Pay up Pompey; Pompey pay up!

It has been reported that on 23 December 2009 Portsmouth Football Club received an extremely unwelcome Christmas present: a winding up petition served by HM Revenue & Customs.  The date set for the winding up hearing is said to be 10 February 2010.  The fixture will be played out at the High Court in The Strand, London.  No details have come into the public domain on the amount owed by Pompey to HMRC, or the grounds for the winding up petition.  However, the grounds are most likely to be that Pompey is unable to pay its debts (s.122(1)(f) of the Insolvency Act 1986).

In response to these reports, Pompey has issued a press release, but this does not appear to make it clear whether a petition has or has not been served.

It seems that just about every Saints fan I know has thoughtfully contacted me with the “Pay up Pompey” version of the Pompey Chimes and to ask what will happen now.

Charles Russell has a well-respected sports law team, whom I could ask, but sadly none of the sports regulatory lawyers are in the office this afternoon.  So rather than bothering any of them, this blog sets out my understanding of the position if a winding up petition has been served, after a quick bit of research (afterall, legal research is one of a lawyer’s core skills!). The situation is, of course, unprecedented.

As far as any winding up petition goes, this can be avoided by Pompey if it agrees a repayment schedule with HMRC before the hearing in February.  If the grounds for the petition are the “just and equitable” grounds (s.122(1)(g)), then Pompey’s lawyers will have to put up a good argument to the court that not winding up the company would be more likely to protect creditors.  It must be remembered that Pompey does have guaranteed broadcasting revenue, and a parachute payment will be paid if it is relegated to the Coca Cola League Championship.

What about its position under the Rules of the Premier League?  Firstly, being served with a winding up petition is not itself an “Event of Insolvency” under Rule C.50, so that there is no immediate league table points deduction.  If the finances at Pompey are so perilous and the club has no realistic ability to avoid the threat of winding up, then it may seek to go into administration.  This will be an Event of Insolvency, which will result in Pompey getting a 9 points deduction (Saints got a 10 point deduction under the equivalent Football League sanction).  Given that Pompey is 4 points adrift of avoiding the relegation zone, a 9 point deduction would surely result in Pompey going down at the end of this season, if it managed to avoid being wound up.

However, if an order is made on 10 February 2010 or if Pompey is wound up before the end of the season, then it will be game over for Pompey.  It will cease to exist as a company.  All the results of its fixtures would be expunged (Rule B.29).  Only two Premier League clubs would be relegated at the end of the season, according to Rule B.29, to keep the league at 20 clubs (the Regulations of the Football League state that three League Championships clubs must be promoted at the end of the season (Regulation 7.4)).

This would leave the First Division of the League Championship one club short.  Regulation 5.2 states that the First and Second Divisions must consist of 24 clubs each, but the promotion and relegation rules as Regulation 10.1.2 do not make clear how this shortfall would be sorted out.  I would therefore expect the legal battles to be between First Division and Second Division clubs, rather than between play-off placed First Division clubs trying to argue that three Premier League clubs should be relegated and four First Division clubs promoted, but given the financial implications of remaining in the First Division, one play-off club might consider making a claim.

Obviously, as a Pompey fan I do not want to see the club wound up, and the club’s press release stenuously denies that Pompey is in financial trouble. From a legal/regulatory point of view it would be interesting to see how the situation would develop at the end of the season if the Premiership did become temporarily a league of 19 clubs.

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