In simple terms this involves all the company assets being sold for the benefit of the creditors. In order to avoid this, the directors appointed an Administrator. It is the first football club in the English Premiership League to go into administration.
Portsmouth FC has had a bumpy ride recently. I’m not just referring to their position at the bottom of the Premier League table. Firstly Her Majesty’s Revenue and Customs threatened to have the company compulsorily wound up.
In simple terms this involves all the company assets being sold for the benefit of the creditors. In order to avoid this, the directors appointed an Administrator. It is the first football club in the English Premiership League to go into Administration.
What does the procedure mean? Well, it is very often a last resort. The directors or secured creditors, ask the High Court to place it in Administration, usually having exhausted all other avenues. The Administrator, an insolvency practitioner, is then appointed to run the club. In this case, the directors of Portsmouth are hoping to see if the Administrator can salvage the club’s finances by cutting costs. HMRC do not share this view and will challenge the Administrator’s appointment on the basis that it is invalid.
An Administration is a temporary arrangement, often pending a possible sale of assets or the business or restructuring it in some way. Frequently, the Administrator ultimately becomes the Liquidator. This is may be because it is a lost cause despite all efforts. Although, sometimes it is better to close down what is left, after viable parts have been sold off.
In Deloitte’s recent Top 20 earning clubs, the highest earner, Barcelona, had annual revenue exceeding €400m. And there were no less than seven English teams in that list. There are many larger businesses but these figures are still significant.
As with many industries, football has its own quirks. One common characteristic which regularly features is the fact that some directors of football and rugby clubs often let their hearts rule their heads. The very same people who are balanced, level-headed business owners and managers – with proven track records – make decisions which they would never condone in their own companies. Perhaps the degree of influence the clubs’ “customers” (ie fans) have is underestimated, whose judgment is based on sporting prowess measured against other clubs rather than financial performance and stability. Indeed, there are those who argue football clubs should operate on a not-for-profit basis, for the benefit of their local community. It is not just the fans – everybody has an opinion as to what is the best for the club.
Another peculiarity which irks many creditors (particularly HMRC) is the fact that to enable clubs to remain part of the Football League (and hence secure their continued existence) all “footballing debts” need to be settled in full. This is not part of insolvency law, they are just rules dictated by the FA or Football League. Consequently, other creditors often find themselves very reluctantly agreeing to the FA having all footballing debts settled in full and front of their own indebtedness simply to secure the club’s future.
In recent years, Wilson Field have acted as Administrators for Gretna FC and Darlington FC. Alos, one of our five Licensed Insolvency Practitioners, David Elliot, administered Carlisle United.