Football clubs tend to go into a company voluntary arrangement for two reasons.
Firstly, if the debt is mainly unsecured i.e. 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. 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.
Worried about poor cashflow? How to win new work? How to pay wages on pay day? For expert advice on a range of issues download our free Ultimate Guide For Worried Directors today. Or just call us on 0800 9700539
Please note that the guide was written pre Covid-19 and there are some likely changes to insolvency rules regarding wrongful trading. Please see this page here.