On 13 May 2019 Paul Robert Appleton and Asher Miller were appointed as Joint Administrators of Bolton Wanderers Football & Athletic Company Limited, better known as Bolton Wanderers FC (BWFC).
This announcement came at the end of last season. After numerous unsuccessful attempts to sell the club by the former owner, the financially stricken club, founded in 1874 and one of the 12 founding members of the English Football League (EFL), was relegated from the Championship, having also failed to fulfil their final match against Brentford.
The Joint Administrators’ Report and Proposals to creditors confirmed that BWFC’s inability to secure cash injections had culminated in a winding up petition being presented by HMRC on 31 January 2019 for unpaid tax and National Insurance contributions (NIC).
Administration is an insolvency process which aims first and foremost to preserve the insolvent company as a going concern by implementing a moratorium on creditor claims whilst an insolvency practitioner (IP) attempts to turn it around. If that turnaround is not achievable, the IP will attempt to achieve a better outcome for the creditors than if the company went straight into insolvent liquidation or to secure a return for one or more of the secured or preferential creditors.
In July, after inaccurate statements by angry supporters, players and staff at the club, Paul Appleton made a statement on the club’s website, saying: “As football creditors, Phil [Parkinson], his staff and the players will get paid in full once the deal has been completed. This is in contrast to other creditors, who will receive nothing approaching that level of compensation.”
To many, the words ‘paid in full’ seem out of step with insolvency processes where creditors generally receive at best a percentage of their debts, but football is a peculiar beast in this respect, so what did he mean?
To understand football’s peculiar position, an understanding of the EFL’s status is needed. It is a company limited by shares; every club in the league is entitled to an ownership share – the ‘Golden Share’. This gives clubs the right to play in the league and share in league incomes from TV and other commercial deals (from a pooled account at the end of the season).
In return, they must honour league rules and fixture commitments. When a club (like BWFC, and also recently Bury FC) is in severe financial difficulty, the league will closely monitor the situation. If the club enters into liquidation, administration or any other insolvency, the board of The Football League Limited may, as well as deducting points or imposing other sanctions, direct that their share is transferred to a nominee of the board and so suspend the club’s rights to play in the EFL.
If an EFL member is insolvent, the football creditors must be paid in full for the club to be re-admitted to play in the league. These creditors include the League itself and associated leagues, other clubs and full-time employees (including players). It does not include HMRC, or the countless local businesses and suppliers which may rely on the club for their livings.
HMRC is amongst those who consider the football creditor rule to be manifestly unfair (particularly since it lost its preferential creditor status around 2002), but the courts have upheld the rule and rejected HMRC’s claim that the football creditor rule is void under the ‘anti-deprivation principle’ and the ‘pari passu principle’.
Both of these principles is intended to ensure that in an insolvency, all assets of the company are available for the general body of creditors so that they each share equally in any distributions, and so that no creditor or group of creditors benefits or is disadvantaged unequally.
The court’s decision was premised on the fact that the money that the football club was entitled to receive from the EFL (including revenues from television rights etc) was not due to the football club as of right and was a discretionary benefit payable if the club completed each season. The ‘pot’ was available for the EFL to meet the debts of the football creditors and this was in the interests of ensuring that each club could fulfil its obligations to the other teams and the organisers, such that the particular rule of the EFL fulfilled a legitimate purpose.
It also turned on the fact that in the administration process there was no automatic presumption that there would be a distribution to unsecured creditors and so the pari passu principle would not automatically be infringed just because a club had entered administration.
There has generally been a downward trend in club administrations, and also significant changes have penalised teams more harshly with a 12 point deduction for an insolvency event. These changes have also attempted to address the football creditor rule disparity by insisting that unsecured creditors must receive at least 25p in the £ of what they are owed (or 35p if paid over 3 years). This has arguably made it more difficult to financially rescue a club because any investor now needs to pay the 25p/35p in addition to all of the football creditors.
The EFL had also previously insisted that the club must exit administration via a Company Voluntary Arrangement (CVA) – that is no longer mandatory, in an effort to reduce costs and expenses of the process. There is also a required 21 day marketing period for any IP seeking to sell the club, designed to satisfy creditors that a proper price has been obtained for the assets.
HMRC will see its preferential status partially restored next April in respect of certain ‘direct’ taxes such as PAYE and NIC under new legislation passed earlier this year – this will mean that in an insolvency those elements of HMRC’s claim will be paid in priority to the preferential and floating charge creditors.
It will be interesting to see how HMRC’s and other creditors’ approaches will change while they seek to best protect their positons. It could signal further pain for the unsecured creditors who remain at the bottom of the pile, but it will address substantial issues HMRC and the Treasury has with non-payment of taxes by insolvent companies, not exclusively in football insolvencies.
Bury Football Club was the first club to be kicked out of the EFL since 1992 (Maidstone FC) and represents another high profile casualty of the current global economic financial crisis and the particular challenges faced by football clubs in today’s world. Just miles down the road from two of the world’s richest clubs in Manchester City and Manchester United, Bury were expelled by the EFL on 27 August 2019 after the League decided that there was no viable finance or business plan in place to rescue the club, as opposed to BWFC where the League granted further time.
The club having been sold for £1 to Steve Dale in December 2018 was later in financial difficulty again, and after being kicked out of the league, the club entered a CVA under a further cloud of scepticism. The CVA and the transactions are being examined by the Insolvency Practitioners Association.
Back in Bolton, the business and assets of BWFC have now been sold to Football Ventures (Whites) Limited, a new limited company incorporated on 11th January 2019. Following a 12 point deduction, BWFC currently sits in League One on -8 points, 12 points adrift of 22nd place Southend United and so despite having come out the other side of administration, the future looks far from rosy.
We have considerable experience acting for many sporting clients, including both individual sporting athletes and for the administrative receiver of Luton Town FC. If you would like to get in touch for any further advice in this area, please contact Paul Grundy on 01242 246412 or [email protected]