10 August, 2010
HMRC clearly went for the big win in this match and referee Mr Justice Mann identified two attacking strategies in play: firstly a conviction that CVA arrangements that do not treat all unsecured creditors equally are unfair and secondly a "deep-rooted antipathy to the football creditor rules" which is putting it mildly.
HMRC put a lot of pressure on the referee to issue a straight red to the football creditor rules (which require clubs to pay players and other clubs to avoid points penalties and other league-imposed sanctions) and to rule against the FAPL and Football League insolvency rules penalising clubs which do not come out of administration via a CVA and expelling from the league clubs in liquidation. Commenting that FAPL and the Football League were not on the pitch to defend their goals and that HMRC had a grudge match lined up against FAPL in the High Court for later in the season, the referee kept his cards in his pocket and waved the claims away.
Over two days HMRC had five shots at Portsmouth and its CVA and even without David James, Portsmouth's team kept a clean sheet and hit HMRC on the break.
The referee rejected HMRC's suggestion that if the CVA did not go ahead Portsmouth could soon bring on a substitute purchaser and find more money for creditors. The Court found that unless there was a successful challenge to the football creditor rules and League insolvency rules "there is no way in which worthwhile money is likely to flow into this insolvency…other than via the CVA."
What can we learn?
HMRC's decision not to appeal will be welcome on the South Coast but leaves open the issues of the football creditor rules, league insolvency rules and taxation on player EBTs and image rights. There is plenty to play for in forthcoming fixtures. The FAPL is presently trying to get the case on football creditor rules cancelled.
Outside football, the Court took account of general insolvency law principles that not all creditors have to be treated the same for a CVA to be valid and also took seriously the commercial reality that the rules of the FAPL and Football League meant the CVA was the only way to avoid liquidation and financial disaster for Portsmouth. The key point was that CVAs can produce very different results to liquidations but that does not make them unfair provided they are operated properly.
Portsmouth's administrators had a duty to try to save the business before they broke it up through liquidation and the Court has supported the way they interpreted that duty. HMRC wasn't happy with the result but since no foul play was found and it couldn't prove that it had lost out enough to force a replay, the result stands.