In the United Kingdom, football clubs sometimes choose to enter administration when they are unable to pay off outstanding debts. Under the Insolvency Act 1986, a business will face a winding-up order bringing them to court and if it is shown that a business cannot pay debts as they fall due or cannot repay outstanding debts then the company will be classified as insolvent. Administration puts accountants "in charge of pretty much everything apart from coaching the players and picking the team".[20] For a football club in administration, the "football creditors rule" requires football-related debts such as wages owed to players and staff, and transfer fees owed to other clubs to be paid first.

England and Wales

In 2000, ITV Digital bought the broadcasting rights to Football League and League Cup matches in a three-year, £315m deal.[3] In March 2002, the company went bankrupt owing the League £180 million which it said it "cannot afford to pay". As a result of this many Football League clubs had financial problems and entered administration.[37]

Before the implementation of a points deduction it was perceived that clubs had "manipulated and abused [administration] as a way of shedding debts then restructuring, and borrowing again once the hapless creditors had been fobbed off with their 8p in the pound".[20] In September 2003, it was proposed that clubs entering administration would be docked 10 points. A 'fit and proper persons' test was also introduced in an attempt to prevent fraudulent activities. If a person was previously director at a club which was in "administration twice during a five-year period" or at "two different clubs that have each gone into administration in a five-year period" then they would be prevented from becoming the controlling shareholder of a Football League club. A 'fit and proper persons' test was also introduced for directors of Premier League clubs. In November 2009, Stephen Vaughan, Sr. became the first director to fail the 'fit and proper persons' test.

To ease financial problems for clubs that had been relegated, "parachute payments" were introduced to give time to adapt to the financial gulf between divisions. The deductions of 10 points in the Football League and 9 points in the Premier League were ratified in 2004, with the rule in place from the start of the 2004–05 season. The League also adopted rules that prevented any side from being in administration for either two successive seasons or eighteen consecutive months.[6] The reason for the deduction being a point less in the Premier League was that the teams play eight fewer fixtures than Football League clubs. The first club to incur this new penalty were League One side Wrexham F.C. who entered administration on 3 December 2004.[6]

Leeds United filed for administration with only a few days remaining in the 2006–07 season, which automatically triggered a 10-point penalty. This placed Leeds at the bottom of the table and relegated the club, but they were extremely likely to have been relegated anyway. By entering administration during the 2006–07 season, they hoped to avoid starting the 2007–08 season on −10 points. The following week, Boston United entered administration in the final minutes of a defeat to Wrexham which ensured they were relegated to the Football Conference, meaning they likewise avoided starting the following season on -10 points (though they would find themselves being double-relegated to the Conference North for unrelated reasons).[70] The Football League saw both cases as clubs trying to exploit a loophole, and changed the rules. From 2007–08, any club entering administration after the fourth Thursday in March would have their 10-point deduction suspended until the following season. If the club is relegated the points will be deducted from their tally at the start of next season. If the club stays up the 10 points will be taken off their final total. [7]

On 26 February 2010, Portsmouth became the first Premier League club to enter administration.[154]

Football creditors rule

In a situation of insolvency, the "football creditors rule" means that debts to other clubs or players are prioritised and must be paid in full before the club is eligible to compete again in the league.[10] The Enterprise Act 2002 made reforms to the insolvency act and, from 15 September 2003, the altered procedures for administration were implemented.[12] Most notably it abolished the Crown's preferential right to recover unpaid taxes ahead of other creditors.[14] As such, HM Revenue and Customs (HMRC) is now often not paid in full (between 2003 and 2010, outstanding unpaid taxes to the HMRC amounted to £30 million). This legality of the football creditors rule was challenged in 2004 in Inland Revenue Commissioners v The Wimbledon Football Club Ltd. However, it was found that "full payment to football creditors (out of third party funds) ahead of preferential creditors did not infringe the provisions of section s4(4)(a) of the Act" and "differential treatment may be necessary to secure the continuation of the company's business and may be regarded as supportable".[17]

In 2011 HMRC brought another challenge to the football creditors rule in the High Court, this time on the basis that it breached fundamental principles of insolvency law, including the pari passu rule that all unsecured creditors should be paid on a proportionate basis. However, in May 2012 the court rejected the challenge as it found that the rule was not a deliberate evasion of insolvency law.[18]

List of clubs that have entered administration

ClubEntered
administration
Exited
administration
League(s)Deduction(s)
Charlton AthleticFebruary 1984[19][21]March 1984
Second DivisionNone
Middlesbrough21 May 1986July 1986[22]
Third DivisionNone
Tranmere Rovers1987[23]1987[24]Fourth DivisionNone
Newport County1989[25]February 1989
Dissolved[25]
Football ConferenceNone
Walsall1990None
Northampton Town1992None
Kettering Town1992None
Aldershot1992None
Maidstone United1992None
Hartlepool United1994None
Barnet1994None
Exeter United1994None
Gillingham1995None
Doncaster Rovers1997None
Millwall21 January 1997June 1997Second DivisionNone
Bournemouth1997None
Crystal Palace1998July 2000Second DivisionNone
Chester CityOctober 1998[26]July 1999Third DivisionNone
Portsmouth19981999Second DivisionNone
Hull City7 February 2001[29]12 March 2001[2]Third DivisionNone
Queens Park Rangers2 April 2001[33]17 November 2002[35]First DivisionNone
Halifax Town9 April 2002[3]March 2003[3]Third Division
Football Conference
None
Bradford City16 May 2002[3]1 August 2002[3]First DivisionNone
Notts CountyJune 2002December 1993Third DivisionNone
Barnsley3 October 2002[3]25 October 2003[3]Second DivisionNone
Leicester City21 October 2002[3]16 November 2004[3]First DivisionNone
Port Vale16 December 2002[3]2003Second DivisionNone
York City18 December 2002[3]26 March 2003[47]Third DivisionNone
Derby County20 October 200320 October 2003ChampionshipNone
Ipswich Town10 February 2003[2]30 May 2003[75]First DivisionNone
Wimbledon5 June 2003[4]21 June 2004[37] (As MK Dons)First DivisionNone
Darlington23 December 2003[37]26 May 2004[37]Third DivisionNone
Bradford City27 February 2004[37]10 December 2004[37]First Division
League One
None
Wrexham3 December 2004[6]3 August 2006[37]League One
League Two
10 pts
Cambridge United29 April 2005[37]22 July 2005[37]League Two10 pts
Rotherham United13 May 2006[37]???League One10 pts
Crawley Town5 June 2006[37]10 August 2007[66]Conference National6 pts
Boston United25 April 2007[68]20 May 2008[69]League Two10 pts
Leeds United4 May 2007[71]11 July 2007[72]Championship
League One
10 pts
−15 pts
Luton Town22 November 2007[209]28 July 2008[75]League One
League Two
10 pts
−20 pts
Bournemouth8 February 2008[9]18 July 2008[78]League One
League Two
10 pts
−17 pts
Rotherham United18 March 2008[80]2008League Two10 pts
−17 pts
Halifax Town26 March 2008[81]13 June 2008[193]Conference National10 pts
Darlington25 February 2009[5]7 August 2009[85]League Two10 pts
Southampton2 April 2009[86][2]8 July 2009[3]Championship
League One
N/A
−10 pts
Stockport County30 April 200918 June 2010League One10 pts
Chester City17 May 2009[26]10 March 2010
Dissolved
Conference National−25 pts
Northwich Victoria15 May 2009[101]16 May 2010[102]Conference National−10 pts
Farsley Celtic30 June 2009[107]10 March 2010
Dissolved[314]
Conference North10 pts[109]
Salisbury City3 September 2009[110]26 February 2010[111][112]Conference National10 pts
Weymouth28 October 2009[114]27 November 2009[115]Conference SouthNone
Crystal Palace26 January 2010[117]20 August 2010[197]Championship10 pts
Portsmouth26 February 2010[154]24 October 2010[83]Premier League9 pts
Plymouth Argyle4 March 2011[142]31 October 2011[124]League One10 pts
Rushden and Diamonds7 July 2011[125]8 July 2011
Dissolved[126]
Conference NationalNone
Darlington3 January 2012[198]21 June Dissolved 2012Conference National10 pts
Portsmouth17 February 2012[41]19 April 2013[129]Championship10 pts
Port Vale9 March 2012[109]20 November 2012[66]League Two10 pts
Coventry City21 March 2013[132]League One
League One
10 pts[132][125]
−10 pts[90]
Aldershot Town2 May 2013[134]League Two

Scotland

Following the adoption of a points sanction in the English Football League, a similar rule was proposed for adoption by the Scottish Premier League (SPL) in December 2003.[135] It was announced in January 2004 that SPL clubs going into administration in the 2004–05 season would be subject to a 10-point deduction and be prevented from signing new players. With Motherwell and Dundee already in administration at the time, it was decided that if "they are not in the process of coming out of administration by 31 May", the deduction would be applied at the start of the following season.[136] Furthermore, the Scottish Football Association would not allow clubs in administration to play in European competition.[137] Both Motherwell and Dundee met the required conditions to avoid the deduction of points.[138] The 10 point penalty was subsequently applied to Gretna in the 2007–08 season[20] and Rangers in 2011–12.[39]

Although the Scottish Football League (SFL) had no automatic deduction of points for clubs going into administration, it reserved the right to "deduct championship points before or during a season and/or to impose a player registration embargo on any club".[140] This meant that its penalties for insolvency varied; Dundee were docked 25 points in the 2010–11 season because it was the second time they had entered administration in a relatively short period.[141] The SFL also had the power to place a team in the bottom tier (Third Division) if there were any doubts that the club could fulfill their fixtures for the forthcoming season.[142]

The administration and liquidation of The Rangers Football Club Plc prompted much discussion in Scotland about what sanctions (if any) are appropriate for an insolvent club.[143] When Rangers entered administration in February 2012, the club was docked 10 points in the 2011–12 Scottish Premier League. The SPL clubs agreed to amend the penalty for administration to the greater of 10 points or one third of the club's tally in the previous season.[70] Rangers attempted to agree a CVA with its creditors, but this offer was rejected by HMRC in June 2012.[8] The business and assets of Rangers were instead sold to a new company.[8] One of Rangers' assets was its membership of the SPL, but this could not be transferred without the approval of the other SPL clubs.[8] Rangers' application for transfer was rejected by a 10–1 majority.[70] The SPL attempted to negotiate a deal with the SFL whereby Rangers would enter the First Division (second tier).[14] This was rejected by SFL clubs, who instead voted for Rangers to be granted associate membership of the SFL and a place in the Third Division (fourth tier).[14]

When the SPL and SFL merged to form the Scottish Professional Football League (SPFL) in 2013, the penalty for entering administration was standardised as 15 points.[148] Hearts entered administration days before the leagues merged and were docked 15 points for the 2013–14 season under the old SPL rules, as they had earned 44 points in the 2012–13 season.[148]

List of clubs that have entered administration

ClubEntered
administration
Exited
administration
League(s)Deduction(s)
Greenock Morton15 December 2000[70]8 August 2001[70]First DivisionNone
Clydebank23 December 2000[70]9 July 2002
Became Airdrie United[70]
Second DivisionNone
Airdrieonians21 May 2002
Dissolved[70]
First DivisionNone
Motherwell24 April 2002[154]20 April 2004[155]SPLNone
Dundee25 November 2003[156]6 August 2004[157]SPLNone
Livingston3 February 2004[158]13 May 2005[159]SPLNone
Gretna10 March 2008[161]8 August 2008
Dissolved[6]
SPL10 pts[20]
Demoted to Third Division[163]
Livingston24 July 2009[6]13 August 2009[165]First DivisionDemoted to Third Division[35]
Dundee14 October 2010[3]12 May 2011[169]First Division25 pts[35]
Rangers14 February 2012[39]14 June 2012[10]SPL10 pts[39]
After its membership of the SFA was transferred to a new company, Sevco Scotland Ltd, Rangers were admitted to the Third Division.[173][290]
Dunfermline Athletic27 March 2013[175]13 December 2013[176]First Division15 pts[51]
Heart of Midlothian19 June 2013[99]11 June 2014[179]SPL15 pts[99]

Clubs in other sports that have entered administration

ClubEntered
administration
Exited
administration
SportLeague(s)Deduction(s)
Crusaders R.L.12 November 201027 December 2010[181]Rugby leagueSuper League4 pts[182]
Wakefield Trinity1 December 2010[183]17 February 2011Rugby leagueSuper League4 pts

Notes

  1. Charlton was reformed under Charlton Athletic (1984) Ltd.[19]
  2. Middlesbrough was reformed under Middlesbrough Football & Athletic Company (1986) Ltd.[22]
  3. Hull were renamed under Hull City AFC (Tigers) Ltd.[32]
  4. Derby County Football Club did not enter administration itself but holding company, "Derby County PLC", did enter administrative receivership.[49] The company was almost instantly taken over by newly formed company, Sharmine Limited.
  5. Ipswich Town only entered temporary administration, this allowed existing club management to stay in place while finances were being restructured.[51]
  6. The Conference had no policy of automatic points deductions but, having failed to confirm payment of the previous season's CVA, the club were docked 6 points prior to the 2007–08 season for "bringing the Blue Square League into disrepute".[67]
  7. Due to Boston United's financial problems they were not placed in the Conference National when they were relegated but demoted straight to the Conference North.[70]
  8. Leeds United were originally deducted 10 pts,[71] but they were deducted 15 pts for not exiting administration via a Company Voluntary Arrangement.[73]
  9. Luton Town were docked 10 points in the 2007–08 League One season.[209] Unable to agree to a CVA and exit administration, Luton were docked a further 20 points at the start of the 2008–09 League Two season (this was in addition to 10 more points deducted for misconduct).[210]
  10. Bournemouth were originally deducted 10 pts for the 2007–08 season.[79] Having failed to exit administration or to a agree to a CVA before the start of the 2008–09 season, they started that side with −17 points.[79]
  11. Rotherham were originally deducted 10 pts for the 2007–08 season.[80] Having failed to exit administration or to a agree to a CVA before the start of the 2008–09 season, they started that side with −17 points.[80]
  12. Southampton were deducted 10 pts when it was found that the football club was "inextricably linked as one economic entity"[2] to the holding company Southampton Leisure Holdings PLC which had gone into administration on 2 April 2009.[86] As Southampton were relegated in the 2008–09 Championship season the points were deducted at the start of the 2009–10 League One season.
  13. As Chester City were expelled from the Football Conference on 26 February 2010 having breached five Conference rules.[93] On 8 March 2010 their results were expunged[102] and on 10 March 2010 the club was wound-up at the High Court.[312]
  14. Chester City entered administration just weeks after they were relegated in the 2008–09 League Two season. The club were therefore docked 25 points at the start of the 2009–10 Conference National season:[99] the automatic 10-point deduction and a further 15-point deduction due to investigations of financial irregularities by owner Stephen Vaughan, Sr.[100]
  15. Northwich Victoria Football Club (2004) Ltd. was renamed Northwich Victoria Football Club (2007) Ltd.[104]
  16. Northwich Victoria were initially subject to the automatic 10-point deduction. Furthermore, because they came out of administration "without paying its creditors (including but not limited to football creditors) in full",[105] they were expelled from the Conference and placed in the Northern Premier League Premier Division.[106]
  17. Salisbury City were initially subject to the automatic 10-point deduction. Furthermore, they failed to "pay all creditors in full by the second Saturday in May" which carried a two division demotion placing them in the Southern Football League Premier Division.[112][113]