Exeter test case for Inland Revenue

A legal case, brewing quietly, involving Exeter City and the Inland Revenue, could have profound consequences for the football authorities' insistence that when clubs go into administration, football creditors, mostly players' wages, have to be paid in full, while other creditors have to accept as little as 10p in the pound or nothing.

This policy, which the Football League has repeatedly maintained as club after club has slipped into insolvency since the collapse of ITV Digital in April 2002, is now under genuine attack. The Inland Revenue argues it is illegal because it gives football creditors priority over all others. Previously, the Inland Revenue were legally classed as a preferential creditor, but were downgraded to the status of ordinary creditors by the Enterprise Act of 2002.

Exeter were the first club to drop into administration after the Act came into force, and the Inland Revenue sees this as a test case. It could have serious implications for the sums currently being done to save Leeds United. Exeter's settlement neatly illustrates the problem. The club owed £3.45m, debts left by the previous regime, which the Supporters Trust settled when they took over the club. The £450,000 owed to football creditors was paid in full, while others, including the Inland Revenue, owed £3m, had to settle for 10p in the pound - £300,000 altogether.

The case is due to be heard on 23 April. If the Revenue win, Exeter will have to pay all creditors, including football creditors, equally, which will not be in full. As football's rules stand, this will mean Exeter will be expelled from the Conference. The club has sought legal clarification of the insolvency rules from the Conference - as well as challenging the 12-point penalty imposed on the club for going into administration - and the Conference has reacted furiously, accusing Exeter of running up legal costs which the clubs cannot afford to pay.

"We're in a pickle here," said Ian Huxham, Exeter's managing director. "We really feel this is the football authorities' problem and we should all be coming together to sort it out. Instead we're being hung out to dry."