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From SDwiki

Although a great deal of this information may be useful to anyone interested in this area, most of it is aimed specifically at supporters’ trusts.

Contents 1 Insolvency 2 Insolvency Events in Football (these are different to legal insolvency proceedings) 3 How does it work? Administration in The Football Conference 4 The options for fans during insolvency

Insolvency

NB: Some other information contained in the Wiki about establishing and running clubs could be relevant to you. See below:

Running a Football Club Forming or Reforming a Football Club Crisis Planning

Insolvency is defined both in terms of cash flow and in terms of balance sheet in the UK Insolvency Act 1986, Section 123, which reads in part.

123. Definition of inability to pay debts (1) A company is deemed unable to pay its debts - [...] (e) if it is proved to the satisfaction of the court that the company is unable to pay its debts as they fall due. This is known as cash flow insolvency. In other words, the company would not be able to pay the bills and salaries that have due or soon will be (2) A company is also deemed unable to pay its debts if it is proved to the satisfaction of the court that the value of the company's assets is less than the amount of its liabilities, taking into account its contingent and prospective liabilities. This is known as balance sheet insolvency, and means that if you sold every asset, it would not be enough to pay of everyone who needed to be paid.

Once a company’s directors come to a conclusion that they could be insolvent, several routes are open to them including:

• applying for a court order to place the club into administration

• Going into Liquidation

• Going into a Company Voluntary Arrangement (“CVA”)

Insolvency Events in Football (these are different to legal insolvency proceedings)

PLEASE NOTE: These guidelines only apply to football in the English Pyramid, and to insolvency law within England and Wales. New guidance is currently being prepared for Scottish clubs. For more on Scotland go to the contact pages on our website [1]

Broadly speaking an ‘Insolvency Event’ is the same in each league. It means some kind of legal action that means that creditors – those the club owes money to – are in a situation whereby the amount they will eventually get back is no longer a matter for the club or the creditor.

Think of it this way: If I owe someone £20, and they ask me to forgo £10 because they can’t pay me back, I can either accept that, or reject it. If I accept it, that’s my choice. If I reject it, there’s nothing the debtor can do; we’ve entered a contract which means they owe me £20 and until it’s paid off, the law is on my side.

But an insolvency event would change this. Let’s say the debtor also owes another 4 people £20, and they propose to all of us that all we will get back is £10. I still insist that I want my full £20, but my fellow creditors take a different view, and say they’re happy with £10. I’m outvoted, and despite not consenting to it, my £20 has just been turned into £10, and there’s nothing I can do about it.

The process by which debts are negotiated and people can see their amounts owed reduced against their will is called an Insolvency Event, and all are subject to penalties from the various football leagues.

However, the way in which it is dealt with does differ: Go to the spreadsheet ‘Leagues Information & Criteria.xls’ for more, but you must be aware that where players are concerned, not only are they protected by employment law but by the Football Creditors Rule in England and Wales.

However you should talk to your league, or to your local county FA to find out more, particularly regarding player contracts.

In the event of liquidation

If you do find yourself in the situation where your club is actually being wound up, this is, broadly speaking, how it works.

Process of liquidating the club (this applies to private & public companies limited by shares: for a thorough guide on this subject, including how other corporate forms such as CLG's are liquidated, the Insolvency Service provide a thorough guide: [2]

The company directors and shareholders need to agree to liquidate and then appoint a liquidator who will realise what assets (s)he can. Any money realised pays creditors in this order:

Fixed charge creditors [3] (usually banks)

Preferred creditors up to a certain amount [4]

Administrators (or Administrative Receivers) [5]

Floating charges [6] (again, usually banks or financial institutions)

Unsecured creditors [7]

Shareholders in the company

Where to find information

General information – including accounts and other statutory documents – about companies can be found at Companies House: www.companieshouse.gov.uk

Other than rules on insolvency events in football, for general information go to the Insolvency Service website here: http://www.insolvency.gov.uk

If you want to find out court information regarding CVAs, the payment of debts, or whether your club is subject to a hearing that could result in it being placed into administration or liquidation, try the London Gazette: www.london-gazette.co.uk (a magazine that contains notices and information required to be posted by law) or the Court Service: http://www.hmcourts-service.gov.uk/cms/courthearings.htm (go to the appropriate court via the links)

Administration is a process many clubs have gone through, and CVAs are a common exit – required by leagues in football to exit administration. For more about the process, go to an excellent presentation from Tony Norris from TrustSTFC (Swindon), via the SD Wiki: http://snurl.com/ejjdw or you can view an excellent flow chart on the process here: [[8]]

How does it work? Administration in The Football Conference

Anytown FC are considering going into administration in order to clear up their financial situation. So how does it work, what are the limitations, and what penalties can the club expect?

If Anytown FC were to go into administration before the 4th Thursday in March before 5pm they would receive a 10 point deduction for the present season. Unless the club can restructure the finances and find a way of paying off all the creditors in full by the second Saturday in May the club will not be accepted for registration in the following season by the Conference. The decision of what league the Club would play in would be down to the FA, via the National Game Board. The placement of a club that has been removed from its league in this way usually mean a ‘relegation’ of two-or-three leagues.

Essentially, the Football Conference has clearly taken the view that insolvency is the end of a series of events, and what needs to be done is to stop that end happening.

The options for fans during insolvency

A supporters’ trust can take a number of roles, which vary depending on the level of influence you have with the administrator.

Many supporters’ trusts – some once they’ve got past some initial scepticism or suspicion on the part of the administrator – play very active roles during this critical time. Here are some examples:

Provide support and manpower for the administrator to run the business: Wrexham Supporters Trust

In 2005, the club went into administration and the trust, after some discussion with administrator Dave Acland, took on the running of the club shop and other merchandising activities, turning a profit, ensuring that the business could continue to function until its sale. They also provided support and mobilised supporter power during the successful court case taken by Acland to recover the Racecourse ground from former owner Andrew Hamilton. What they didn’t do was to provide access to the general funds raised by the trust, but instead provided their skills, expertise and time. They were cited by the administrator.

Their approach in retaining their central funds, and indeed continuing to raise money for the purpose of purchasing shares during this time, has meant that at March 2009, they now have funds approaching £400,000 ready for when the owner does want to issue shares to them.

Put together/be part of a consortium: Swansea City Supporters Trust

In January 2002, following a period of changes of ownership (including a disastrous period by Tony Petty) and their entering into administration, a package and draft Consortium agreement was put together with the aid of Swans fan and Solicitor Steve Penny, who had offered his services free in the campaign to oust Tony Petty, and he, along with Tim Jones, Mel Nurse and David Morgan, travelled to a meeting in Cardiff to meet Petty. Thankfully, the offer of £20,000 to buy out Petty was accepted and a further meeting was called in the Sea Haven Hotel on 6th February to discuss the Consortium Agreement, which would become a signed agreement for the formation of Swansea City Football 2001 Limited.

The Trust were allowed additional time to obtain their £50,000 investment as the other consortium members were Corporate bodies, there was also agreement that the Trust could have a Director for their investment and also be allowed to invest a further £50,000, which would entitle them to a further seat on the newly formed Board of Directors. The Trust Board agreed that Leigh Dineen would become the Supporter Director, and would form part of a Management team, along with other investors, to run the Club as a Committee. Thanks to the SSST website

Buy the club outright: Exeter City

In May 2003 following relegation from the Football League to the Conference (at the start of the Club’s Centenary year) three of those running the Club were arrested (and two of them were subsequently convicted of a series of offences) and the former Chairman who still owned the majority of shares asked the Trust to take over the day to day running of the Club. It’s a credit to the three members, Ian Huxham, Julian Tagg and Terry Pavey, who were tasked to do this that they discovered quickly just what a poor shape the Club was in financially. In any case running the Club for someone else was very depressing (all those bailiffs!) and so in September 2003 David Treharne was charged by the Trustees to negotiate the purchase of his majority shareholding. The cheque for £20,000 that clinched the deal proved only to have bought debts of about £4.5 million, and the real work began.

With help (and goodwill) from literally dozens of people The new Club Directors and those of the Trust negotiated a C.V.A which would pay 10p in the pound, (this eventually turned out to be 7.1p in the pound) to debtors. At the same time work parties consisting almost entirely of volunteers) set about getting the ground up to playing standard and doing all the things that hadn’t been done for many seasons in the way of maintenance. The new Directors also appointed a new manager Eamon Dolan, as well as making sure that the Club had a team that could at least compete at Conference level.

Taking over an existing club

You will almost certainly require legal advice. Supporters’ trusts can take advantage of a free half-hour of consultation with our lawyers, Cobbetts LLP, and discounted legal advice after that. Please contact SD for more.

You should always enter a commitment like this with your eyes open, and be prepared for things to be difficult initially. Some supporters’ trusts have found debts they didn’t think existed, and have had to take radical, remedial action to prevent the club going out of business.

Also, be aware that it is not possible, in England and Wales to default on football creditors, and a number of leagues have even stricter criteria in this area (for example The Football Conference requires payment of all creditors)