Football League clubs have agreed changes to the League’s Insolvency Policy aimed at promoting a ‘rescue culture’ that gives clubs facing insolvency the best chance to restructure their finances and continue in league football.
Any club entering administration will be immediately docked 12 points, up from the previous 10. On appointment the Administrator is required to advertise the club for sale for at least 21 days and must meet with the club’s supporter’s trust and provide the opportunity for it to make a bid.
The purchaser of the club is no longer required to achieve a Company Voluntary Arrangement (‘CVA’), the new rules enable The Football League to transfer the club’s share in the league to the Administrator’s preferred bidder, subject to meeting all other requirements.
The avoidance of a CVA should reduce the period of insolvency and the costs involved and thereby increase the return to creditors. It also prevents the process from being controlled by the previous owners, who in some circumstances are the only ones able to achieve a CVA. The removal of this requirement will create more potential purchasers, again improving the expected return to creditors.
On exit of the Administration, the purchaser must now pay creditors at least 35p in the £ (falling to 25p on transfer of the league share) or the club will be docked a further 15 points at the start of the next season.
The controversial Football Creditors Rule, which guarantees all footballing debts are paid in full in preference to other creditors, remains. Andrew Tate, vice-president of insolvency trade body R3, says that this rule often left ‘non-football creditors… empty-handed’ and is delighted that the changes ensure it ‘has been addressed in a manner which recognises the inequality of the rule when compared to the objectives of the UK’s insolvency regime’.
There has not been an insolvency event in The Football League for two full seasons, but should you be involved with a club facing financial difficulties then we would encourage you to contact us and speak with one of our experienced Practitioners who will be more than happy to provide guidance and advice. An initial consultation is provided free of charge.