Inland Revenue v Wimbledon Football Club Ltd and Others
| Jurisdiction | England & Wales |
| Judge | Lord Justice Neuberger,Lord Justice Mance |
| Judgment Date | 28 May 2004 |
| Neutral Citation | [2004] EWCA Civ 655 |
| Docket Number | Case No: A3/2004/1024/CHBKF |
| Court | Court of Appeal (Civil Division) |
| Date | 28 May 2004 |
[2004] EWCA Civ 655
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
(CHANCERY DIVISION)
(Mr Justice Lightman)
Royal Courts of Justice
Strand,
London, WC2A 2LL
Lord Chief Justice of England and Wales
(The Lord Woolf of Barnes)
Lord Justice Mance and
Lord Justice Neuberger
Case No: A3/2004/1024/CHBKF
3771 of 2003
G Newey Esq, QC & P Greenwood Esq
(instructed by Commissioners of Inland Revenue) for the AppellantS Davies Esq, QC & Miss R Agnello
(instructed by Messrs Lawrence Graham) for the Respondents
This is an appeal from a decision of Lightman J, rejecting an application by the Inland Revenue ("the Revenue") under s6 of the Insolvency Act 1986 ("the 1986 Act") for an order revoking, or suspending, a voluntary arrangement made in relation to the affairs of The Wimbledon Football Club Ltd ("the Company") . Although other grounds were raised, the sole ground now relied on by the Revenue is that the approval of the voluntary arrangement infringed the provisions of s4(4) (a) of the 1986 Act, which is the Act containing all the sections referred to in this judgment.
The facts
The Company's business is that of a professional football club and it is the holder of a Share ("the Share") in the Football League Limited ("the League") . Membership of the League, and hence ownership of the Share, is a precondition of participation by the Club owned by the Company ("the Club") in the League's competitions. The Company is heavily insolvent and went into administration on 5 th June 2003. The effect of the Company going into administration entitled the League, under paragraph 4 of its Articles, to serve a notice ("the Notice") withdrawing the Company's membership of the League and requiring the Company to transfer the Share away for 5p, which the League duly did, albeit that it suspended the operation of the Notice for a period.
The estimated statement of affairs of the Club as at 5 th June 2003 suggested that the only real value in the Club's assets was in the player transfer values, which, in the event of a liquidation, had no value at all. The balance of the assets, which consisted of stock, fixtures, fittings, and debtors, amounted to £230,000. Unsecured creditors amounted to some £24m, of which a loan by the shareholders amounted to £20m.
The Company's administrators, Mr Andrew Hosking and Mr Nick Wood of Grant Thornton, continued trading until the end of the football season, 9 th May 2004, latterly with the assistance of a loan of £1.5m advanced by a company called Inter MK Limited ("IMKL") .
On 4 th March 2004, the Company, the administrators, IMKL, and a company called Milton Keynes Dons Limited ("the Buyer") entered into an Agreement ("the Sale Agreement") . The recitals to the Sale Agreement recorded:
i) The Buyer was a wholly-owned subsidiary of the Company.
ii) The Buyer had agreed to purchase "the undertaking and assets of [the Company] as a going concern and to assume certain of its liabilities and obligations"; and
iii) IMKL proposed to purchase the share capital of the Buyer from the Company.
The Sale Agreement was expressed to be subject to eight conditions. Three of those conditions were as follows:
i) the voluntary arrangement, then in the process of being proposed to creditors of the Company "being approved … and taking effect";
ii) "the transfer of the Share (or its beneficial ownership) being approved by the … League and the … League deciding not to exercise its right to compel the transfer of the Share by reason of [the Company] having gone into administration";
iii) IMKL being satisfied that no less than £1,280,000 was "receivable (subject to any deductions by the … League to satisfy Football Creditors [under the provisions of paragraphs 54–70 of the League's Articles of Association])".
The consideration for the sale of the undertaking and assets of the Company to the Buyer was recorded as being:
i) the sum of £400,000;
ii) a further £400,000 if a particular planning condition was satisfied;
iii) the sum of £1.5m lent by IMKL to enable the Company to continue trading;
iv) the assumption by the Buyer of the obligation to pay and discharge (subject to an aggregate maximum of £642,096.32):
a) all debts transferred to the Buyer under the Transfer of Undertakings (Protection Of Employment) Regulations 1981 ("the TUPE debts"), amounting to approximately 245,000; and
b) all Football Creditors and other debts, non-payment of which would result in the League refusing to withdraw the Notice;
v) certain additional considerations if the Club was promoted to the Premier League by the end of the 2006/7 season.
On the same day as the Sale Agreement, the Company, as a sole shareholder in the Buyer, agreed to sell its entire shareholding to IMKL for £1, on completion of the Sale Agreement.
The reference to the Football Creditors in the Sale Agreement arises from the League's Articles of Association. As already mentioned, the League was entitled to serve a Notice, as it did, on the Company going into administration, and was further entitled to suspend such a Notice for a period, as it did. That entitlement arose out of paragraph 4.7.4.2 of the League's Articles. By virtue of paragraph 4.7.4.3, the League would also be entitled to serve such a notice on the Company going into liquidation.
It is right to refer to some other provisions of the League's Articles. First, under paragraph 6.1, the League is entitled, in its absolute discretion, and without giving any reasons, to refuse to register any share transfer.
Secondly, the provisions of paragraphs 54–70 of the League's Articles are concerned with "Accounts". They provide for a pooling, and redistribution, of receipts by clubs in the First, Second and Third Divisions of the Football League of certain types of payment received by clubs, in particular from television. Paragraph 70 requires each member of the League to repay debts owing to certain types of creditor (and in particular employees, including their pensions, and organisations concerned with playing or managing League football), ie Football Creditors, failing which "a Member shall be subject to such penalty as [the League] may decide". Furthermore, by paragraph 70.2, the League is entitled to "apply any sums standing to the credit of the Pool Account which would otherwise be payable to a Defaulting Club, in discharging Football Creditors".
The League has a published "Current Insolvency Policy" which explains the circumstances in which it can serve a Notice. This document ("the Policy") also provides that the League is entitled to withdraw a Notice, so that the member concerned can retain its membership of the League, in certain circumstances. Paragraph 3.1 of the Policy entitles the League to withdraw a Notice if certain conditions are satisfied. So far as relevant, it provides:
"The Board will only withdraw the Notice … if:
3.1.1 a member club has completed arrangements satisfactory to the Board for exit from the relevant insolvency proceedings;
3.1.2 all Football Creditors (as defined in Paragraph 70.1) are paid in full or payment in full is secured to the satisfaction of the Board …"
Paragraphs 3.1.3 and 3.1.4 deal with certain other football-related debts which have to be paid in full.
Paragraph 3.2 of the Policy is in these terms:
"Where the exit from the relevant insolvency proceedings involves a transfer of assets in the business of the member club to a new or another company, the Board [of the League] 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."
So far as relevant, Appendix IIA to the Policy contains a requirement that the "new or [other] company" must pay in full all "Football Creditors" and "any other creditors required to be paid in full by the Football Association" who were owed money by the Club involved in the insolvency proceedings.
Paragraph 3.3 of the Policy provides that a Notice served on a member's administration will have immediate effect if the member goes into liquidation.
Two weeks after the execution of the Sale Agreement the administrators convened a meeting of creditors ("the Meeting") to approve a voluntary arrangement ("the Arrangement") under which all the net assets of the Club were to be applied in payment to the preferential creditors of a dividend of approximately 30p in the pound. This figure was arrived at by deducting some of the costs of the administration from the net proceeds of the Sale Agreement, and apportioning those proceeds pro rata as between the preferential creditors, who included the Revenue, who were owed £525,000.
In the proposal for the Administration ("the Proposal"), sent to all creditors in advance of the Meeting, the administrators stated that "the CVA represents the best available alternative to insolvent liquidation and that the outcome for creditors under the CVA is likely to be substantially better than in a liquidation". Part 3 of the Proposal contained the "Outline of the Proposal" which stated that, under the Arrangement, funds would be distributed in the following priority:
"• undischarged administration trading liabilities;
• the Nominee's remuneration and disbursements;
• the Supervisors' remuneration and disbursements;
• a dividend estimated at...
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