By Matt Scott
June 5 – English Football League clubs will today vote on a new insolvency policy that, if approved, will overhaul the way administrations are dealt with in the English lower leagues.
Three separate measures are part of the proposal to be voted on at the League’s summer conference:
1) For the 10-point automatic penalty for clubs filing for administration to be raised to 12;
2) For the requirement for a Company Voluntary Arrangement (CVA) to be agreed before clubs are permitted to exit administration to be scrapped
3) For a minimum guaranteed proportion of the debts owing to unsecured creditors to be paid
The League’s chief executive, Shaun Harvey, who has extensive knowledge of football-insolvency processes after nine years with the often-troubled Leeds United, was the author of the proposed new regulations. He and the League board have recognised how its current regulations have been extremely divisive.
The Football Creditors Rule (FCR), which guarantees that football players and other clubs due transfer fees are paid 100p in the pound for everything they are owed, contrasts sharply with current practices for unsecured creditors.
In many cases, creditors such as the taxman, local commercial suppliers and clubs’ non-football employees have been left severely out of pocket as takeovers have been conducted with little thought for their welfare.
The requirement for a CVA involves all creditors voting on the club bidders’ plans for the club with voting weights equal to their share of the total debts outstanding. In practice this has allowed existing owners who run up enormous supposedly ‘soft’ loans in their clubs to control the administration process, erase debts at a fraction of the liability and take over the club anew.
The League hopes that by removing this there will be more of an even playing field for all bidders for clubs. It has also designed the rules to make more money available to clubs’ new owners. The rationale is that there will be less payable in professional fees to insolvency practitioners running lengthy administrations.
There will be no intention to change the FCR. However, should the League get the go-ahead from its shareholder clubs, the biggest reform measure will be a guaranteed minimum of 25p in the pound being payable to all unsecured creditors.
That is what under the new proposal must be paid upon the takeover of an insolvent club. Alternatively, new owners may pay 35p in the pound owing, provided it is repaid within three years. Failure to adhere to either stipulation would result in an additional 15-point penalty in the season after the insolvency event.
Although it is as yet unclear whether the proposals will have sufficient support to be adopted, it is clear there is a movement for change on the current rules. Of the 59 clubs who expressed an opinion on the subject at the summer conference a year ago, 62.7% asked to change the regulations, with 6.8% of them demanding clubs who become insolvent should face expulsion from the League.
That idea was rejected by the League’s board due to concerns over what it could do to competition integrity. After years of being commonplace, insolvency has become less prevalent, with no Football League club filing for insolvency in the past two seasons. Recently introduced requirements to remain up to date on tax payments and for clear medium-term funding plans to be maintained have had a positive effect on clubs’ ability to trade successfully.
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