David Conn: Tax man loses appeal against 'super creditors'

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The Independent Football

Against expectations and the expert advice of most of the accountancy profession, the controversial rule that when clubs become insolvent, their "football creditors" - clubs and millionaire players - have to be paid in full, while other creditors can go unpaid, has survived a High Court challenge and appeal.

On Tuesday, the Inland Revenue lost its argument in the Court of Appeal that the rule is illegal because it ranks footballers and other clubs as "super creditors". The Revenue is considering whether to appeal to the House of Lords, but if it does not, or loses there, the football creditors rule, which the football authorities insisted on if clubs are to emerge from administration still members of the League, will remain in force.

As fistfuls of clubs have fallen into administration, the rule's distasteful effect has been pungently apparent. At Bradford, who collapsed in May 2002, 36 workers in club shops were sacked, substantial public money was owed to local authorities, and more than £5,000 to St John Ambulance. However, the bountifully rewarded players, including Benito Carbone and his £40,000 per week contract, had to be paid in full.

The Football League and Football Association argue that the rule maintains competition, ensuring that clubs cannot overreach themselves on players' pay, sack them and wipe the slate clean. Nevertheless, there has been severe criticism that the rule is immoral, and accountants' opinion that it is illegal, because it supersedes the order in which creditors are ranked by insolvency legislation. The All Party Parliamentary Football Group called earlier this year for the rule to be scrapped.

However, this week, the Inland Revenue lost its appeal against the Company Voluntary Arrangement at Wimbledon, where the tax man is receiving 30p on the pound. Three Law Lords, including the Lord Chief Justice, Lord Woolf - who declared his interest as a longstanding Leeds fan - have yet to deliver their reasons. However, they supported the recent High Court decision that, read strictly, the settlement of football creditors in full does not breach insolvency law. So English football emerges from its boom period since 1992 in which 36 clubs, exactly half the Football League's 72, have been insolvent, with something it considers a result.