Anti-Deprivation Rule Did Not Prevent 'Football Creditors' Of A Football Club Being Paid In Full Before Other Unsecured Creditors

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...