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The new administration regime, introduced by the Government in the Enterprise Act 2002, puts the survival of a company or its business at the centre of the procedure. Companies may encounter serious financial difficulties for a number of reasons, but their underlying businesses may be sound. Administration can be used so that those businesses, and the jobs of those whom they employ, can be saved. As part of their statutory role, administrators must try to achieve the purpose of administration—to try to rescue the company as a going concern. If that is not possible, they must seek to achieve a better result for the company’s creditors as a whole than would be likely if the company went into liquidation straight away. If neither of those outcomes is possible, the administrator may realise the company’s assets and pay one or more of the company’s secured or preferential creditors. That
hierarchy of objectives ensures that the administrator’s first thought is the survival of the business—in this case, the football club.
Perhaps I can give some comfort to the hon. Lady and to those in Luton who are following this debate when I say that the majority of football clubs that have become insolvent in the past 16 years have gone into administration and survived, and occasionally thrived. No Football League club has gone out of business since the liquidation of Aldershot back in 1992.
Mrs. Dorries: I fully appreciate what the Minister says, but the nub of the issue is this: the football players and other clubs are to be paid 100p in the pound as the first line of creditors and, as normally happens in these situations, other creditors are to be paid 25p in the pound, which seems to be what HMRC is objecting to. If it is intransigent and definite in its objection, there is no way forward. I understand what the Minister says about other football clubs not having gone bankrupt, but that is a real possibility facing Luton Town if HMRC will not negotiate.
Mr. Thomas: The hon. Lady describes the situation correctly.
I acknowledge that, as the hon. Lady said, football clubs play an important role, at all levels, in the social fabric of the nation. I hope she will acknowledge, however, that the rules that govern corporate life, including those on insolvency, cannot be selectively applied depending on the industry, business or activity in which a particular company is involved. In an administration, the survival of the company or business should always be balanced against the interests of the creditors.
Administrators usually have up to eight weeks from their appointment to send the creditors a statement of proposals for achieving the purpose of administration, although the legislation allows for that period to be extended. In the case of Luton Town, the joint administrators have made use of those provisions and obtained permission to extend this period by some eight weeks, and 2020 has been granted a period of exclusivity by the administrators in which to make a bid for the club in return for its agreeing to contribute towards the funding of the administration during that period, which ends, as I suspect that the hon. Lady is aware, at the end of February. The administrators’ proposals will be issued after the expiration of that period.
The administrators have stated that the proposal will be, as the hon. Lady described, to exit administration via a company voluntary agreement. The proposals then have to be agreed by the creditors, and the administrators will arrange a meeting for that purpose, which is due to be held on 13 March. If a majority of the creditors vote in favour of the proposals, they will be approved and the administrators will then work to achieve the agreed outcome. The creditors are able to modify the proposals, although if the administrators do not agree with the changes made by the creditors, they would have to go to court to determine how they should proceed with the administration.
Mrs. Dorries: If all the creditors respond favourably except HMRC, what position does that put the football club in?
Mr. Thomas: It would put the football club in a very difficult position, as the hon. Lady is aware.
Let me outline one of the particular difficulties to do with insolvency and football clubs. There have been more than 40 football insolvencies in the past 15 years, with some clubs having entered administration on more than one occasion. With players’ salaries one of the largest expenses facing football cubs, even away from the heights of the premier league, the debt owed to Revenue and Customs in these insolvencies is often considerable.
Luton Town football club is a member of the Football League, which is essentially a private club with rules that its members must follow if they wish to remain a part of that club. Among these rules is the league’s own insolvency policy that members must adhere to should they enter an insolvency procedure—as the hon. Lady knows, that is one of the complicating factors in this situation. Failure to keep to this policy will, other than in exceptional circumstances, result in the loss of the member club’s share in the league. Without that share, the club cannot take part in league matches and will effectively cease to trade. In the case of a football club in administration, the loss of this share will almost inevitably result in liquidation. Players’ contracts would be void and they would receive what are known as free transfers, and the football club would, in effect, be dead.
The underlying principle of the Football League’s insolvency policy is that it is untenable for a league club to continue as a member of the league if football creditors are not paid in full. Football creditors are those organisations within the football family that are owed money by the insolvent club. I will not list all the potential creditors but it could be considerable, and it would include amounts owed to the football staff of the club, including players, and amounts owed to the league, the Football Association and to other clubs.
The league has stated that the conditions it places on insolvent clubs are tailored to conform to three key priorities: the continuation of the football club, if at all possible; full payment of all football creditors; and the best possible return for all other creditors. The insolvency policy goes on to specify that a club must exit administration via a company voluntary arrangement—a CVA—under the Companies Act 1985. For a CVA to succeed, at least 75 per cent. of unsecured creditors must vote in favour of the proposal.
Administrators are regulated professionals and are obliged by law to perform their functions in the interests of the company’s creditors as a whole. The administrators are not bound by the league’s rules on football creditors; they are required by law to treat all unsecured creditors equally.
It is clearly in the interests of a potential purchaser to abide by the league’s rules and ensure that football creditors are paid in full. If that stipulation is not met, there is a significant risk that the league will not allow the club to compete in its competition and the purchaser would own a worthless football club. Any proposal in the administration or CVA that is not approved by the creditors, or does not provide for the payment in full of football creditors, is likely to result in the end of the club.
I hope I have made it clear that I sympathise with Luton Town’s many loyal supporters and with the hon. Lady’s case, but football clubs are companies like any other and they must abide by the laws that govern companies. HMRC has a statutory duty to collect all tax and duty that is legally due. It has a responsibility to the vast majority of taxpayers who pay their tax on time to ensure that all tax debts are collected promptly and that taxpayers are treated fairly. HMRC must manage its relationship with football clubs as it would with any other individual or company.
The comfort I can, perhaps, give the hon. Lady and Luton’s supporters is that HMRC supports voluntary arrangements that meet its published criteria and where all the unsecured creditors are bound by the terms to receive the same treatment. It applies the same criteria to all businesses, and football is no exception.
Mrs. Dorries:
The hon. Gentleman has just explained that if the club did that—if everybody had to be paid at the same rate—it would not be able to pay out and meet the Football League’s criteria, which
would mean it would lose its golden share, so how on earth does he expect the football club to be able to do this?
Mr. Thomas: Well, I was going to go on to say, by way of conclusion, that there is still time before the expiry of the period for further conversations to take place between the consortium and HMRC, and I hope that the consortium will be willing to have those conversations.
It is clear that the club was insolvent and that led to the directors’ decision to put the club into administration. I hope that a solution can be found to ensure Luton’s continued membership of the Football League, but that decision can be made only by the creditors of the club on the proposals put before them. We need to ensure that all creditors—not just those within the football family—are treated appropriately. Hence the concerns of HMRC.
The hon. Lady has asked me to bring the debate and the points made in it to the attention of other Ministers, and I shall do that.
Adjourned accordingly at Three o’clock.
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