HM Revenue and Customs (HMRC) have failed in a bid to fast track a legal action against the Football League’s insolvency rule. The tax authorities believe that the football creditor rule is unlawful. It prioritises the payment of football creditors such as players, managers and clubs over all other creditors in an administration. They were disconcerted to get only 5p in the £ following the Portsmouth FC administration.
HM Revenue and Customs (HMRC) have failed in a bid to fast track a legal action against the Football League’s insolvency rule. The tax authorities believe that the football creditor rule is unlawful. It prioritises the payment of football creditors such as players, managers and clubs over all other creditors in an administration. They were disconcerted to get only 5p in the £ following the Portsmouth FC administration.
The tax authorities were prompted to act by the situation at Plymouth Argyle. They wanted the rule overturned before the Pilgrims exited administration so that a larger slice of funds could be claimed than with the rule in place.
However, Mr Justice David Richards dismissed the request on the principal ground that HMRC was unlikely to get anything from Plymouth even if the football creditor rule did not exist. The club owes £4m to £5m to secured creditors and it is unlikely that anything will be left over for unsecured creditors such as HMRC.
HMRC is brining a similar case against the Premier League later in the year. However, it has delayed proceeding until a decision is reached in a case involving Lehman Brothers which it believes would be helpful to its action.
If the football creditor rule was overturned, it is likely that more clubs would go out of business altogether and there would be knock on effects on other clubs that were owed money.