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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