Mawhinney leads League action on insolvency

New chairman promotes proposals designed to combat clubs' increasing tendency to use administration to escape debts

Football league clubs which go into administration will have points deducted or even be compulsorily relegated if proposals unanimously agreed by the League's board are accepted by a majority of clubs at a meeting at Leicester City on Thursday. Sir Brian Mawhinney, the former Conservative Party chairman who is the new chairman of the League, said this week that the proposals are intended to provide a "serious deterrent" to the regular flow of clubs into administration, which is "damaging the reputation of football".

League clubs have been crumpling into administration with dreary regularity for the last decade, but the collapse of ITV Digital last April led to clubs queuing at the High Court, unable to pay suppliers, tax, VAT, public services and St John Ambulance. Seven clubs have been in administration this season – a tenth of the League: Notts County, Port Vale, Leicester City, Ipswich, Barnsley, York and Huddersfield.

"Football creditors", mostly players and other clubs, have to be paid in full if a club is to stay in the League, and the League used to insist that preferential creditors – tax and VAT – had also to be met in full. That provided some deterrent to clubs using administration as a way to wipe out debts – although the ordinary creditors were left high and dry. But recent changes to insolvency law have removed the preferential status of the Inland Revenue and Customs and Excise.

Leicester City's recent exit from administration agreeing to pay the Inland Revenue only a tenth of £7m owed – more if the club returns to the Premiership – has left a sour taste at League headquarters and led to fears that more clubs will now choose administration. That, Mawhinney said, would do "irreparable harm to the good name of football."

Besides the appalling spectacle of the national game leaving a trail of people and public debts unpaid, Mawhinney said there was "a lot of unhappiness" among League clubs themselves, many of whom have worked hard to pay what they owe, while watching rivals wiping their slates clean by going into administration. He said: "Many clubs feel that others are gaining a competitive advantage, shedding their tax bill and other debts, and emerging free to spend money on players."

A range of proposed measures to toughen the stance on administration includes time limits to be set on how long clubs can remain under the protection of administration. If it goes on a whole season, a club would be compulsorily relegated. Notts County have been in administration since June 2002 and the League recently issued an ultimatum of the end of the season or Notts County will lose their historic League status. Any club which enters administration for the second time in three years would be automatically expelled from the League.

"We don't want clubs going into administration at all," Mawhinney explained. "If clubs do it on a serial basis, they are bringing the game into disrepute and we don't want them in the League."

Clubs in administration will also lose their vote in League meetings, and any member of the League's board whose club went into administration would automatically be removed as a League director. If that rule had applied this season, John Elsom, a League director who was on Leicester City's board, and David Sheepshanks, the chairman of Ipswich and former League chairman, would have automatically lost their seats on the League board.

Most eye-catching, however, are the proposals to dock points from clubs going into administration, or automatically relegate them at the end of the season regardless of where they finished. Mawhinney said the League needed to halt a dangerous slide towards administration being seen as a solution. One Second Division chairman has told him that the club's own fans were urging him to put the club into administration, because they could leave their debts behind and start again. The application of "sporting sanctions", Mawhinney said, would hit clubs "in the only language they understand".

Three options will be put to Thursday's meeting of clubs: deduction of six points, 12 points, or automatic relegation. "This is the fans' lever," Mawhinney added. "If the club is going to suffer in its footballing fortunes in the League, then the fans will apply pressure on their chairmen not to put clubs into administration. This is a way of keeping the clubs accountable and provides a serious deterrent to them going into administration."

It is a sad reflection that such penalties, meaningless in the wider world, will matter more to football people than prolific non-payment of creditors, but clubs notoriously fear points deductions and fans particularly hate them.

Mawhinney said he expected a "vigorous discussion" on Thursday – a polite phrase for the usual quality of debate at a League chairmen's conflab – but he was hopeful that a majority of clubs would approve. "There is no magic in whether the points deduction is six or 12," he said. "The important thing is to get agreement in principle. We can agree a compromise on the number of points if the clubs are split."

Mawhinney was actively involved in developing the proposals, alongside Theo Paphitis, the chairman of Millwall, Ivor Beeks of Wycombe, and the League's executive team, to whose work, in the absence of a chief executive, he paid tribute. The proposals are, he said, only part of a framework of measures he intends to bring forward to achieve his main priority as the League's chairman – better governance of clubs.

"People do not have a high opinion of the way football is run and we must improve that for the good of the game and the supporters," he said. He did not specify the other measures being considered, but support has risen generally for a test that football club directors be "fit and proper" to hold their posts. However, the process to introduce it is being run by the Football Association and is quite mind-blowingly slow.

Proceeding more tangibly is the League's proposed policy of wage restraint, a friendlier term than "salary cap", and more accurate because it will require clubs to limit the proportion of their turnover they spend on wages, rather than the amount individual players can earn. Mawhinney met Gordon Taylor, the chief executive of the Professional Footballers' Association, this week, and Taylor is making positive moves towards the idea. "We couldn't support a salary cap," Taylor said, "but a policy for financial stability, where clubs don't spend more than they earn, is common sense."

Again, the figure might be up for horse-trading. The League has agreed to consider 60 per cent of turnover, Taylor said this week 85 per cent, to be spent on total staff costs, not just players, might be acceptable. Co-operation and compromise are in the air.

With these policies, on wage restraint and insolvency, the League, for all its troubles, is, notably, the only football body doing any actual work to address the game's financial crisis. More widely, Mawhinney said "the whole of football" had to address the huge income gap between the Premier and Football Leagues, which is the fundamental cause of the game's meltdown and clubs going bust. He said it was "seriously surprising" that Premier League clubs do not commonly introduce in their players' contracts clauses to reduce wages if the club goes down.

While the new insolvency measures are aimed principally at Football League clubs, they could act as a deterrent to Premier League clubs who, like Sunderland, mostly expect to bounce back up when they are relegated. If they go down with wage bills unsustainable in the Football League and, like Ipswich, Leicester, QPR and Bradford, go into administration, they would, if these proposals are passed, be docked points, which would make winning promotion a lot more difficult.

Mawhinney, having been the chairman of the Tory party in their catastrophic election of 1997, was regarded by many as a bizarre choice as the chairman of a League which desperately needs to win friends and influence people. But he refused to be drawn on that. He said: "The League board unanimously appointed me because they believed I had some skills and love of the game which could help. If we only get these insolvency proposals introduced, I will know I was able to do something useful."

Given the recalcitrant egos at First Division clubs, which have led to a stalemate with the other two divisions and left the League without a chief executive all season, a chairman with experience of the Northern Ireland peace process might turn out to be just the job.

davidconn@independent.co.uk