Football Clubs (Insolvency)

Tuesday 18th March 2014 Westminster Hall

[Mr Gary Streeter in the Chair]

14:29

[Damian Collins (Folkestone and Hythe) (Con)]

It is a pleasure to serve under your chairmanship, Mr Streeter. I thank colleagues from all parties for attending this debate, which is incredibly important for all of us who care about the game of football. There are several Members here who I am sure will want to speak about their experiences in constituencies and communities that have been blighted by the consequences of the failure of a football club. This debate will consider two important issues: the general problem of insolvency that affects football and the specific concerns felt by me and numerous other colleagues about the workings of the football creditors rule.

It is an astonishing fact that since 1992, 46% of all clubs that have played in the Premier League or the Football League have been involved in some sort of insolvency proceedings. There have been high-profile cases involving clubs such as Leeds United, Plymouth Argyle, Crystal Palace and Coventry City, which at the moment is going through a particularly torrid time that no football club should have to face again. There have also been insolvencies in the football conference as well as the lower leagues. The problem runs right across the game.

I know that my hon. Friend the Member for Hereford and South Herefordshire (Jesse Norman) will wish to talk about the situation at Hereford United, but I too have a particular interest in the fortunes of that club. The first professional football match I ever watched was with my father and brother at Hereford United back in the 1980s. At that time, being a Herefordshire schoolboy, I was happy to watch Hereford United, but I am also a lifelong Manchester United fan. I would go with my school friends to watch Manchester United in the late 1980s, at a time when they were not doing so well in the league—[Hon. Members: “Like now.”] It is amazing how things come around if one waits long enough.

I remember going to Old Trafford in the late 1980s. Not only that club but football has changed with the advent of the Premier League. The great amount of money that has come into football has massively transformed grounds, facilities and players’ salaries. Football is completely different now from what it was 30 years ago. In many ways, that is a good thing, but it is also an issue of great concern. Despite the fact that there has never been more money in football than there is now, there have probably never been more incidents of financial failure and its consequences in the game. I believe that that is partly due to how football finances are structured and administered. It has created a culture of financial irresponsibility, born of the pressure placed on clubs to compete at the highest level to gain the financial prizes available there. That culture of pressure is driving the number of insolvencies in football.

Along with my hon. Friend the Member for Suffolk Coastal (Dr Coffey), whom I see in her place, I was a member of the Select Committee on Culture, Media and Sport when it launched its inquiry into football governance in 2011. Many of the issues highlighted in the report are still current today, three years after the start of the investigation. We considered a number of issues affecting football, but one of our most prominent concerns was what has become known as the football creditors rule, which plays a key part in the insolvency of football clubs.

When a football club goes into administration via a company voluntary arrangement, in which an administrator comes in to restructure the football club’s debts so that it can get back on its feet and playing again, the football creditors rule comes into play, protecting debts owed to other football clubs for things such as transfer payments and debts owed to football players by honouring them in full, whereas other unsecured creditors get just pennies in the pound. For example, when Leeds United went into administration, it was well publicised that former players received owed moneys in full whereas organisations such as St John Ambulance were owed thousands by the club that they did not receive. It has also affected Her Majesty’s Revenue and Customs. In the past, we have seen unpaid tax revenues, money owed by football clubs—

[Mr Jim Cunningham (Coventry South) (Lab)]

On the point about paying players’ wages, I can remember occasions when the Professional Footballers Association—the footballers’ union, if we want to call it that—has had to pay them.

[Damian Collins]

The hon. Gentleman makes an important point. Undoubtedly, in the past, footballers could often be treated poorly by their clubs and had few of the rights that would normally be expected in the workplace. I am certain that no one would want to go back to such a situation, but I will come to how the financial guarantees work to encourage greater risk taking and irresponsibility with the finances of the game, with a direct consequence and knock-on effect for the insolvency of clubs.

[Jesse Norman (Hereford and South Herefordshire) (Con)]

Did my hon. Friend just say that under the football creditors rule, football creditors take precedence over the taxman? If so, can he think of any other industry or sporting activity in this country of which that is also true?

[Damian Collins]

My hon. Friend makes an extremely important point. The taxman lost his preferred creditor status in 2003. An informal arrangement exists between HMRC and football, and I will come to that, but the taxman is not a preferred creditor. The only preferred unsecured creditors are people within the game of football, who must be compensated in full under the rules of the Premier League and Football League. Other creditors get only pence in the pound. For example, when Crystal Palace went into insolvency, football creditors were paid in full, but non-football creditors received 2p in the pound. When Plymouth Argyle went into administration, again, football creditors were paid in full, but non-football creditors received less than 1p in the pound in compensation for the debts that they were owed.

[Alison McGovern (Wirral South) (Lab)]

The hon. Gentleman is making an excellent speech, and he is owed much credit for raising the issue. Given what he just said about the impact of insolvency on non-football creditors in a local community, does he agree that the rule does much greater damage to the reputation of the game of football than perhaps is understood by those in the sport at present?

[Damian Collins]

The hon. Lady makes an extremely good point. It does enormous damage to the credibility and reputation of football. That point was made by Niall Quinn, a former player and club chairman of great distinction, when he gave evidence to the Select Committee. How can it be right that in a community where a club has gone through insolvency, a small business that prints match programmes or paints the stadium receives none of the money that it is owed, while watching a player paid tens of thousands of pounds a week drive out of the gates to the ground in a smart car, having received every penny he was owed? It makes no sense at all. It is seen as a massive injustice and, given the huge amounts of money within the game of football, it cannot be justified in any way for football to reserve preferred status for its own creditors.

The Select Committee called in its 2011 report and its follow-up report in 2013 for the football creditors rule to be scrapped. Numerous debates have been raised in the House about both the generalities of football governance and finance, and specific cases relating to clubs such as Coventry and Leeds. Members have raised their concerns about such clubs in particular. Often in those debates, we have been reassured that the Government’s view is that the rule is one whose time has come, that we should move on and that we should not allow it to continue. I secured this debate to ask the Government where they stand on the football creditors rule.

I am grateful that the Minister with responsibility for consumer affairs, the Under-Secretary of State for Business, Innovation and Skills, the hon. Member for Cardiff Central (Jenny Willott) is here to answer the debate. Often, when we have had such debates, the Minister responding has not been the Minister responsible for insolvency laws in this country. Today we have the insolvency Minister here to answer the debate.

[Jesse Norman]

I absolutely share my hon. Friend’s view. He is making a powerful case, and it is doubly good to hear it from someone educated in Hereford, a city whose football club is in some difficulty due to the imbalance between the money sloshing around at the top of the game and the meagre pickings at the middle and lower end.

The issue I want to raise with my hon. Friend is the Government’s position. When I asked the Under-Secretary of State for Culture, Media and Sport, my hon. Friend the Member for Maidstone and The Weald (Mrs Grant), who is Minister with responsibility for sport, she responded:

“The Financial Fair Play rules now introduced across football which, combined with compliance checks…aim to improve financial management and stability...Legislation remains an option if the football authorities do not demonstrate that they can reform their own governance of the game. The Government’s position on the football creditors rule is clear.”—[Official Report, 27 February 2014; Vol. 576, c. 495W.]

I put it to him that, whatever the Government’s position is, it is not “clear”, and that that answer did not particularly clarify it.

[Mr Gary Streeter (in the Chair)]

Order. That was a very long intervention.

[Damian Collins]

Mr Streeter, you are of course right, but it was an intervention made with such great force and we enjoyed it so much that we were happy to listen to it. My hon. Friend makes an important point. The Government have consistently criticised the football creditors rule, and indeed HMRC brought a legal action against the Football League to try to prevent the rule from being used, but failed. The Government and the sports Minister have consistently said that the Government are prepared to use legislation to intervene if the football authorities will not demonstrate their own desire for progress and action. I believe that the time has come for an update on that situation and for a consideration of how legislation could be used to prevent the football creditors rule being used in insolvency cases. There may be a debate to be had about the role of Government interfering in the organisation of sports and sporting bodies in this country, but this issue is clearly one of fairness that relates to insolvency law and the specialist rules that football has created for itself to protect its own interests at the cost of the community.

When the Football League gave evidence to the Select Committee, its representative said that the league could find no moral justification for the existence of the football creditors rule. That continues to be the case. It is there by regret, but the time has come for it to be removed. When the High Court considered the case that HMRC brought against the Football League, Judge Richards said that although he was unable to find in favour of HMRC and against the Football League with regard to the football creditors rule, the judgment should not in any way be regarded as an endorsement of the rule.

I will now say a little about how the football creditors rule works in effect, and how I think we can get rid of it through legislation. All football clubs are required by the football authorities to honour their debts to other football clubs in full. When a club goes into administration, the football authorities use their control of the prize money and particularly the broadcasting money that is owed to the club—it is due only if the club completes the season. Effectively, when a club goes into administration, the Football League and the Premier League can use that money, which they control, to settle football debts on behalf of the club, and the club’s administrator does not have the power to gain access to that money. The Football League and the Premier League also reserve the right to remove the club’s golden share, which it requires to participate in football competitions. The removal of that golden share would effectively make the club worthless and the threat of its removal is one that the Football League and the Premier League can use to ensure that football debts are honoured in full.

If the football authorities refuse to give up the football creditors rule voluntarily, legislation has a role—we should amend insolvency legislation. We should put the administrator in sole charge of the assets of the club, including the golden share and prize money that should reasonably be expected to be owed to it during the season. The administrator can use all that money to settle the club’s unsecured debts equally and fairly—both football debts and non-football debts.

[Mr Gregory Campbell (East Londonderry) (DUP)]

I congratulate the hon. Gentleman on securing this timely debate. Does he agree that on some occasions, the problem has been not only the rule to which he refers, but that in some cases, particularly high-profile cases, chairmen and others in charge of football clubs have spent anticipated revenues, including television money and European money, such as champions league money, long before they are in receipt of it, so that there is very little to distribute even before the pot of gold at the end of the rainbow fails to materialise?

[Damian Collins]

The hon. Gentleman makes an important point, which gets to the heart of my great concern about how the football creditors rule works in practice. Although the rule is an administrative tool used to protect football, what it encourages is profligate spending, because football debts are guaranteed by the Football League and the Premier League. A club selling a player to another club will not particularly worry about whether the buying club can afford the transfer fee that they have engaged to pay, and the selling club will not mind if the payment of those fees is spread out in instalments over a number of years, because they know that the money is guaranteed by the football authorities. Similarly, players signing lucrative contracts with a club will not need to inquire too much into the finances of that club because they know that the money is guaranteed. There is no other area of business where that is true, because no other area of business has that sort of protection, which I believe encourages massive profligacy and spending within the game of football—there is no element of shared risk, and there are no consequences or downsides.

I also believe that that is why the level of insolvency in football is so high. There are no other industries in this country in which one would look at the companies trading in it and say that it would be normal for the insolvency rate to be 46%. The practical way in which the football creditors rule is implemented is driving that culture and practice. Getting rid of it would stop that culture and practice.

It may well be that the football creditors rule would have to be phased out over a couple of years, to give clubs a chance to rebalance. If the financial fair play rules were properly enforced across all the top tiers of football, in many ways the football creditors rule may not be needed anyway. If enforced, financial fair play would create a culture of correct spending in which clubs would not be able to live beyond their means. They would be unable, year after year, to gamble tomorrow’s money for success today in the hope of moving further up the football pyramid.

We can take action to address that culture by getting rid of the football creditors rule. If the football authorities did not want to get rid of the football creditors rule entirely, they could consider creating a sinking fund to guarantee that unsecured creditors such as local businesses that are owed relatively small amounts of money are always compensated in full, instead of receiving the derisory penny in the pound that they often receive at the moment, which is completely unjust and unfair. For a game that is as wealthy as football, there can be no moral justification for that situation.

Later this week, I will publish my private Member’s Bill on football governance. I am grateful for the support of a number of hon. Members, including my hon. Friend the Member for Portsmouth North (Penny Mordaunt), the hon. Member for Coventry South (Mr Cunningham) and my hon. Friend the Member for North Swindon (Justin Tomlinson), who are all in the Chamber. In that Bill, I set out my view of how insolvency law could be amended to practically eliminate the football creditors rule. I believe that if the football authorities will not demonstrate their desire to do that themselves, it would be a legitimate course of action for us to use Parliament and the law to get rid of the rule.

My Bill also addresses a couple of other important areas related to the insolvency of football clubs and to the culture and practice that I believe drive that insolvency. In addition to getting rid of the football creditors rule, I suggest that there should be a test, which would be particularly relevant to cases such as that of Coventry City, whereby there should be a public declaration of the identity of the owners and investors in a club. I do not think there has ever been a case where the owners of a club have been shrouded in mystery and that club has been a financial success. People rightly question the motivation of people who obscure their identity, often through myriad dummy companies all registered and trading offshore. People question the reasons for that. Football fans should have the right to know the identity of the people who own their club and where their money comes from, which should also be a matter of public investigation.

Alongside that system, we should have a fit and proper person test that is robust and that has teeth, to be administered at the discretion of the football authorities. The situation we have now is ridiculous. In the case of Leeds United in particular, Mr Cellino wants to buy the club. He was formerly convicted of fraud and faces another conviction today, but the Football League might have to wait nine months until the Italian courts hear his appeal case before deciding whether or not to allow him to buy the club. That is totally ludicrous. It should be entirely at the discretion of the football authorities, including the Football Association, as to whether they feel that someone is a fit and proper person.

There is already a helpful precedent for that: the way in which the fit and proper person test is administered by Ofcom with regard to people who may hold a broadcasting licence in the UK. That power was created by the Broadcasting Act 1990 and is administered entirely at the discretion of Ofcom, based on its consideration of whether someone can or is likely to comply with UK broadcasting law, and therefore of whether they are a fit and proper person to hold a broadcasting licence.

[Mr Jim Cunningham]

Returning to the point about ownership, we recently had a case—about a week or 10 days ago—where the owner of Birmingham City was sentenced to a number of years in jail. It comes back to the issues that the hon. Gentleman mentioned: who are these people who own clubs and what is their credibility? The Football League should have been looking at such people and asking, “What is their credibility?”

[Damian Collins]

The hon. Gentleman makes a very good point. The Birmingham City case is particularly relevant. It is believed that there were grounds for concern about the former chairman of the club—there were outstanding previous charges against him relating to dishonesty in the Hong Kong courts. Very recently, he has been convicted of money laundering. Although he has stepped back from control of the club, I believe his son now runs it in his place. There is nothing the football authorities can do about that. It is quite clear that he should never have been allowed to buy the club in the first place, and his family should have no direct involvement in the club any more.

The Football League should not be fearful of taking legal action against people who want to buy a club—that should be at its discretion. In the United States of America, there is a discretionary test for those who want to own a franchise in major league baseball. It is administered by the league, and by other owners of the league. They will look at the business case, the plan and the credentials of the would-be owner and decide whether they want them in their league. We should have the same rules here. It would probably be right for the Football Association, as the guardian not just of the law, but of the ethics of the game, to administer that test and use it at its discretion. I included such a test in my private Member’s Bill because there may need to be some statutory underpinning of that authority if the football authorities fear legal action being taken against them by people who would otherwise seek to invest in the game.

The hon. Member for Coventry South will speak about Coventry City, but I should like to add that the club’s being run into the ground, its finances being in ruins and its being separated from its ground and stadium seem entirely to suit the financial interests of its mysterious, secret owners. That should never be allowed to happen again. The Football League claims that it knows who owns the club. I believe it should publish all that information, which should be a matter of clear and open record. To its credit, the Premier League said that it would require that to be so, should Coventry play in that league.

The situation of Coventry City is desperately sad and it should never, ever be allowed to happen again. In our consideration of issues relating to the insolvency of clubs, hon. Members should consider what next steps need to be taken to ensure that such things do not happen again.

Other hon. Members wish to speak and I have spoken probably for long enough in setting the scene. I should like the Minister to say what positive action the Government are prepared to consider to move to abolish the football creditors rule, and I should like to hear her thoughts on other matters relating to the culture in football that have a negative influence on the finances of the game. I should also like to hear whether the Government are prepared to back up their criticism of the football creditors rule with action. Will they set out now, or in writing after the debate, a timetable—a schedule—by which they would take action if the football authorities are not prepared to do so?

14:50

[Mr Jim Cunningham (Coventry South) (Lab)]

I thank the hon. Member for Folkestone and Hythe (Damian Collins) for securing this debate. His private Member’s Bill is timely and I wholeheartedly support it, as he knows. We both share considerable frustration with and concern about the inadequacy of the football governance system. It is now apparent to everyone that reform is long overdue, as he said. I intend to speak for just a few minutes about how this issue affects Coventry.

I have spoken many times about my disgust at what has happened to Coventry City football club. The whole affair has been a disgrace, particularly given that some fans have to do a round trip of about 70 miles, which is expensive in the present economic climate. In the past three or four months, the weather has been pretty appalling, too, to say the least. Fans are always the last to know what is happening at a club or who owns it, but they foot the bill. They are treated quite appallingly, to say the least.

This business with Coventry City has been going on for about two years, and it is about time it was resolved by Government action and regulation. That is one reason why I support the hon. Gentleman’s Bill. I do not need to go into further details, because we have had a number of debates about Coventry, secured by me, my right hon. Friend the Member for Coventry North East (Mr Ainsworth), and my hon. Friend the Member for Coventry North West (Mr Robinson), who are not here today because they have other business on. We have raised questions, debated the matter two or three times and met Ministers to discuss the issue. We should have got legislation last year, which was promised but never came forward.

Coventry is not the only club to have suffered from poor governance and financial mismanagement, but it is a useful example to discuss, because it has displayed many of the problems endemic in the system. It is for this reason that I asked the Select Committee on Culture, Media and Sport to consider a short investigation into what has happened to the club. It would be a useful case study to highlight areas where reform is needed, as the hon. Member for Folkestone and Hythe said. The idea would be to hear from both sides in the dispute and discuss what pitfalls might have been avoided had legislation been in place. I have yet to hear back from the Committee Chairman, and I do not know whether the Committee will accept my suggestions. I should be grateful if the hon. Gentleman considered supporting me in that, as it may help to make a compelling case for legislation.

The hon. Gentleman explained the football creditors rule well, and I do not intend to go back over that. Coventry City FC has had a number of problems and the football creditors rule is just one among many. However, the creditors rule rewards poor management and irresponsible governance. It is one rule for the football industry and another for all other businesses in the economy. Why should a club be responsible if, once it is in administration, it will not be obliged to pay its debts? Footballers’ salaries and other clubs must be paid before anyone else, even secured creditors and Her Majesty’s Revenue and Customs. The taxpayer is not considered until the players’ huge salaries are paid in full and, in Coventry, the rent that is due to be paid to the stadium is not considered.

Coventry’s Ricoh arena is owned by Arena Coventry Ltd, which in turn is half owned by Coventry city council, but the rent owed on the stadium is just ignored, as that company is not a football creditor. No other business failure would be protected in this way. What company would be able to pay its employees astronomical wages it could not afford?

The club is protected from its debt obligations to the taxpayer, in respect of rent arrears; to cleaners; to St John Ambulance; and to kit suppliers—the list goes on, as the hon. Gentleman said. The creditors rule seems to protect clubs from bad management and encourages recklessness. Of equal concern is the fact that most Football League regulations give it flexibility of application to suit individual circumstances, so that organisations dealing with football clubs cannot rely with any certainty on how the rules will be applied. This lack of clarity is a problem; it leaves organisations unclear of their position.

When a club goes into administration, the golden share held by each club, giving it membership of the FL and permission to play in the league, is suspended and reverts to the FL. The FL normally allows the club to play on to see if things can be resolved—a lot of times they are not resolved—but football creditors will still need to be paid. The operation of this rule has been an issue in many football administrations, including that of Coventry City Football Club Ltd.

There was a huge debate about whether the golden share lay in the hands of CCFC Ltd or its parent company, Coventry City Football Club (Holdings) Ltd. Ultimately, it was clarified that the share sat with CCFC Ltd, but that some or all of the players’ contracts are with CCFC (Holdings), which should not be the case under FL rules. That clarification came too late, and by this point the administrator had already sold assets. In any event, CCFC Ltd has been through administration and is being liquidated. All football creditors have been paid in full, while other creditors, notably ACL, the owner of the stadium, will not be paid.

The Select Committee launched its report on domestic football governance in December 2010, publishing the report in July 2011. The report was very clear: the Football Association was in need of urgent reform. Leagues—the Premier League in particular—have too great an influence over the decision-making processes of the FA. The game has seen increasing commercialisation, and there is a distinct lack of financial regulation. This has led to significant financial risk-taking among football clubs. The Select Committee urged the industry to reform itself; otherwise, there should be legislation. Football authorities put forward proposals for reform, but their proposals simply did not address the key issue. I hope that the Minister will deal with some of those issues.

On 30 April last year, the right hon. Member for Faversham and Mid Kent (Hugh Robertson), when he was Minister for Sport, wrote to the Select Committee, agreeing with its recommendations, which he described as “much needed”. He said:

“in the absence of significant progress with these by the beginning of next season, we should seek to introduce legislation as soon as practically possible.”

I agree. We really want to know what the legislation is and what the Government’s timetable is. On at least two occasions, I have asked when the Government will take action, and have been told that they are considering and looking at the issue, but they do not tell us what their proposals are. That is why I agree with the hon. Member for Folkestone and Hythe that we should have a time scale and should know what the proposals are. Everybody should support him in trying to get the Government to come clean on this.

A lot of these companies can be intimidating. The hon. Gentleman mentioned the Football League being frightened to take action; a lot of these companies want to go to court, and that can lead to individuals being intimidated. These companies would not get away with some of their practices anywhere else; the mafia probably would look like saints next to them.

The right hon. Member for Faversham and Mid Kent continued:

“I have already been given drafting authority by the Parliamentary Counsel, and my officials have started working up a draft Bill and supporting documentation, should football fail to deliver. This Bill will reflect the conclusions of your report.”

[Damian Collins]

Does the hon. Gentleman agree that it would be helpful if the Government produced the draft Bill and supporting documentation?

[Mr Cunningham]

That would be very helpful. If we saw what was in the draft Bill, we could decide whether we could support it, and I am not just talking about Opposition Members; the hon. Gentleman might disagree with some of the draft Bill, for example. There is a clear promise on the creditors rule, too. The Committee’s report stated that if the courts were to reject the challenge to the creditors rule by Her Majesty’s Revenue and Customs, the Government should introduce legislation to abolish it—the High Court has clearly upheld the challenge.

I conclude by saying to the Minister that football has failed to deliver, and it is now time for the Government to deliver. When will we see the promised Bill before Parliament? What more do the Government need before they decide to legislate?

15:00

[Penny Mordaunt (Portsmouth North) (Con)]

I apologise to colleagues in advance for being absent for the remainder of the debate. I wish to speak in the debate in the main Chamber on Ukraine.

I start by rebutting the claim, often made, that we politicians should butt out of discussing football because football is a business and it should not be in our remit to meddle in it. Leaving aside the rather unbusinesslike practices that my hon. Friend the Member for Folkestone and Hythe (Damian Collins) outlined, I make this comparison: if a supermarket—Tesco, say—folded in my constituency, I could comfort my constituents with the fact that they can buy their bread and milk from Sainsbury’s. I could provide no equivalent comfort to Portsmouth football club fans by pointing out that they can buy their season tickets from Southampton, a bit further along the coast. That is clearly nonsense, and it goes to the heart of what is special and unique about football clubs. They are more than just businesses. Football clubs bring tremendous economic value to an area, but they also carry tremendous social value.

I pay tribute to my hon. Friend for his work in raising the issue, his Bill—which I am happy to support—and his work on the Select Committee. I pay tribute to all the other members of the Committee, too, for their sterling work on raising this issue and on concentrating the Government’s mind on getting that result. My hon. Friend spoke eloquently on football’s finance and governance problems, so I will constrain my comments to putting on record some of the trials that faced Portsmouth football club, which, happily, recently managed to achieve the largest and fastest ever 100% community buy-out.

The club, which was established in 1898, has had no fewer than nine owners in the past 15 years. The supporters’ rescue bid was triggered in January 2012 as the club entered administration for the second time in two years, with debts of £100 million. A scheme was launched inviting fans to pledge a £1,000 investment in Pompey Supporters Trust, starting with a down payment of £100. Discussions were also held with high-net-worth individuals. The trust’s plan was to create a new legal entity, Portsmouth Community Football Club Ltd. The trust would invest in that new entity the share capital raised from its members. Alongside that, there would be direct investment by wealthier fans. The trust would be the majority shareholder in the new club, with community interests further protected by a shareholders’ agreement.

In October 2012, the Football League announced that the trust had won its support as the preferred bidder. By then, the trust had received pledges from more than 2,000 fans who had paid the initial £100 sum. Eleven presidents pledged a further £1.5 million, having already provided the administrator with £400,000 in cash to keep the club afloat. Obviously, they gave that cash without any guarantee that they would take over the club. The trust put together a £2.75 million loan from a local property developer and Pompey fan, secured against the future ownership of the stadium and backed by a £1.5 million loan from Portsmouth city council, which further completed the bid.

Chainrai, who was the default owner and who retained a £17 million charge on the stadium, refused the trust’s £3 million offer for the stadium. Eventually, despite prolonged legal battles and counter-offers, in April 2013 Chainrai accepted an out-of-court offer of £3 million for the stadium, along with a further £450,000 for the release of the floating charge against the club’s other assets.

I could talk at great length about the trials that we went through to secure that deal, but I will give three examples. Before an administrator was even appointed to kick off the process, a football administrator who thought they were going to be appointed was already in the club trying to strip assets. When we were putting together the business plan and trying to figure out and unravel the complex web of who owed what to whom, which resulted from having nine owners in 15 years, we could not see the football authorities’ rulebook, which would have let us know where the parachute payments should have gone and under what circumstances. It is hard enough for a trust to put together a business plan, but in those circumstances it was nearly impossible.

There was a lack of transparency, and I know that problem is adversely affecting Coventry City at the moment. At the eleventh hour, our bid was nearly knocked out by a coalition of people who arrived on the scene without having previously expressed an interest in taking over the club. They claimed that they were going to offer more for the club, which was clearly an attempt to knock our bid out of the competition. Those were dark days indeed, and a strong supporters’ trust bid was made fragile by the lack of a level playing field.

Happily, the trust was successful, and it took a club such as Pompey to achieve it. Anyone who has played us knows the tenacity of our fans. They are troupers, and it was their faith, and the support of a few individuals who were prepared to risk a considerable amount, that meant that we were successful, that Pompey are still playing, and that the good guys won.

I see Portsmouth football club as a trailblazer, and I hope it is a catalyst for change. If we do not change, many of our much-loved clubs will not be around in the future. The ordeal was worth while, and the club is now making a profit. There has been considerable investment in the grounds, and I am happy to report that Portsmouth won their regional FA community club competition last Sunday.

The football authorities have moved somewhat, but they have not moved enough. In this House, we have to show the same resolve that Pompey fans showed during their battle and see through the reforms. I am happy to support this debate, and I am very happy to support my hon. Friend’s Bill. We must be resolute in getting a proper finance and governance structure for our national game.

15:00

[Justin Tomlinson (North Swindon) (Con)]

I apologise for arriving late, but I had to serve on a Delegated Legislation Committee. It is a great pleasure to support both this debate and the private Member’s Bill of my hon. Friend the Member for Folkestone and Hythe (Damian Collins).

I am an unabashedly huge football fan, and I have two brief points that are slightly too long for an intervention. My first point is on the Insolvency Act 1986. I represent North Swindon, and we have Swindon Town football club, which has entered administration twice and avoided it on many other occasions. We have had a number of owners, some good and some less good. The hon. Member for Coventry South (Mr Cunningham) mentioned St John Ambulance, and his point applies to Swindon, too. We had a number of good local businesses—genuine suppliers—that were left high and dry each time the club’s ownership changed. Various wealthy people managed to get away completely unscathed while those who were working hard to support our vital community football club were left with their fingers burned, which made it a lot harder for the town to continue trusting the new owners.

My second point is on transparency. We have heard about the situations in Portsmouth and Coventry, and the same applies to many football clubs across the country. As supporters, we simply do not know who is responsible for the football club and who is ultimately making the decision to spend more money than the club can viably sustain. I have previously called for every football club to have an elected fans representative on the board. Ultimately, we need business people who are good enough to raise sufficient money, but stupid enough to go and waste it chasing domestic success when running the club, and an elected fans representative would at least always ensure transparency.

My hon. Friend the Member for Portsmouth North (Penny Mordaunt) described people trying to work out who the administrator was, but the fans representative would provide a link inside the football club. The football clubs would benefit, because at the end of the day, we long-suffering supporters are the customers. We buy the season tickets, the replica shirts, the Christmas presents, the programmes and the pies at half time. Having that rep on the board would offer a link to those customers. The rep could suggest where things are going right and where there are further opportunities to grow, as well as perhaps being the front that liaises with the local community, building trust in and support for the club.

[Jim Shannon (Strangford) (DUP)]

I also apologise for not arriving on time for the debate. I was also on a Delegated Legislation Committee and I took a little bit of time to get down here. I am pleased to have the chance to support this debate. I support Leicester City, and have done since I was a wee boy. We are looking forward to going back to the premier league, but we have had difficulties in the past. The loyalty of supporters and their contribution to their club, whether socially, physically, monetarily or in time—they might attend all the matches—are important. I totally support the hon. Gentleman’s point that the clubs should have within their administration some method whereby supporters clubs, or individuals on behalf of supporters clubs, can have an input into what happens.

[Justin Tomlinson]

I thank the hon. Gentleman for his comments, which I agree with. I see that representative being elected through the supporters trust network. We have had a number of Supporters Direct events in Parliament, and we have all seen at first hand the fantastic work that it does.

[Damian Collins]

My hon. Friend raised an interesting idea. Does he agree that there is a necessity for the public declaration of the ownership to be clear? That was not clear with Leeds United and when the chief executive gave evidence to the Select Committee, he said that he did not know who owned the club. That kind of situation cannot be allowed to continue.

[Justin Tomlinson]

That is the absolute minimum we need. Supporters and suppliers should have a right to know who the custodian of their community football club is. The fans representative could then give a day-to-day commentary where appropriate and link the supporters and the club. That would be a win-win, particularly for the Football League, in ensuring that fans are engaged with the football club. The hon. Gentleman is absolutely right that we need that public declaration.

[Mr Marcus Jones (Nuneaton) (Con)]

Does my hon. Friend agree that there should be more transparency within the Football League? I and many of my constituents support Coventry City, and the Football League has been completely not transparent in allowing the club’s owners to move it to Northampton, without any proper plan to get it back where it belongs in Coventry.

[Justin Tomlinson]

I know that my hon. Friend has worked tirelessly to support the long-suffering fans of Coventry City. Long gone are the days of the 1987 FA cup final, when Coventry had a 3-2 win over Tottenham. Watching that on the television is one of my earlier memories. My brother went to Coventry university, and it was the only time he was interested in football. He was pleased by the result on the day.

We keep coming back to the point on transparency. My hon. Friend the Member for Portsmouth North made the point that there would be alternatives if a supermarket was closing, but that people generally have only one community club to support. Yes, there will be good times and there will be bad times—in Swindon’s case, there have been a few more bad times than good times of late, but that adds to the excitement—but it should always be about transparency for the fans and for suppliers, who work hard to do their bit to support their community clubs and often give generous deals. We cannot simply abandon them and create this unique rule that protects wealthy people within football. I say that as a huge football fan myself. We have to do right by the community, the fans and the suppliers.

[Mr Jim Cunningham]

I thank the hon. Gentleman for giving way. I agree with the hon. Member for Nuneaton (Mr Jones): whoever owns the club, they have been playing ducks and drakes with the fans in Coventry. The fans are vitally important, but they are playing a guessing game on whether they will go back to the stadium or whether there will be a new stadium and, if so, where it will be located. It is 20 questions all the time, and that is how contemptuous they are of the people and fans of Coventry, quite frankly.

[Justin Tomlinson]

I agree wholeheartedly with that. What frustrates me, whether it is the Premier League or the Football League, is that it is in their interest that football clubs remain viable and continue to grow. It is a brand, and by and large it does work. The frustration was highlighted in the example given by my hon. Friend the Member for Portsmouth North. She said that at the eleventh hour—a huge amount of work had been done, the community had raised money and different people had pledged money—the goalposts seemed to be moved.

The Football League and the Premier League should have all the information registered and available, so that those seeking to step in to rescue, protect and save those valuable community assets are armed with the information that they need. In some cases, football clubs will disappear because it is just not meant to be, and some clubs will do better than they should, but that is just the nature of competitive sport. Where a set of owners have been reckless and the community wants to step up, whether that is through a new business owner or a community, fan-owned club, they should be able to have that information. The Football League and the Premier League should have it at their fingertips.

[Damian Collins]

My hon. Friend makes an important point. It is why it is important to have a proper fit and proper person test, administered by the Football Association, that can be done quickly. It can assess whether a new bid is worth pursuing or worth looking at, saying, “Is it from a fit and proper organisation or is it spurious?” If it is spurious, it should be set aside. It should not be down to the administrator to get the most money regardless of where it is coming from.

[Justin Tomlinson]

I agree with my hon. Friend. A whole review of the fit and proper test is needed, because my understanding is that while one of the tests is that a person must have a certain amount of money deposited in a bank account, they do not necessarily have to put that money into the club. I have seen that with Swindon Town. Wealthy people take over a club and have the potential to cover its liabilities, which would cover the suppliers, but that money is not necessarily used.

[Mr Jim Cunningham]

The hon. Gentleman is making a very important point. If we go back 15 to 20 years—I cannot remember the exact date—an individual wanted to buy Manchester United. Everyone was led to believe that he was going to buy the club, but at the end of the day he could not put the deal together. He totally misled people for some months.

[Justin Tomlinson]

I believe the individual ended up at Carlisle, and the club had a chequered time under his stewardship. Time and again, we are seeing people coming in for various different reasons without the interests of those football clubs at heart. I understand the world of business, but these clubs are valuable community assets. The Government need to apply pressure to the Football League and the Premier League, because it is in their interest to get their houses in order.

[Jim Shannon]

The hon. Gentleman is being gracious and kind in giving way again. We are referring to the English Football League. Will there be an opportunity for the Minister to look at what is happening in Scotland and the other leagues? I think of Rangers FC, which is an institution. I have supported the team since I was a young boy. The club has dipped in and out of administration and still has difficulties in the board room. The club is important: at its past three matches, 115,000 fans have come to support it. Does the hon. Gentleman feel that we have to look beyond the English league to the leagues in Scotland, Northern Ireland and Wales?

[Justin Tomlinson]

I absolutely agree. The issue affects football clubs across the country. In Scotland, there is the worrying experience with Hearts. As with Portsmouth, people are trying to do deals, but even the club cannot identify the owner.

[Damian Collins]

I just make the helpful point that many aspects of football are devolved. I originally wanted the debate to encompass Scotland, too, but I was advised that it could not.

[Justin Tomlinson]

I thank my hon. Friend for that.

In conclusion, there are huge amounts of good will towards sport and football, whether that comes from supporters or suppliers. We need to do whatever we can to ensure that they are equipped with knowledge, so that things can be remedied as quickly and swiftly as possible when they go wrong. That is absolutely vital for our local communities.

[Mr Gary Streeter (in the Chair)]

An injury-time strike by Marcus Jones.

15:19

[Mr Marcus Jones (Nuneaton) (Con)]

Thank you, Mr Streeter, for allowing me to make a short speech. I did not intend to speak when I entered the Chamber, but the issue that my hon. Friend the Member for Folkestone and Hythe (Damian Collins) raises is important and we should support his endeavour to get the law affecting football clubs changed.

I am a long-suffering fan of Coventry City football club, like probably thousands of my constituents, who are extremely depressed and disappointed about what is happening to their football club. All football supporters follow their clubs for different reasons, and all experience tremendous highs and lows. Most probably get more lows than highs—unless they support one of the glory teams or are one of what I used to call Alex’s armchair army, supporting a team that might be many miles from where they live. Regardless of football affiliation, we must recognise that football clubs are community-based assets. They are not like any other type of business. If, for example, the customers of a supermarket chain suddenly decided they did not like what it was offering, they would usually abandon it and go elsewhere. Football supporters, however, regardless of how bad their team is at times, stick with it and support the club through thick and thin—or thin and thinner, in the case of my team at the moment. We must realise that; the clubs are embedded in communities.

Transparency has been raised several times. The people who follow clubs week after week, spending money, as my hon. Friend the Member for North Swindon (Justin Tomlinson) said, on season tickets, shirts and all sorts of things to support their club, deserve some transparency. They deserve to be able to hold their club’s owners to account. As to Coventry City football club, we do not even know who owns it. Many of the constituents whom I speak to are mortified that they cannot even find out who is to blame for its present situation. We need more accountability. We should never allow people to take on a football club that is embedded in a community, and then for whatever reason use it as a toy, thinking they can abandon the community, lift the football club up like a moveable commodity, and take it elsewhere.

[Mr Jim Cunningham]

The hon. Gentleman makes an important point. When we talk about wages, salaries and ownership, we tend to forget that football started with individuals playing in the street. The moral of the story is that it started with the fans, who created the teams in the first place; yet the fans get kicked in the teeth all the time when things go wrong.

[Mr Jones]

The hon. Gentleman and I do not often see eye to eye, but we probably do in this instance. Coventry City were a factory team, and started in the 19th century as a group of people from the Singer factory, who came together to play football. From that a great club was formed, which has lasted more than 125 years. We need to make sure we can see that the people running football clubs are fit and proper people. The clubs are not just commodities that can be shifted from person to person and area to area. They are organisations that communities depend on, particularly in a financial sense. When Coventry City left Coventry, it left a huge hole in the city, and that has particularly affected the local economy.

I support my hon. Friend the Member for Folkestone and Hythe, who is doing a fabulous job of raising the issues. He deserves every support, and I hope that the Minister will show him that she is in touch with the issue and willing to take action on behalf of millions of football fans throughout the country.

15:19

[Mr Iain Wright (Hartlepool) (Lab)]

It is a pleasure to serve under your chairmanship again, Mr Streeter. I thank my hon. Friend the Member for Coventry South (Mr Cunningham), and the hon. Members for Portsmouth North (Penny Mordaunt) and for North Swindon (Justin Tomlinson). There was also a good late substitution when the hon. Member for Nuneaton (Mr Jones) came on to the pitch. Most of all I thank the hon. Member for Folkestone and Hythe (Damian Collins) for securing the debate. The manner in which he advanced his excellent, eloquent argument was first class, and he set the tone for the rest of the debate. He closed his remarks by explaining that the issue is one that arguably affects all our communities. It certainly affects millions of football fans.

I was particularly pleased that my hon. Friend the Member for Wirral South (Alison McGovern) was here, because she is a fan of Liverpool football club, and Bill Shankly, one of this country’s greatest ever managers, famously said:

“Some people believe football is a matter of life and death, I am very disappointed with that attitude. I can assure you it is much, much more important than that.”

In many ways that is true, as we have heard today. Football makes a remarkable contribution to society. In my own patch, about a fifth of Hartlepool’s population travelled to Cardiff’s Millennium stadium to see Hartlepool United against Sheffield Wednesday in the league one play-off final in 2005, where we were cruelly robbed by an appalling refereeing decision. [Interruption.] It was a fabulous stadium.

Football provides a place with a sense of identity and belonging, and a recurring theme of the debate has been that clubs are much more than merely businesses. They are vital social institutions that bring and bind communities such as the people of Hartlepool together. There is a strong case for saying that in matters of business, governance, ownership, transparency about those matters and insolvency, the wider effects on society and communities should be considered.

It always strikes me as odd that, given football’s central importance to our society and communities, its finances are often precarious. Every year, Deloitte, a firm for which I used to work—I draw the House’s attention to my entry in the Register of Members’ Financial Interests—produces a review of football finance. The latest review showed that in the 2011-12 season, the total revenues of the 92 clubs in the top four divisions of English football exceeded £3 billion for the first time. However, the Premier League accounted for almost four fifths of that total. Lower down the leagues, it is a different story. In the 2011-12 season, the average revenue of a league one club was £5 million, with an average net loss of £2.4 million; and in league two revenue was £3.3 million, with an average net loss of £0.3 million.

My local club, Hartlepool United, has had its fair share of flirtations with insolvency, although not in recent years, thankfully. We are infamous for a record number of re-elections to the Football League, and in the 1980s there was a time when we owed £52,000 to the Inland Revenue and a six-figure sum to other creditors. We were days away, in 1983, from being wound up, and the bailiffs took the goal posts, goal nets and grass cutter to pay the debt—not that we noticed much, because that year we finished third bottom, with a goal difference of minus 30. The only people below us, funnily enough, were Hereford United. It is funny how things go. We were actually wound up in the High Court in 1992-93 but the town’s club was saved by a great man—Harold Hornsey—and that helped to put Hartlepool United on a much better, sound financial footing.

[Jim Shannon]

Even though a club may be small, it makes a contribution to its town or city, and to society, and gives people pride even when it is not playing as well as it might or as well as people would like. Those are important factors for communities, and we should not take away from that. Perhaps a club will never become a Manchester United, Liverpool or Rangers, but it can always be an Ards football club, or a Hartlepool United. Those things are important to society.

[Mr Wright]

I must disagree with the hon. Gentleman. In my lifetime, Hartlepool United will become a Manchester United or a Liverpool, and I will live to see us lift the champions league trophy, so the hon. Gentleman is wrong in that respect. He is right, however, about the vital contribution that clubs make to local businesses. Hartlepool borough council recently undertook an assessment of Hartlepool United’s economic impact on local businesses and, astonishingly, the club provides something like £5 million to Hartlepool’s economy.

The figures I have quoted show how inherently uncertain is the business model on which much of football is based. The hon. Member for Folkestone and Hythe said that 46% of clubs have been through a formal insolvency procedure since 1992. No other sector of the economy has had that level of insolvency, which highlights—this was one of the hon. Gentleman’s most articulate points—the possibility of reckless spending. Entry into the premier league—the most exciting and followed league on Earth—could mean as much as £50 million to a club. It is the glittering prize to which all supporters and owners aspire, but it leads to reckless gambles in the transfer market, which could undermine the financial viability and long-term security of a club. Some argue that the football creditors rule prevents clubs from spending money on players whom it cannot afford, but we have heard today that that is far from the case. The football creditors rule means that there is no inherent brake on transfer spending or on—as the hon. Gentleman said—the shared risk of a club not being paid for the transfer of a player, because football creditors are paid in full at the expense of other unsecured creditors.

[Damian Collins]

I agree with the hon. Gentleman’s point. Does he agree that, without the creditors rule, clubs would have to be much more open about their financial status, because that would be a prerequisite of clubs wanting to enter into transactions with them?

[Mr Wright]

That is a fair point. The insolvency rule specifically, as well as the hon. Gentleman’s wider point about governance and transparency, would be better for the game. He also suggested replacing the football creditors rule with some form of sinking fund, and I would be interested to hear whether the Minister is working with the Football League, the Football Association and others to examine such a proposal.

The rule can often act as a drag on a club returning to speedy financial health. I am pleased that the hon. Member for Portsmouth North was here earlier, because Portsmouth football club is now owned by the fans, but still has a significant liability of some £7 million owed to ex-players, which the supporters, because of the football creditors rule, must pay in full. That cannot be a good way of getting the club back to financial health. The need to curb the tendency to overspend makes the financial fair play rules, which cap the salaries of league one and league two clubs against a percentage of their turnover, so important, but are the rules the full answer? What will the Minister do to ensure that they are complied with and enforced?

The essence of today’s debate, which has been articulated by many hon. Members, is this: why should we have the football creditors rule if it means that clubs and players are paid in full ahead of all other creditors when a club enters insolvency? This quote from former Sunderland chairman, Niall Quinn, has been mentioned before, but it is worth repeating, because it sums up the problems of the game. He said:

“The fan in the street meets the guy who printed the programmes who didn’t get paid and he sees the player driving out in the big car who was paid, and I think that’s damaging.”

As mentioned by several hon. Gentlemen, there seems to have been a marked shift in tone and emphasis since the Government response to the original Culture, Media and Sport Committee report in 2011, which stated:

“We have sympathy for those who described the consequences of the rule as ‘morally indefensible’.”

“Morally indefensible” is an extremely strong phrase, and the Government sympathise with the position, from which I can infer that the Government wanted to see an end to the rule and wanted to move, through legislation if necessary, as quickly as possible. After the follow-up investigation by the Select Committee, however, the Government response in April 2013 stated that the Government hope that financial fair play rules will

“negate the need for football to rely on the Football Creditors Rule in cases of club insolvencies. However, we will monitor the effect this self-regulation has on the financial discipline and solvency of clubs, and, if necessary, will re-consider whether legislation is needed to address this issue.”

The tone is markedly different. The hon. Member for Hereford and South Herefordshire (Jesse Norman) also referred to a written parliamentary question from last month, in response to which the Under-Secretary of State for Culture, Media and Sport, the hon. Member for Maidstone and The Weald (Mrs Grant),said:

“The Financial Fair Play rules now introduced across football which, combined with compliance checks that the FA and league administrators carry out on participating clubs, aim to improve financial management and stability across the leagues…Legislation remains an option if the football authorities do not demonstrate that they can reform their own governance of the game…The Government’s position on the football creditors rule is clear.”—[Official Report, 27 February 2014; Vol. 576, c. 495W.]

As we have heard time and again in today’s debate, the position is far from clear. The Government seem to be shying away from the necessary heavy tackle. What are the criteria for legislation to be brought forward? What is the time scale on such legislation? How long do clubs have to demonstrate reform of governance and financial management before the Government act?

There is a wider point here about insolvency policy in general. The Opposition are keen to improve the insolvency regime, so that the public and investors have greater confidence that delinquent directors who are unfit to run a company are pursued efficiently and effectively, which is not the case under this Government. In 2012, just a fifth of reports passed to the Insolvency Service by insolvency professionals resulted in a disqualification court order or an undertaking, compared with 45% 10 years ago. Why has there been such a drop? Why are the Government allowing unfit directors to walk away from their responsibilities? What are the Government going to do about it? Last week, we tabled an amendment to the Deregulation Bill to scrap the need for insolvency practitioners to submit certain forms in hard copy and allow them to do so online, as a means of streamlining the process and ensuring that insolvency policy can be brought up to speed. Will the Minister accept that?

I thank all hon. Members for contributing to today’s debate, which has been incredibly important. We have seen a cross-party approach to this important matter, and I hope that the Minister will provide what hon. Members are calling for: greater clarity and a plan to address the wider point about an insolvency policy that is allowing delinquent directors to get off scot-free both in football and elsewhere.

15:29

[The Parliamentary Under-Secretary of State for Business, Innovation and Skills (Jenny Willott)]

I thank the hon. Member for Folkestone and Hythe (Damian Collins) for calling for this debate. He has shown his commitment to football issues over several years—issues that many hon. Members feel strongly about.

Football is a fundamental aspect of British life. I married into a family of Evertonians. My children were wearing Everton babygros before they reached the age of one—the indoctrination started early—so they have absolutely no choice in the matter of whom to support. The financial health of football clubs is a hot topic on both the terraces and the sofas of Britain. Fans are perpetually nervous about which club will be the next to struggle or fail and endlessly discuss clubs’ costs and budgets. The Government appreciate the part that football clubs play at all levels across British society. They are a fundamental part of the social fabric of communities up and down the country.

None the less, the rules that govern corporate life cannot be selectively applied. Those who deal with a football club—its suppliers, its employees, the Crown—should have the same confidence that they will be paid as they would if they were dealing with any other business in any other industry. Insolvency is a risk—hopefully a low one—in all industries, including football. No honest person runs a business expecting it to fail, but when there is failure, it is important to have an insolvency process that is fair and transparent and, where possible, saves viable businesses; that applies as much to football as anything else. The UK’s insolvency framework was recently judged by the World Bank to be 7th best out of those of 189 nations; it came ahead of France, Germany and the United States.

The hon. Member for Folkestone and Hythe pointed out that quite a number of clubs have experienced financial difficulties in recent years. The majority of premier and Football League clubs that have become formally insolvent in the last 20 years have entered the insolvency procedure known as administration.

[Mr Jim Cunningham]

Does the Minister intend to answer my questions, and those of the hon. Member for Folkestone and Hythe (Damian Collins)? What are the contents of the legislation that is to be proposed by the Government? Will the Minister support the hon. Gentleman’s Bill? Alternatively, may we have a date for when the Government will introduce legislation? The situation has been going on for far too long—for about two years—and we have heard the evidence from Coventry, which is a good test case.

[Jenny Willott]

If the hon. Gentleman gave me some time, I might be able to answer some of his questions.

Most clubs that have entered insolvency have gone into administration. The primary objective of an administrator is to rescue the company wherever possible. If the business can keep going, that is the best outcome for employees and other stakeholders. Administration is therefore a rescue procedure and, judged on that criterion alone, football administrators have been successful. In spite of the number of clubs facing difficulty, as highlighted by a number of hon. Members today, no Football League club has gone out of business mid-season since the demise of Aldershot in 1992.

Administrators are governed by statute. Their primary focus is on rescuing the company, but the survival of the company or business will always be balanced against the interests of the creditors. Put simply, an administrator cannot save the company if that is not in the interests of the creditors. As was highlighted by the hon. Members for North Swindon (Justin Tomlinson) and for Portsmouth North (Penny Mordaunt), generally, rescuing a football club is in the broad interests of the creditors and the fans. That is because the alternative to a rescue out of administration is liquidation, in which a club’s assets are turned into cash, its affairs are wound up and any remaining funds are distributed to creditors.

On liquidation, football players’ contracts are void and they receive what is known as a free transfer, which means that no transfer fee need be paid to the liquidated club. That is clearly not in the interests of creditors, as the players’ contracts are an important asset of the club, being worth significant amounts of money. As hon. Members have said, including the hon. Member for Coventry South (Mr Cunningham), the Football League is in essence a members’ club, with all the clubs having a share in it, sometimes known as the golden share. To continue membership of this club and to retain the share, members must abide by the rules. Among the rules is the Football League’s insolvency policy.

One aspect of that insolvency policy, as we have discussed today, is the football creditors rule, under which all football creditors must be paid in full if a club is to remain a member of the Football League. The list of football creditors is long, so it would be slightly tedious to read out, but it includes players, the staff of the club, the leagues, the Football Association and other clubs, as was mentioned by a number of hon. Members. Other than in exceptional circumstances, if the football creditors rule is not followed, the club will lose its share in the Football League. Without the share, the club cannot take part in league matches and will in effect cease to trade. If a football club is in administration, the loss of the share will almost inevitably result in liquidation, which, as I said, voids all player contracts. If that happens, the football club is in effect dead, which is disastrous for all classes of creditor, because there is no value in a club that has been kicked out of the league and has no players.

[Damian Collins]

What the Minister says is correct, but that is down to the rules of the Football League. We could amend insolvency law to give the administrator the power to compensate all unsecured creditors equally and fairly, and it would then be a matter for the Football League to decide what it did with the club after the administration.

[Jenny Willott]

The administrators are regulated professionals and are obliged by law to perform their functions in the interests of the company’s creditors as a whole. They are complying with insolvency law. The administrators are not bound by the Football League’s rules on football creditors; they are required by law to treat all unsecured creditors equally. Those are the rules under which administrators operate, but it is clearly in the interests of a potential purchaser to abide by the Football League’s rules and to ensure that football creditors are paid in full, to be able to keep the club operating. It is usually in the best interests of administrators to sell to someone who will do that to keep the business operating and keep the club playing as part of the league. If the purchaser does not do that, there is a significant risk that the Football League will not allow the club to compete, and the purchaser would then own a worthless club.

[Damian Collins]

I question that, on behalf of non-football creditors. Under insolvency, they might get less than 1p for every pound that they are owed. What interest of theirs does the process serve? They are in effect watching football creditors being compensated fully, but are themselves walking away with what in any other administration would be considered practically nothing.

[Jenny Willott]

It is important to remember that the money being used to pay the football creditors is not drawn from the assets being used to fund the other unsecured creditors. It is not the same pot of money.

[Damian Collins]

The Minister makes an important point, but this is where legislation might be necessary, because the football authorities will withhold money that is due to the club at the end of the season to carry out, in effect, their own administration process by settling football debts that the club cannot manage. We should make it a requirement that administrators have access to those funds that are due to the club at the end of the season, so that they can be factored into the administration of the club.

[Jenny Willott]

This was looked at fairly recently by the High Court, which decided that those funds did not count as assets of the club. The assets of the club have to be divided up in accordance with insolvency law, under which the administrator has to look at all the unsecured creditors. I completely understand what the hon. Gentleman is saying, but following the High Court ruling, I believe that those funds do not count as assets of the club.

[Damian Collins]

Under the Football League rules, those funds are not necessarily due until the club completes the season. If the administrator were free to carry on the administration until the end of the season, I do not see why the administrator could not reasonably draw on those funds as well.

[Jenny Willott]

The hon. Gentleman makes an interesting point, but I have to confess that I do not know the answer. If it is okay with him, I will write to him after the debate to clarify that point.

When a football club is sold, which takes it out of insolvency, the purchaser generally funds the payment of the football creditors, or other funds that do not belong to the club are used. A different pot of money is therefore paying for the football creditors. That is one of the reasons why the football creditors rule does not breach existing insolvency law. Were the funds to come from the same pot, it would breach the law, because it would be treating different unsecured creditors differently. Nevertheless, today and on a number of occasions in the past, it has been suggested that the football creditors rule should be abolished through legislation. The hon. Member for Folkestone and Hythe has made that point today.

The number of Football League club insolvencies has declined significantly in recent seasons. In the 2003-04 season alone, six clubs became insolvent. Five years ago, there were around three or four failures per season. Happily, however, there have been no football insolvencies at all so far this season and only two in the season before that, and in one of those there were no football creditors, so the situation seems to be improving slightly. Insolvency is not the cause of a football business’s problems; it is a symptom arising from an underlying lack of financial stability.

The hon. Member for Hartlepool (Mr Wright) and other hon. Members mentioned financial fair play; the football authorities have made significant moves in recent years to put clubs on a stronger financial footing. They have introduced an early warning system for tax debts, salary caps and an agreement on financial fair play rules, which will ensure that clubs do not spend more than they earn. Those measures are possibly already having a beneficial impact in increasing financial stability, which will lead to a decrease in the number of insolvencies.

[Jim Shannon]

I intervened earlier to ask hon. Members what talks the Minister has had with other Administrations, because the Scottish Football Association is separate, and sport is devolved to the Northern Ireland Assembly and the Welsh Assembly. I am not trying to be nasty, but I want details on any discussions that the Minister has had with the devolved Administrations on these problems, which are very apparent in other regions of the United Kingdom of Great Britain and Northern Ireland.

[Jenny Willott]

The issues that the hon. Gentleman is raising are more connected to the administration of the game of football as a whole than to insolvency. I have not discussed those issues with counterparts in other Administrations, but Ministers in the Department for Culture, Media and Sport may have done. I am happy to write to him to clarify that point; I do not know the answer to his question off the top of my head.

It is important that we encourage the football authorities to continue with the financial fair play rules, to ensure that football has a solid financial base on which to operate. If there are no insolvencies, the football creditors rule does not come into play, so we get around the problem.

[Damian Collins]

I do not think that it is fair to say that if there are no insolvencies, we should not look at getting rid of the football creditors rule. In her opening remarks the Minister said that the rules of corporate life cannot be selectively applied, but that is what is happening. It should not; it should stop.

[Jenny Willott]

Insolvency law is applied equally to football clubs and any other businesses facing insolvency.

[Damian Collins]

The Minister says that, but there is no other sector of industry in this country that has a rule whereby it treats one group of unsecured creditors—its friends—differently from another group. I know that this has been tested in the High Court and is legal, so clubs can do it. The purpose of the debate is to question whether it should be legal, or whether we should stop it.

[Jenny Willott]

I appreciate what the hon. Gentleman is highlighting. I have sympathy for the views he is expressing.

[Mr Iain Wright]

To back up what the hon. Member for Folkestone and Hythe (Damian Collins) says with a specific example, Plymouth Argyle FC went into administration in 2011. Its football creditors were paid in full, but the unsecured creditors received a dividend of 0.77p in the pound—less than a penny. That cannot be a fair means of making sure a business can become viable. Will the Minister change legislation to change that?

[Jenny Willott]

Changing the legislation would not necessarily have made any difference. The money that goes to pay the football creditors does not come out of the pot of assets that is used to pay the unsecured creditors. There is no evidence that if we changed the football creditors rule there would be more money available for the unsecured creditors. They would quite possibly still get exactly the same return on a pound. Clearly, in the case the hon. Gentleman cited, the return was extremely low, but I have seen no evidence to suggest that it could have been greater. It is not the same pot of money that is used to pay each group.

To put the matter in the context of insolvencies as a whole, in 2013 there were about 20,000 corporate insolvencies in England and Wales, of which around 2,400 were administrations. The Government feel that using primary legislation to outlaw a provision that is relatively infrequently used is disproportionate, particularly given that the industry is already trying to improve the underlying financial stability of clubs via the financial fair play rules. Other than those to which special regimes apply, all insolvencies are subject to the same legislation, the Insolvency Act 1986. It would be potentially confusing for users of that legislation if we modified it just for football insolvencies. No other industry is treated differently under general insolvency legislation, and the Government feel that there is no compelling reason why football club insolvencies should be.

Football is undoubtedly incredibly important for fans. I understand the frustration of fans whose clubs become insolvent through no fault of those in the stands or on the terraces. Given the emotional importance of football for fans, I understand how distressing it can be when a club goes into insolvency. However, as I said at the start, the rules that govern corporate life cannot be selectively applied—they apply across the board—and those who act as directors of football clubs should act properly in execution of their duties.

A number of hon. Members have highlighted concerns about directors. The law allows the Secretary of State to undertake civil proceedings against company directors who are found to have been culpable in the failure of a company. However, until a person has been disqualified, they are free to act as a director of any number of companies in the UK, irrespective of their track record or any criminal charges that may be pending, although someone who is personally bankrupt or subject to bankruptcy restrictions is prohibited from acting as a director.

Hon. Members have mentioned the owners and directors test, which places additional restrictions on clubs. I understand that those restrictions are increasingly based on intelligence, and that football authorities are co-operating to make the test as effective as possible.

Overseas convictions were mentioned. At the moment, there is nothing to prevent a person who has been convicted of offences in connection with a company overseas from acting as a director of a UK company. However, the “Transparency and Trust” discussion paper published last year included a proposal to enable the Secretary of State to bring disqualification proceedings in the UK against anybody convicted of a serious offence in connection with a company overseas. We will publish the Government response to that consultation soon. The issue is currently being considered.

We want the UK to be a trusted place for people to carry out business. Part of that is ensuring that directors of limited companies take responsibility for their actions and have regard to creditors and employees. The majority of directors do that effectively, but action can and will be taken against those who do not play by the rules. When a company enters formal insolvency, such as administration, the administrator has a duty to report on the conduct of all directors in office in the previous three years. The Insolvency Service, which acts on behalf of the Secretary of State, looks at all reports in which the administrator suggests that misconduct has occurred, and when it is in the public interest to investigate, it will do so.

If disqualification proceedings are highlighted as being necessary, once the Secretary of State has authorised them, the company director can either give an undertaking or be disqualified. If disqualified, a director can be banned for up to 15 years, depending on the seriousness of the misconduct. Over 100 directors are disqualified each month; the average period of disqualification is around six years, and over 10% of disqualifications are for more than 10 years. That is all a matter of public record, as details are held at Companies House.

Various football directors have been disqualified over the years. For example, in 2011 four directors of Luton Town football club were disqualified for a combined total of 19 years, a significant penalty. They were found to have breached Football Association and FIFA rules and caused the company to trade at risk to, and to the detriment of, HMRC.

Hon. Members raised issues about specific clubs. I am an MP for Cardiff, where the Bluebirds now wear red, and was previously a local councillor in Merton, when Wimbledon football club was having a number of local difficulties about where they were going to play, so I have witnessed at first hand the trauma that club ownership issues can cause to supporters. A number of Members have mentioned their concerns about Coventry City football club. The hon. Member for Coventry South raised the golden share, which I mentioned earlier. My understanding is that the Football League has learned from the case of Coventry City and has strengthened its checks on who holds the golden share in response.

[Mr Jim Cunningham]

It took a long time to get an answer from the Football League on that question. It was not clear-cut at the beginning; it took a considerable period of time.

[Jenny Willott]

That may well have been the case. I take the hon. Gentleman’s point. On club ownership and the identification of club owners, the football authorities are confident that they can identify club owners. The Football League has responded to the situation at Coventry City to ensure that that picture is not replicated elsewhere.

[Mr Marcus Jones]

rose—

[Jenny Willott]

I will not give way, I am afraid, as I have about one minute left. Portsmouth football club is a strong example of a supporter-owned club. The Culture, Media and Sport Committee recommended that the DCMS set up an expert group to consider supporter ownership within the sport. That is now happening, and the experience of Portsmouth FC will be invaluable in shaping considerations on that issue.

This is an extremely emotive issue. Members demonstrated in their contributions how strongly people feel about football. I appreciate that Members will be disappointed that I will not commit today to changing the law in this area. DCMS Ministers have meetings with the football authorities about a variety of issues and have discussed the football creditors rule in the past. However, there has been a significant reduction in insolvencies following the introduction of the financial fair play rules, with no cases this season. We want to encourage responsible spending in football to avoid the pain, both financial and emotional, of insolvency. That is a better way for those working in or supplying a football club, as well as being in the best interests of supporters. If that does not work, the issue will merit further examination, but I hope other hon. Members remain as optimistic as I am about the situation.