HMRC has called on administrators from UHY Hacker Young to give their opinion
on the controversial preferential creditor rule in court next year.
In a legal document seen by Accountancy Age, HMRC has “invited” the
administrators of Portsmouth City FC to give their opinion on what “stance”
they take on the football creditors rule.
Currently, if a club enters administration, they are bound by the football
creditor rule, meaning some creditors – such as players and managers – will be
paid in full from the administration and the remaining money divided between the
unsecured creditors, including HMRC.
On 26 February, UHY Hacker Young joint administrators, Andrew Andronikou,
Peter Kubik and Michael Kiely, were appointed to Portsmouth City Football Club.
A source close to the case has told Accountancy Age it is unlikely
the administrators will attend court.
HMRC filed papers to the Royal Courts of Justice on 18 May labelling the
football creditors rule as “unlawful” because it believes the rule is outside
the laws of insolvency.
The taxman is also challenging the Premier League and Football League over
its membership rules which it labels as a “deprivation provision”, the league
claims back assets when a club enters liquidation.
Player contracts belong to the League with the club taking ownership of the
contracts while it is a member. When a club enters administration the membership
reverts back to the League along with the contracts.
Currently the League allows clubs to continue to be members if it exits via a
Company Voluntary Arrangement and a portion of debt is repaid to creditors over
a period of time. However, if the club exits via liquidation, the contracts and
membership is taken back by the League.
Essentially, if a club exits administration through liquidation, the assets
are reduced as the players cannot be sold as their contracts belong to the
League.
HMRC believes this rule is in “breach of the principle that the assets of an
insolvent estate should be preserved for the benefit of creditors”.
A date for a hearing is likely to take place early next year.
Further reading:
HMRC
tackles Premier League football creditor rule