Inland Revenue v Wimbledon Football Club Ltd and Others
| Jurisdiction | England & Wales |
| Judge | The Honourable Mr Justice Lightman,Mr Justice Lightman |
| Judgment Date | 11 May 2004 |
| Neutral Citation | [2004] EWHC 1020 (Ch) |
| Docket Number | Case No: No 3771 of 2003 |
| Court | Chancery Division |
| Date | 11 May 2004 |
[2004] EWHC 1020 (Ch)
The Honourable Mr Justice Lightman
Case No: No 3771 of 2003
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
IN THE MATTER OF THE WIMBLEDON FOOTBALL CLUB LIMITED (IN ADMINISTRATION)
AND IN THE MATTER OF THE INSOLVENCY ACT 1986
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Paul Greenwood (instructed by Solicitor of Inland Revenue, Somerset House, Strand, London WC2R 1LB) for the Applicant
Ms Raquel Agnello (instructed by Lawrence Graham, 190 Strand, London WC2R 1JN) for the Respondent
Hearing date: 6 th May 2004
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Approved Judgment
INTRODUCTION
The first respondent, The Wimbledon Football Club Limited ("the Club"), is a professional football club, the holder of a share ("the Share") in the Football League Limited ("the League") and accordingly a member of the League. Membership of the League is a precondition of participation in its competitions. The Club was until the 9 th May of this year in Division 1 of the League's Nationwide League but has now been relegated to Division 2. The Club is however hopelessly insolvent and on the 5 th June 2003 went into administration. Under the Articles of Association of the League ("the Articles") and the document entitled "Current Insolvency Policy" ("the Policy") published by the League, the administration gave rise to a right on the part of the League require the Club to transfer the Share to a person nominated by the League for a nominal consideration, and the administrators can only sell the Share and realise the Club's undertaking at an advantageous price if under the terms of any sale agreement the purchaser agrees to pay certain specified non-preferential creditors in full and if the Club's exit route from administration is a voluntary arrangement. The Club has entered into such a sale agreement ("the Sale Agreement") and on the 18 th March 2004 a meeting of the Club's creditors approved a voluntary arrangement ("the Arrangement") under which all the net assets of the Club will be applied in payment to the preferential creditors of a dividend of 30 pence in the pound. Accordingly the applicants, the Commissioners of Inland Revenue ("the Revenue"), will receive 30 pence in the pound in respect of their preferential debt of £525,000. The second and third respondents are the supervisors of the Arrangement.
By an application under section 6 of the Insolvency Act 1986 ("the Act") dated the 14 th April 2004 the Revenue applied for an order revoking or alternatively suspending the Arrangement on the grounds that the Arrangement unfairly prejudices the interests of the Revenue as a creditor and that there were material irregularities at or in relation to the creditors' meeting, namely non-compliance with section 4(4)(a) of the Act. The complaint is that the non-preferential creditors will receive 100 pence in the pound whilst the Revenue who are preferential creditors will only receive 30 pence in the pound. By an order dated the 28 th April 2004, it was ordered that the hearing of the application be expedited and the application came on before me for hearing on the 6 th May 2004. I have expedited the preparation of this judgment.
The application raises questions of construction of section 6 and section 4(4)(a) of the Act on which I have received valuable assistance from both counsel.
FACTS
Under the Articles the League has an authorised share capital of 100 shares of 5 pence each and 72 of the shares have been issued to Member Clubs. Member Clubs and only Member Clubs may play in the League's matches. Article 4 provides that the Board of the League may serve on a Member Club a notice requiring it to transfer its share to such persons as it shall specify at the price of 5 pence (a notice referred to in the Articles and the Policy as a notice of withdrawal of membership and which I shall refer to as a "Notice"). The conditions on which the Board may serve the Notice (include amongst other events) the presentation of a petition or an order made against the Member Club for an administration order or the making of a winding up order. Article 4.8 provides that the Board shall have power to give the Notice suspended for a period and to impose such conditions on the Member Club as it decides and to withdraw the notice if "Football Creditors" (as defined) are paid in full or payment in full is secured and any other conditions are satisfied. Article 55 provides that the League shall keep an account called "the Pool Account" into which the income of the League (including television income) is paid and out of which payments are to be made as thereafter specified to Member Clubs. Article 70.1 authorises the Board to impose penalties on a Member Club if it defaults in making any payment due to any of 14 specified persons who are referred to as "Football Creditors". The specified persons include any full time employee or ex-employee of the Member Club to whom there are due arrears of remuneration and any other Member Club. Article 70.2 requires the Board to apply any sums standing to the credit of a Member Club which is in default in making such payments in discharging debts due to Football Creditors.
The Policy sets out the policy which it follows in cases of insolvency of Member Clubs. In paragraph 4 the League draws the distinction between Football Creditors and other creditors, and states the principle that it is not tenable to allow a club to remain a Member Club if Football Creditors are not paid in full, but that a less strict approach is adopted if other creditors are not paid. Paragraph 3 (so far as material) reads as follows:
"EXIT FROM INSOLVENCY PROCEEDINGS
3.1 The Board will only withdraw the notice of withdrawal of membership given to a Member Club if:
3.1.1. a Member Club has completed arrangements satisfactory to the Board for exit from the relevant insolvency proceedings; and
3.1.2. all Football Creditors (as defined in Article 70.1) are paid in full, or payment in full is secured to the satisfaction of the Board; and
3.1.3. all sums due to players or former players under the terms of their contracts are paid in full, or payment in full is secured to the satisfaction of the Board; and
3.1.4. all sums due to other clubs not included in the definition of Football Creditors in Article 70.1 are paid in full at the insistence of the Football Association, UEFA or FIFA; and
3.1.5. the Member Club (or the proposed new Member Club) provides projected trading and cash flow forecasts and confirmation of funding which indicate that it has sufficient resources to ensure that it can reasonably expect to complete its fixtures for (at least) the remainder of the Season and/or the following Season as appropriate; and
3.1.6. any further conditions (which the Board reserves the right to impose at any time as in its absolute discretion deems appropriate) have been satisfied
3.2 Where the exit from the relevant insolvency proceedings involves the transfer of assets and the business of the Member Club to a new or another company, the Board will only register that company as a Member of the Football League provided that it complies, performs, observes and satisfies any conditions imposed by the Board. Save for exceptional circumstances, those conditions to be imposed by the Board are set out in Appendix IIA.
3.3 The Notice of Withdrawal of Membership will take effect immediately and without further notice if a Member Club passes a resolution for its winding up or has a winding up order made in respect of it any suspension of the Notice of Withdrawal of Membership will immediately come to an end.
3.4 Any exit route from formal insolvency proceedings should demonstrate that either creditors will be paid in full, or that creditors have approved proposals that compromise their debts and allow for the payments set out in Clause 3.1 herein to be paid in full. The Board will generally consider a Company Voluntary Arrangement under the Insolvency Act 1986, or a Scheme of Arrangement under the Companies Acts to be acceptable exit routes. …"
Appendix IIA (so far as material) provides:
"Conditions Precedent to the Transfer of League Membership
Throughout these conditions the following definitions apply:
Football Debts
any amounts owed by [ ] Football Club Limited to those creditors listed in Article 70.1 of the Articles of Association of the League and any other creditors required to be paid in full by the Football Association….
The Board in its absolute discretion should consider whether all or some of the following condition precedent to the transfer of League membership should be applied …
7. That the Football Debts are transferred to Newco or paid in full. "
On the administration order being made in this case against the Club, the League duly gave the Notice suspended for a period. The administrators continued trading, though lossmaking, in the hope of obtaining the necessary injection of cash to preserve the undertaking and its value or a purchaser of the assets and business of the Club as a going concern. This was done until May 2003 by means of funding provided by a shareholder who invested in excess of £20 million in the Club. In May 2003, the shareholder declined to provide further funds, and thereafter the necessary financial assistance took...
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