Following a statement by Damian Collins, former Chair of the Commons Select Committee, that up to 10 football clubs could go into administration within weeks, unless they receive an urgent and substantial government bailout.
Insolvency and administration lawyer at the city based law firm RPC, Finella Fogarty, comments:
“In the absence of a government bailout, it is easy to see how many clubs could face significant risk of administration in the light of COVID-19.
As any kind of formal insolvency procedure (administration or a voluntary arrangement) triggers EFL regulatory issues with points deductions as sanctions, exposing clubs to potential relegation, the emphasis will unsurprisingly be on clubs seeking to avoid administration and formal insolvency procedures altogether. Should an EFL club enter administration or liquidation then they are subject to the Football Creditors Rule whereby other football creditors, such as players, other clubs and the league itself are effectively given priority status, if the club wishes to remain in the EFL. In practice this sees the prioritised creditors being paid ahead of other unsecured trade creditors (such as third party suppliers).
Given that many player transfers include a deferred consideration element, the EFL will be closely monitoring matters to avoid the situation where one club’s insolvency causes a knock on effect throughout the leagues by clubs defaulting on payments to each other.”
Adding to this, Jeremy Drew, head of RPC’s Sports group said:
“What will also be of interest to prospective administrators (as well as clubs who avoid administration), are the possible claims that may arise depending on what decisions are reached by the EFL.
Several clubs have already expressed an intention to take action if they face relegation, or miss out on play-offs/promotion due to places being taken by other clubs found to have breached profit and sustainability rules this year. We expect a significant push by the EFL in seeking to resolve quickly any outstanding profit and sustainability-related disciplinary matters, particularly since the last matches of the season in mid-March.
The impact of those sanctions, if other clubs believe they have been prejudiced as a result, is certainly an issue that will be explored – including through prospective breach of contract claims under the EFL rules, or possible unfair prejudice actions. If any claims do arise, they would be played out behind closed doors much like any football for the foreseeable future – as disputes would be confidential and heard in private arbitrations pursuant to the EFL Rules.”