Why do football clubs go into a company voluntary arrangement?

9 August 2017

How does that work?

Football clubs tend to go into a company voluntary arrangement for two reasons.

Firstly if the debt is mainly unsecured ie the club does not owe the bank money, but owes HMRC and players for instance, then it is the most cost effective solution as it means that the club can continue to be run by the directors and a deal can be struck with the unsecured creditors for a proportion of the debt to be paid out over a number of years.

For details of how the CVA works in practice then please refer to our detailed CVA page.

However a CVA does still carry a penalty in the leagues as it is classed as an insolvency event HMRC is almost always a substantial unsecured creditor and it tends to favour CVA

The second reason is that a CVA is a way for a football club to come out of administration and continue to play in the leagues. The latest proposal from Rangers proposes exactly that. Once the administration has protected the immediate position then the club has time to propose a CVA to the creditors. See our page on exiting an administration via a CVA

So why don't they go for a CVA straight away?

Administration can be arranged quicker and more easily than a CVA if the time pressure is on. This is especially the case if a winding up petition has been issued by a creditor. A CVA, in most cases, needs to have been at least drafted before it can be used to defend a club against a winding up petition. What is more, a football clubs financial affairs are likely to be quite complex with perhaps more than one company being involved in the running of the club.

A notice of intention to appoint administrators filed at the High Court can quickly hold off any actions by aggressive creditors effectively buying time to arrange a restructure or indeed a sale of the business. However HMRC is more aggressive in its approach to football clubs as explained earlier As such, winding up petitions are served more quickly and without much warning. If the petition is advertised quickly then the bank account would be frozen. Administration can stop this happening and allow the club to continue to trade.

Categories: CVA, What is a CVA or Company voluntary arrangement?

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