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Revenue & Customs Commissioners v Football League
Limited & Football Association Premier League Limited [2012]
EWHC 1372 (Ch)
The Football League is a company limited by shares held by the
football clubs which played in the league. Its articles required a
member club to give a transfer notice on the happening of an
insolvency event. The League's board had the power to suspend
the operation of the transfer notice on such conditions as it
decided and to withdraw the notice if football creditors were paid
in full. "Football creditors" meant the other clubs, the
club's players, managers and the League itself. Another
provision in the articles provided that member clubs had no right
to payment of sums from television and other contracts made by the
League unless it had completed all its fixture obligations
– payments made during the season were on account. The
articles also provided that the League had to apply such sums that
would otherwise be paid to a defaulting club in discharging its
football creditors. The League adopted a policy that no club should
seek to gain an advantage over other clubs by not paying all its
football creditors in full. In practice, the League suspended the
transfer notice pending a takeover or refinancing provided that
football creditors were paid in full.
HMRC challenged this arrangement as (i) an unlawful attempt to
contract out of the provisions of the Insolvency Act 1986 requiring
pari passu distribution to unsecured creditors and (ii) a breach of
the anti-deprivation principle (i.e. because on insolvency the club
and its creditors were deprived of its assets, i.e. its share in
the League and its right to TV payments).
The Revenue failed on both counts. The High Court held that:
the pari passu principle only applied where there was a
distribution by the administrator etc. Payments to football
creditors were made at an earlier stage.
on the anti deprivation point, the articles made payment for
the TV rights etc conditional on completion of fixtures. As long as
the provision was not a sham (which was not suggested), the court
could not disregard those legal rights and obligations, even if
they had been drafted to achieve a particular end. If a football
club was not entitled to receive those proceeds until the end of
the season, it was not deprived of an asset if it went into
insolvency earlier and did not complete the season. The fact that
the League was to pay creditors meant that only the balance was due
to the club at the end of the season. It was not therefore deprived
of an asset which went beyond the amount of the balance. Equally,
the League's power to require the transfer of a member's
share if it went into insolvency was not void by reason of the
anti-deprivation rule. Its power to permit an insolvent club to
participate in its competitions on terms that football creditors
were paid in full were no more than the exercise by member clubs
through the League of their right to refuse to participate further
with the insolvent club save on those terms.
Comment
This case shows that it is possible, at least in some
circumstances, to create structures which compensate certain
creditors in preference to others and yet avoid the pari passu
provisions of the Insolvency Act and the anti-deprivation
principle. Obligations to exercise good faith and to use reasonable
endeavours to agree do not assist.
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