Home Information Cases Inland Revenue Commissioners v The Wimbledon Football Club Ltd, Martin Ellis, James Earp (2004)

Skip to content. | Skip to navigation

Inland Revenue Commissioners v The Wimbledon Football Club Ltd, Martin Ellis, James Earp (2004)

Summary

A proposal for a company voluntary arrangement in respect of an insolvent football club did not infringe the Insolvency Act 1986 s.4(4)(a) by virtue of the fact that the club's "football creditors" were to be paid in full under an agreement for the sale of the club whereas the Inland Revenue as a preferential creditor was only to receive a dividend of 30p in the pound when the proceeds of sale were distributed under the arrangement.

Facts

The Inland Revenue appealed against the rejection of its application under the Insolvency Act 1986 s.6 for the revocation or suspension of a company voluntary arrangement (CVA) made in relation to the affairs of a football club (W). W was a member of the Football League and the holder of a share in it. W was heavily insolvent and went into administration in June 2003. The effect of the company going into administration was to entitle the League under its articles to serve notice suspending W's membership and requiring it to transfer its share. The administrators were able to borrow £1.5m and continue trading until the end of the football season. In March 2004 they agreed to sell the club to a buyer (MK). Under the League's insolvency policy the League would withdraw the transfer notice in respect of W's share only if the club completed satisfactory arrangements for exit from the relevant insolvency proceedings and all football creditors (as defined) were paid in full. The sale was subject to a CVA in relation to W being approved and taking effect, and the sale contract provided for W's football creditors to be paid in full. W's creditors then approved a CVA under which the net proceeds of the sale agreement would be distributed with preferential creditors (including the Revenue) receiving 30p in the pound and unsecured creditors receiving nothing (unless the club was promoted back to the Premier League before the end of the 2006-07 season). The Revenue opposed the proposal on the basis that it was unfair or unlawful. The creditors approved the CVA. The Revenue sought revocation or suspension of the CVA on the ground that the proposal contravened the Insolvency Act 1986 s.4(4)(a) because the Revenue, as a preferential creditor, was not being paid in full whereas under the terms of the sale agreement the football creditors were being paid in full. The judge held that s.4(4)(a) did not prevent the payment of the football creditors by the buyer out of its own money.

Held

The proposal referred to in s.4(4)(a) was limited to the proposal to distribute the cash realised by the disposal of the business and assets of W under the sale agreement and did not extend to the terms of the sale agreement itself. W's creditors were asked to consider and voted on how the proceeds of the sale agreement were to be distributed and not whether to approve the sale agreement (even though the sale agreement was conditional on the proposal being approved). There was no suggestion that the administrators had no power to enter into the sale agreement without the prior approval of the creditors. Third party assets, namely the MK's moneys, were to be used to pay the football creditors and it would be unfortunate and surprising if those moneys, which did not and never would belong to W, were caught by s.4(4)(a). That supported the conclusion that the "proposal" for the purposes of s.4 did not extend to an agreement or other understanding between a third party and some creditors, at least where the money involved was what the judge referred to as the third party's "free money", i.e. money which was not being advanced at the cost of the company. The payment of the football creditors in the instant case did not reduce the consideration payable under the sale contract.

Appeal dismissed.

Court of Appeal
Lord Woolf of Barnes LCJ, Mance LJ, Neuberger LJ
Judgment date
28 May 2004
References

​LTL 28/5/2004 : (2004) BCC 638 : (2005) 1 BCLC 66 : Independent, June 10, 2004