BCAFC which included BCFC. On 5th May 2004 a proposed creditors meeting to discuss a CVA proposal was postponed one week to the 14th May 2004 as the club felt that it could gain the majority vote but would struggle to satisfy the other essential requirements of the proposed CVA.
The proposed CVA was withdrawn on 12th May 2004. This was due to the fact that the club was not on a “sound financial footing”. Therefore the creditors meeting on 14th May was cancelled.
On 29th July 2004 the administrators of BCAFC announced that the FL had given BCFC permission to play in the FL the subsequent football season. This was required as a club loses it's ‘football share' in the FL when it enters administration and cannot take part in the FL without the FL's permission.
The CVA presented to the creditors of the company on 19th August 2004 was approved by 78% in value of the club's creditors. The CVA would see the Newco purchase the assets of BCAFC, including BCFC. However, the acceptance was subject to a “number of conditions with must be fulfilled”. The actual amount was undisclosed.
On 30th of September 2004 the Inland Revenue announced that it would not appeal against the CVA.
Julian Rhodes completed his purchase of BCAFC on 10th December 2004.
The main points of the administration process of BCFC will now be summarised.
BCAFC went into administration on 27th February 2004 as the creditors of the company got an administration order granted. The previous administrators and supervisors of the defaulted CVA, Kroll's Corporate Advisory and Restructuring Group, were reappointed as the administrators of BCAFC. The club exited administration on 10th December 2004 as J. Rhodes bought the club via a CVA through the Newco. This meant the club had been in administration for nine months and thirteen days.
Carlisle United Football Club
To start there will be a brief account of the circumstances that led to the administration of Carlisle United Football Club (CUFC).
The directors of Carlisle United Association Football Club (1921) Ltd (CUAFC), the company which held CUFC, sought the appropriate professional advice and filed an application to appoint an administrator, by court order, to manage the company's affairs immediately after a winding up petition was presented to them by the Inland Revenue. The Directors' petition was granted on June 6th 2002 by the High Court.
The following is a detailed examination of the legal processes involved in the administration of CUAFC.
On the 6th June 2002, on the application of the directors of CUAFC, an administration order was granted by the court and the company went into administration. The administrators BKR Haines Watts were appointed at the request of the company's Directors. The administrators stated that the purpose of their appointment was to rescue the company as a going concern.
The administrators of CUAFC proposed a CVA which offered creditors a full 100% reimbursement of their debts. The creditors were offered a full reimbursement as at the time the current owner and chairman of CUFC, Michael Knighton, was trying to sell his 93% shareholding in CUAFC. This left CUAFC in turmoil and the creditors of the company pushed for the full reimbursement of their debts. This would be considered by the creditors and members in their respective meetings which would be called by the administrators. The creditors' meeting to decide on the proposed CVA was scheduled for the 2nd August 2002.
It was announced on 26th July 2002 that Irish businessman John Courtenay had had an offer accepted by Knighton. The offer was for Knighton's full 93% shareholding in CUAFC. However, the offer was subject to the proposed CVA being accepted.
On the 2nd August 2002 Courtenay gained Knighton's 93% share in CUAFC as the proposed CVA was accepted by the required majority at a meeting of company's creditors.
Courtenay put £500,000 of his own money into CUFC to help repay the Club's outstanding debts.
CUAFC came out of administration on the 15th October 2002. The company was cleared to come out of administration at a High Court hearing. At the hearing the administrators were discharged and full control was handed over to the new owner John Courtenay and the Directors. However, David Elliot, of the administrators BKR Haines Watts remained as supervisor to “ensure the creditors of the club are paid as agreed by the CVA”.
CUAFC exited the CVA on 29th October 2003.
I will now summarise the main points of the administration process of CUFC.
CUAFC entered administration on 6th June 2002 after the Directors petitioned the High Court for an administration order. This was done as the Inland Revenue had presented the company with a winding-up petition. The administrators BKR Haines Watts were appointed by the directors. The company exited administration on 15th October 2002 after a High Court hearing cleared them to come out of administration. However, one of the administration team remained as a supervisor to the uncompleted CVA. The Club was in administration for five months and nine days.
The company's creditors accepted a CVA on the 2nd August 2002 and were entitled to receive 100% of their debts. The CVA continued after the club had exited administration and ended on 29th October 2003.
This chapter has considered the administrations of four companies in a particular industry in light of the relevant, current law considered in chapter one. The industry considered is that of the modern football club. The administrations of: Leeds United Association Football Club Ltd (LUFC); Wrexham Association Football Club Limited (WFC); Bradford City AFC (1983) Ltd (BCFC); and Carlisle United Association Football Club (1921) Ltd (CUFC).
The main problem with the administrations of limited companies which hold football clubs centres around the fact that the FA and FA have a policy which states that all of the ‘football creditors' must be paid in full. This is known as the ‘super creditor rule'. In many circumstances this rule has led to challenges to the CVAs of the limited companies which hold football clubs by unsecured creditors. This is due to the fact that the full payment of the ‘football creditors' substantially reduces the amount available for the repayments of the debts of unsecured creditors of the companies. The HMRC challenged the proposed CVA of Leeds United Association Football Club Ltd. There were also worries about possible challenges to the CVAs of Wrexham Association Football Club Limited and Bradford City AFC (1983) Ltd.
There were also formations of phoenix companies. This is to be expected in this particular industry as football clubs change their names very infrequently and the limited companies which hold the clubs usually have a similar name to the club.
Their seemed to be no trend in the durations on the administrations of the four companies considered.
The information gathered in this chapter will be used in the next chapter where the main areas of legal difficulty that the companies encountered will be examined in detail.
Chapter 3 – Areas of Legal Difficulty Encountered by Football Clubs that are Companies Whilst in Administration
The previous chapter considered the administrations of four football clubs that are companies. The main problem areas identified were: problems with the ‘super creditor rule'; problems concerning challenges to the CVAs of the companies; and concerns over phoenix companies being formed.
This chapter will discuss some of the legal problems encountered by the four clubs which were highlighted in the previous chapter. This chapter will strive to show that a large proportion of the problems are the result of a conflict between the relevant legal practices and statutes that relate to company insolvency and the FA and FL's insolvency rules.
The ‘Super Creditor' Rule
The ‘super creditor' rule (SCR) states that ‘football creditors' (these include the FA, the Football League, players, etc) must be paid in full as part of any CVA entered into by the club. In effect this gives the ‘football creditors' preferential status over the other unsecured creditors.
There has been much criticism levelled against the SCR, however the FA and the FL have continued to back the rule for a number of reasons. In a document entitled ‘Current Insolvency Policy' the FL sets out principles to guide companies which hold football clubs that experience financial difficulty. Their justification of the SCR begins with the opinion that no club should gain an advantage over their competitors by not paying their creditors in full. The document classifies the creditors into football creditors and non-football creditors. In relation to the football creditors, the FL states that it is ‘not tenable' for the club to retain its ‘football share' if football creditors are not paid in full.
This issue is also addressed by the FA in a 2004 Financial Advisory Committee Report. Reviewing the previous season's problems, this report stated that the Football Authorities have “good arguments” in favour of the SCR. It states that the rule does not “encourage the preference” of one group of creditors over the other. They claim that the Rule merely states which creditors must be satisfied in order for the club to retain its' sporting status. It also says that the SCR helps to avoid the “domino effect” of clubs defaulting on one another and thus endangering the financial status of other clubs.
Subjecting this to analysis, it seems that the main objective justification for the SCR is that it functions to maintain competition and fairness between the insolvent club and its competitors. In turn it ensures that clubs “cannot overreach themselves on players' pay, sack them and wipe the slate clean”. If this practice was allowed to occur players would think twice about joining a club who were experiencing financial difficulties. The players would choose not to join a club that was in financial difficulty as there would be the possibility of them not being played if the club's problems worsened. The ability of the club to attract better players could allow the club to avoid insolvency altogether. This is due to the fact that better team performances can easily result in the club gaining more money from gate receipts and competition prize awards.
The report also admits that a previous report by the Independent Football Commission in 2003 recommended a review on the ‘current relevance of, and justification for, the football creditor rules'. It seems that the recommended review was not performed, or at least the results were not satisfactory, as insolvency experts have recently predicted that spate of football club collapses could force the Government to take action on the SCR as they would be continually losing out on tax.
The SCR has also been criticized on the basis that it has been a “constant thorn in the side” of the administrators of insolvent football clubs. One of the problems faced by the administrators was seen to be the fact that the SCR leaves the administrator dealing with two sets of contradictory rules, the business and tax law, and the SCR. This situation makes it difficult for the administrator to achieve the objective of administration and delays the sale off of the business in administration given difficulty of gaining approval of necessary majority of creditors.
The Rule has also been criticized by a Member of Parliament. In a meeting with her fellow MPs, Dawn Primarolo expressed her doubts about football's insolvency rules. Primarolo argued that the SCR conflicted with Government efforts to put all creditors on an equal footing.
There have been several legal challenges concerning the SCR by HMRC. These challenges have increased since the Enterprise Act 2002 abolished the Crown Preference Rule.
The case of IRC v Wimbledon Football Club Ltd saw the Inland Revenue apply to the High Court under the Insolvency Act 1986, s 6 for an order to revoke or suspend Wimbledon FC Ltd's CVA, which had received the required majority in a creditors' meeting. Here the Revenue's debt was preferential as it was before the abolition of the Crown Preference Rule. However, the Revenue still contended that it was unfair that the ‘football creditors' got 100% of their debt paid back whist they had to settle for a 30% return.
The Revenue challenged Wimbledon FC Ltd's CVA on two grounds.
They submitted a challenge on the grounds that the Insolvency Act 1986 s 4 (4) (a) was infringed. This section provides that a meeting shall not approve a CVA under which “any preferential debt of the company is to be paid otherwise than in priority to such of its' debts as are not preferential debts”. The Revenue was arguing that the payment of ‘football creditors' in full infringed this section as, at the time their own debt was preferential and they could only be expected to receive 30% of what was owed to them. The Revenue can no longer make a challenge under this section as their debts are no longer considered to be preferential. Mr. Justice Lightman held that s 4 (4) (a) did not preclude payment of non-preferential creditors ahead of preferential creditors by a third party's free money and not from company assets. This was due to the fact that the new buyer of Wimbledon FC Ltd, under the terms of sale and purchase agreement relating to the business, agreed to pay the ‘football creditors' from his own personal monies. This is due to the fact that the full payment of these ‘football creditors' was seen as a commercial necessity to the buyer of the club. The judge recognized that these of cases required “careful scrutiny” to ensure that the right judgment was made and the purposes behind the relevant provisions of the legislation were maintained.
The Inland Revenue also challenged the CVA under the Insolvency Act 1986 s 6. Under this challenge the Revenue argued that the CVA was unfairly prejudicial to their interests. This challenge also failed. The sale of the club could only go ahead if the ‘football creditors' were paid in full. The Judge commented: “I cannot see how the imposition on the Buyer of an obligation to do what commercially the Buyer has to do in any event can imbue the Arrangement with any unfairness…”. In other words, the buyer was only doing what was necessary for a beneficial sale. The Judge also commented that the obstacle imposed by the FL on the buyer may be objectionable, but it “exists, by common consent is legal and has to be surmounted”. The Judge went further than this. He mentioned that, even if he was satisfied that there were grounds to revoke the sale under s 6, he would not have exercised his discretion. He believed that to do so would be damaging to the Club, the Buyer, the administrator and it would confer no benefit on the Inland Revenue. This is because the only other option for the club other than this CVA was liquidation. The Inland Revenue would be worse off in a liquidation than it would be under the CVA.
It is “important to recognise that the League was not a party to the application and that no direct challenge was made to the legality of the football creditor rule”. However, this was an important case in terms of seeing whether a challenge relating the SCR would survive a court case. The decision here led to the Inland Revenue dropping a similar appeal against Exeter City FC.
A ‘phoenix company' is a company which is formed from the remnants of a company which has recently gone into liquidation (Oldco). The new company usually has the same, or a very similar name to the Oldco. The choosing of a name which is the same, or very similar name to the Oldco is usually an attempt to hide the fact that the Oldco has gone into liquidation. This could enable the new company to enjoy the goodwill of the old business.
LUFC experienced some legal problems in this area. In order to examine the anti-phoenix provisions of the Insolvency Act 1986 s 216 in relation to LUFC it is necessary to outline certain facts that occurred in the insolvency of LUFC.
Ken Bates was a director of the old company, ‘Leeds United Football Club Ltd' (“Oldco”) from 17th January 2005 until 7th March 2006. Oldco went into compulsory liquidation on 6th March 2006. Bates was also a director of ‘Leeds United AFC Ltd' (“AFC”) from 20th January 2005 until 4th May 2007. Since 21st January 2005 he was director of ‘Leeds United Stadium Ltd' (“Stadium”), ‘Leeds United Retail Ltd' (“Retail), and ‘Leeds United Investments Ltd' (Investments). ‘Stadium' and ‘Retail' went into compulsory liquidation on 27th June 2007.
When ‘oldco' went into compulsory liquidation Bates had been a director of Stadium, Retail, Investments and AFC for more than twelve months. The ‘third exception' of Insolvency Rules 1986 rule 4.230 applied here. This enabled Bates to continue to act as a director of those companies without having to apply to the court for permission. However, ‘investments' had been dormant at some time during the twelve month period before ‘Oldco's' liquidation. The ‘third exception' does not apply to a company that has been dormant at any time during the twelve month period. Therefore, unless Bates applied by the 13th March 2006 for leave to act as a director of ‘Investments', and was given leave before 17th April 2006, making use of the ‘second exception', he would be in breach of Insolvency Act 1986 s 216. This would mean Bates could be subject to criminal penalties.
Bates became a director of Leeds United 2007 Ltd on 1st May 2007 and Leeds United Football Club Ltd (together the “Newcos”) on the 3rd May 2007 shortly after AFC went into administration. Bates needs to have obtained the leave of the court to act as a director of Newcos or he will be in breach of s 216. It was reported that KPMG, AFC's administrators, think that an application to court was made by Bates. However, HMRC believed that Bates did not have the courts permission to act as a director of Newcos. It was also noted that the Insolvency Service had no notice of any relevant application. The ‘first exception' under r4.228, notifying creditors when a new company acquires the business from an administrator or other appointed insolvency practitioner, could not apply in this case as Bates was already a director of ‘Newco'. If Bates did not have the courts permission he may have been liable for ‘Newco's' debts up to 6th March 2011.
On 20th October 2007 it was reported that Bates, and the two other directors in question, were allowed to continue to remain on as a director of Leeds United the Newcos as a High Court judge had granted his application. It was suggested that the court gave retrospective leave for the three men to act as directors of Leeds. If the court had not given leave Bates and the other directors could have been disqualified as directors of the companies. Bates was the chairman of the board of directors of LUFC and one of the companies in question was the company which holds LUFC. If Bates and the two other directors were disqualified it would have has a serious effect on the club and the company which holds it. LUFC would be thrown into chaos and uncertainty.
The possibility of phoenix companies arising in this particular industry is to be expected as football clubs change their names very infrequently and the limited companies which hold the clubs usually have a similar name to the club.
Company Voluntary Arrangement Problems
The FL's insolvency policy states that clubs must exit administration via a CVA, except in ‘exceptional circumstances'. This became a problem in the administration of Leeds United Association Football Club Ltd.
Leeds United Association Football Club Ltd did not exit administration via a CVA, as the previous forty-one league clubs that experienced financial difficulties did. It was thought that LUFC were in danger of not being granted their ‘football share' by the FL and not being able to start the football season. However, the FL eventually accepted the sale of Leeds United Association Football Club Ltd to Leeds United Football Club Ltd without a CVA under the ‘exceptional circumstance' exception. This was done reluctantly and the FL stated that they could not allow the company to work outside their strict rules concerning administration and imposed a fifteen point penalty for the start of the next football season. LUFC appealed against this decision. Their initial appeal was dismissed by the chairman of the FL clubs. However, this appeal is ongoing and LUFC have recently accepted an offer made by the FL. Their appeal will be heard by a three man arbitration in private.
Another major problem associated with the CVAs of the clubs studied was challenges to them by unsecured creditors, namely the HMRC. These were mainly caused by the SCR.
On 3rd July 2007 HMRC lodged a challenge to the CVA of Leeds United Association Football Club Ltd. The HMRC's grounds for appeal were “based on procedural matters relating to the way which KPMG conducted the creditors' vote”. The legal challenge would have stretched into the 2007/2008 football season and Leeds may not have been able to start the season. This led to the administrators, KPMG aborting the accepted CVA and selling Leeds United Association Football Club Ltd to Bates' new company Leeds United Football Club Ltd.
Bradford City AFC (1983) Ltd was also given a scare by a proposed Inland Revenue challenge to their own CVA.
BCFC began to fear that their effort to save the club was under threat as the Inland Revenue had challenged a similar rescue package for Wimbledon FC Ltd and Exeter City AFC Ltd. However, the Inland Revenue decided not to challenge Bradford City AFC (1983) Ltd CVA as their challenge to Wimbledon FC Ltd's CVA was rejected by the courts.
Carlisle United Association Football Club (1921) Ltd had some problems with their own CVA. The creditors would not accept a CVA unless they received 100% of their debts. This was due to the fact that the CVA was proposed by the Board when Knighton was chairman. However, it was evident that a takeover was imminent. Under these uncertain circumstances the creditors were able to push for a full 100% repayment.
When reviewing the problems highlighted above the contradiction between the statutory provisions and the FA and FL's insolvency rules and policies is raised on numerous occasions. In fact the majority of the problems discussed above arise as a result of this. The main problem seems to be the SCR. Many of the legal challenges facing the studied clubs have arisen from the fact that this rule conflicts with UK insolvency law principles. There seems to be good arguments on both sides in relation to the SCR. The FL and FA justifications are logical and raise the important point that the Rule is required to protect an insolvent club's competitors and maintain trading within the game. However, the points raised by unsecured creditors are also valid. One can envisage that this conflict will continue, unresolved, unless the rule is changed or it conclusively survives a direct challenge in court.
The rule cannot be abandoned completely. It must remain in some form to maintain competition and trading within football as a whole. If the rule was abolished totally, without a similar provision being introduced, it could have a disastrous effect on the game. This is due to the fact that insolvent clubs not paying their debts to players would damage the faith that the players have in the systems imposed by the FA and FL. This could result in players demanding even more money and more complex contracts before agreeing to join a club and players would probably be very reluctant to join a club in financial difficulty under any circumstance. If insolvent clubs did not pay their debts to other clubs in full the other clubs could be drawn into financial difficulty and, in the extremist of circumstances, the whole structure of the football industry could come under threat.
It seems evident that the FA and FL rules and provisions acting as a private club's rules in conflict with legal principles make the administrator's task even more difficult when he is trying to achieve the purpose of administration for an insolvent football club.
The information gained in this chapter will be, along with the information gained in the previous chapters, used in the subsequent chapter in order to discover the extent to which administration, as a process which fosters corporate rescue, is effective for football clubs that are companies.
Chapter Four – Examination of the Extent to which Administration, as a Process which Fosters Corporate Rescue, is Effective for Football Clubs that are Companies
Chapter three discussed and analysed the legal problems encountered by the four football clubs that are companies. It discovered that the main problem was a conflict between UK law and the Rules and Regulations of the FA and FL which mainly concentrated around the ‘super creditor rule'.
This chapter will attempt to discover the extent to which administration, as a process which fosters corporate rescue, is effective for football clubs that are companies. In order to do this it will first look at the Cork Committee and examine the reasons for it introducing the administration process. Then there will be a discussion of the objectives, or purposes, of the administration process as it stands today. Following this there will be a discussion of the extent to which administration, as a process which fosters corporate rescue, is effective for football clubs that are companies. This will be done by comparing the four cases examined in chapter two with the purposes and the aims of administration discussed in this chapter and the other functions of the administration procedure discussed in previous chapters.
This chapter will express the opinion that administration is an effective procedure which fosters the corporate rescue of football clubs that are companies and that it is effective to a good extent. However, it will show that there are some problems.
The Cork Committee
Edmund Dell MP appointed a Review Committee on Insolvency Law and Practice in January 1977. Kenneth Cork would be the chairman of the Committee which would become known as the ‘Cork Committee' (CC). The CC was asked to examine and review the law and practices relating to “insolvency, bankruptcy, liquidation and receivership”.
The CC compiled a report which was published in June 1982. The report was compiled at a time during which the rate of business failure was at a record level.
The Cork Report (CR) suggested the introduction of a wholly new corporate insolvency mechanism. This new mechanism was designed primarily to facilitate the rescue and rehabilitation of the viable parts of companies in financial difficulties. Following the recommendations of the CR, the administration regime was introduced and the provisions were consolidated in the Insolvency Act 1986, Part II.
It was originally envisaged that the proposed administration regime would be used as a secondary procedure to administrative receivership. It would only be the primary procedure when an administrative procedure could not be appointed.
The procedure, as it stood at this point in time, had “no statement of overarching statutory objectives or hierarchy of purposes”. There were specified purposes for whose achievement an administration order might be made: (a) the survival of the company as a going concern; (b) the approval of a voluntary arrangement; (c) the sanctioning of a compromise or arrangement between the company and its creditors; and (d) a more advantageous realisation of the company's assets than would be effected on a winding up. An administration order could specify more than one of the above purposes.
Reform of the administration procedure was required.
The Purposes of the Legislation
The following is a discussion of the purposes of the administration procedure as it stands today.
The administration procedure under the Insolvency Act 1986, Part II, was reformed by the Enterprise Act 2002. The reforms effectively abolished administrative receivership. Administration was now the favoured route. It was the Government's intention to switch from a remedy focused on secured creditors to a collective insolvency procedure designed to secure a greater number of corporate rescues.
The purpose of administration is defined as: “an objective specified in paragraph 3” of the Insolvency Act 1986, Schedule B1.
Under the new procedure the purpose of administration is selected from a strict hierarchy of purposes. The administrator must perform his functions with the purpose or objective:
(a) of rescuing the company as a going concern unless he thinks that it is not reasonably practicable or that objective (b) would achieve a better result for the creditors of the company as a whole; or
(b) that the administration must achieve a better result for the creditors of the company as a whole than if the company was wound up without previously having been in administration; or
(c) of the realisation of property in order to make a distribution to one or more preferential or secured creditor.
Objective (c) must only be chosen if it is not reasonably practicable to use objective (a) or (b) and it does not unnecessarily harm the interests of the creditors of the company as a whole. It seems that the intention was to create an “appropriate balance between the need for the administrator to have the flexibility to act in order to maximise the economic value and the Government's view that collective procedures in the interests of all the creditors is the right approach”.
It was envisaged that objective (a) would most likely involve the creditors agreeing to the company entering a CVA or scheme of arrangement. The Explanatory notes to the Enterprise Act 2002, paragraphs 647 and 649 indicate that a proposal which would result in a ‘shell company' remaining would not be considered a rescue for this purpose.
Under the new procedure only one purpose would be chosen, as opposed to the possible numerous purposes under the old procedure.
It should be mentioned that administration is not an end in itself. It is an interim phase in the life of a company. It will either be successful, i.e. the company in administration will experience the restoration of business to normal trading, the conclusion of a voluntary arrangement or a disposal of the business or the assets without liquidation. On the other hand the administration could fail. In this case the company would normally go into insolvent liquidation or be ‘wound up' through administration.
Having examined the initial and present purposes of the administration procedure there will now be a discussion as to whether administration is an effective process which fosters corporate rescue for football clubs that are companies.
The Extent to which Administration, as a Process which Fosters Corporate Rescue, is Effective for Football Clubs that are Companies
The extent to which administration is an effective process in terms of fostering corporate rescue for football clubs that are companies will now be examined.
Very few football clubs that are companies do not survive an administration. The majority of the limited companies that hold the football clubs end up selling their assets, including the football club, to a newly formed company. This was certainly the case with the four football clubs that are companies studied in this dissertation.
Leeds United Football Club (LUFC) were held by the limited company Leeds United Association Football Club (LUAFC). During the administration, the administrator agreed to sell the assets of LUAFC, which included LUFC, to a newly formed phoenix company, Leeds United Football Club Ltd. The administrator stated “The approved deal represents the best result for creditors in the circumstances and we believe provides the club with the best chance of survival”. Therefore objective (b) of the purposes of administration had been achieved by the administrator of LUAFC.
A similar course of events took place in the administrations of Wrexham Football Club (WFC) and Bradford City Football Club (BCFC). Here the respective administrators achieved objective (b) of the administration procedure.
Carlisle United Football Club's (CUFC) administration was also successful. However, here the administrator managed to rescue the company which was in administration as an ongoing concern, Carlisle United Association Football Club (1921) Ltd (CUAFC), as a going concern. Therefore here the administrator of CUAFC had managed to achieve the primary objective of administration, objective (a). This was definitely the best result for the creditors as well as the company and the club.
Three of the studied clubs completed a CVA: WFC; BCFC; and CUFC. This can be seen as another indication of a successful administration.
The administration process also provides the companies which hold the football clubs with protection from their creditors whilst a restructuring plan or a CVA, etc, is drafted and put to the creditors and members of the company at meetings. This protection is provided by the statutory moratorium. This is extremely valuable for insolvent limited companies which hold football clubs, especially when the company enters administration during the football season. The moratorium will enable the football club to hold onto its assets, which include the players and the club's stadium, etc.
It seems that administration is a successful procedure in fostering the corporate rescue of football clubs that are companies.
The Extent to which Administration, as a Process which Fosters Corporate Rescue, is Not Effective for Football Clubs that are Companies
The extent to which administration is not an effective process in terms of fostering corporate rescue for football clubs that are companies will now be examined.
From the study of the four football clubs that are companies which has been undertaken in this dissertation it has become clear that it is rare for the administrator, of a limited company which holds a football club, to achieve objective (a) of the hierarchy of purposes of administration. This is the rescuing of the company as an ongoing concern and is probably the primary objective of administration. Only the administrator of CUAFC achieved the rescue of the company as an ongoing concern from the cases studied. The administrators of LUAFC, Wrexham Association Football Club Limited (WAFC) and Bradford City AFC (1983) Ltd (BCAFC) achieved objective (b). Therefore, although an objective of administration is being achieved, the primary objective is only achieved rarely. Although, objective (b) is the secondary objective and may be accepted over objective (a) if the administrator thinks that it will achieve a better result for the company's creditors as a whole.
Some of the Rules and Regulations of the Football Association (FA) and the Football League (FL) affect the possibility of the purpose or objective of administration being achieved. One such example is the fact that a company which holds a football club must exit administration via a CVA unless there are ‘exceptional circumstances' present. This could hinder the achievement of the purpose of administration as it cuts down the number of exit routes from the administration that the administrator has open to him. Another example is the ‘super creditor rule'. This states that the football creditors' (these include the FA, the Football League, players, etc) must be paid in full as part of any CVA entered into by the club. In effect this gives the ‘football creditors' preferential status over the other unsecured creditors. This rule makes it more likely that the company will receive a challenge to their proposed or accepted CVA from an unsecured creditor. This will endanger the acceptance of the CVA and possibly the success of the administration along with it.
This examination shows that there are also areas that hinder the administration of football clubs that are companies and show that the purposes of administration are not being achieved to the fullest extent.
This chapter attempted to discover the extent to which administration, as a process which fosters corporate rescue, is effective for football clubs that are companies.
The chapter has shown that administration is a process which fosters corporate rescue, for football clubs that are companies. The extent to which it is effective must now be determined.
All four of the football clubs that are companies that were studied had a successful administration and all of the administrators of the companies achieved one of the more desirable objectives of administration. It has also been shown that the companies studied have benefited from some of the other functions of the modern administration procedure, i.e. the statutory moratorium.
There are also some areas in which there are problems. It was shown to be rare for objective (a), the primary objective of administration to be achieved. It was also shown that there were some conflicts between the laws of the UK and the Rules and Regulations of the FA and FL.
The chapter has shown that there are some factors present which hinder the gaining of a successful administration for a football club that is a company. However, in despite of these problems it has been shown that administration is an effective procedure which fosters the corporate rescue of football clubs that are companies and that it is effective to a good extent.
The findings of this chapter will be used, together with the findings in the previous chapters in the conclusion to this dissertation. The findings will help to answer the original question posed by the dissertation.
The object of this dissertation is to examine whether, in relation to football clubs, administration is working effectively as a process which fosters corporate rescue.
The dissertation has looked at: the current law on administration and CVAs; what happens in a particular industry, the modern football club that is a company; the legal problems encountered by football clubs; and has attempted to discover the extent to which administration, as a process which fosters corporate rescue, is effective for football clubs that are companies.
It has been shown that administration is a mechanism which was designed to protect insolvent companies from their creditors whilst a restructuring plan was completed or a voluntary arrangement was made, etc. This fit the modern football club that was a company well. The Rules of the FA and FL stated that a football club must exit insolvency proceedings via a CVA. This could be done in administration. The administration procedure would provide the football clubs with protection via its statutory moratorium. The football club could also benefit from the other functions of an administration.
The CVA would allow the football club that was a company to pay off its debts to its creditors over a strict, agreed schedule. The terms of the CVA could be agreed upon by the club and its creditors and members.
Most football clubs that are companies have a successful administration and the administrators of the companies usually achieve one of the more desirable objectives of administration i.e. objective (a) or (b).
It was shown to be rare for objective (a), the primary objective of administration to be achieved. It was also shown that there were some conflicts between the laws of the UK and the Rules and Regulations of the FA and FL. The main problem seems to be the ‘super creditor rule' (SCR). Many of the legal challenges facing football clubs that are companies have arisen from the fact that this rule conflicts with UK insolvency law principles. There seems to be good arguments on both sides in relation to the SCR. The FL and FA justifications are logical and raise the important point that the Rule is required to protect an insolvent club's competitors and maintain trading within the game. However, the points raised by unsecured creditors are also valid.
This dissertation has shown that administration has proved to be a very successful procedure for football clubs in financial difficulty. This is due to the fact that very few football clubs that are held by limited companies are dissolved as a result of insolvency. There are some problems raised, however. The main problems are raised by disagreements in the FA or FL's Rules and the laws of the UK. However, it must be stated that administration is an effective procedure which fosters the corporate rescue of football clubs that are companies and that it is effective to a good extent.