Case No: HC11C00557
Neutral Citation Number: [2012] EWHC 1372 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Rolls Building
Royal Courts of Justice
Fetter Lane
London EC4A 1NL
Date:25/05/2012
Before :

MR JUSTICE DAVID RICHARDS
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Between :

	THE COMMISSIONERS FOR HER MAJESTY’S REVENUE AND CUSTOMS	
Claimant
	
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THE FOOTBALL LEAGUE LTD

-and –

THE FOOTBALL ASSOCIATION PREMIER LEAGUE LTD	
Defendant

Intervenor	
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Mr Gregory Mitchell QC and Ms Catherine Gibaud (instructed by Solicitor for HM Revenue & Customs) for the Claimant
Mr Mark Phillips QC & Mr Daniel Bayfield (instructed by Chadbourne & Parke (London) LLP) for the Defendant
Mr Gabriel Moss QC & Mr Daniel Bayfield (instructed by McCormicks) for the Intervenor

Hearing dates: 28 November, 1, 2, 5 and 6 December 2011
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Judgment
Mr Justice David Richards: 
Introduction
1.	These proceedings concern the so called “football creditor rule” operated by The Football League Limited (the FL).  Its purpose and effect is to ensure that in the event of a member club becoming insolvent particular classes of creditors, such as other clubs in the FL, the club’s players, managers and other employees and the FL itself, are paid in full in priority to any other creditors.  These preferred creditors are called “football creditors” by the FL.  It means, the FL acknowledges in its evidence, that football creditors will be paid in full before, for example, the St John Ambulance which provides first aid at many clubs’ grounds during matches.
2.	The football creditor rule has been subject to a good deal of criticism, in Parliament and in the courts as well as from commentators.  It was heavily criticised in a report of the Culture, Media and Sport Committee of the House of Commons dated 29 July 2011 which recommended that it should be abolished, by legislation if necessary.  In his recent judgment on an application for an administration order in relation to Portsmouth Football Club (2010) Ltd (17 February 2012), Norris J said:
“I understand the disquiet from the creditors.  The general body of taxpayers, and the ordinary consumers who do pay their energy bills, and the ordinary traders and professionals who provide services such as, from the creditor list, coach hire, catering, medical services, ground care and maintenance, must wonder why they should subsidise the club’s wage bill, why it is that they are involuntarily lenders to the club of their outstanding bills and why they will only get back pence in the pound for the services they have provided.”
3.	These proceedings are not concerned with whether giving priority to football creditors is socially or morally justified.  The issue is one purely of law, whether the provisions which together accord this priority are void and of no effect on the grounds that they are contrary to insolvency law.  The challenge is brought by The Commissioners for Her Majesty’s Revenue and Customs (HMRC) who submit that the relevant provisions conflict with two fundamental principles of insolvency law.
4.	The first principle in issue is the pari passu principle, which requires the assets of an insolvent person to be distributed among the creditors on a pari passu basis, subject only to such exceptions as the general law may permit.  The pari passu basis of distribution means that all creditors will receive the same percentage of their debts out of the available assets.  Parties are not free to contract out of the operation of this principle, except by the creation and, when required, registration of security over the debtor’s assets.  It is not suggested that security is created by the provisions in issue in these proceedings.
5.	The second principle is what is now known as the anti-deprivation rule, but which used to be called fraud on the bankruptcy law.  This principle renders void any provision by which a debtor is deprived of assets by reason of insolvency with the effect that they are not available in the insolvency proceeding.  The purpose of the deprivation may, but need not, be to ensure priority payment to a particular creditor or creditors.  This principle is subject to a number of specific exceptions and general qualifications which will need to be considered.
6.	As is well known, football finances have been transformed by competitive bidding for television rights for matches and by the resulting high level of fees paid by media companies for those rights.  The FL’s income from these sources may not compare to that of The Football Association Premier League Limited (FAPL) but it is substantial nonetheless.  The broadcasting agreements running for the three seasons from 2009/10 are worth a total of £264 million.  In addition, the FL has made agreements for commercial sponsorship of the Football League, the Football League Cup and the Football League Trophy competitions.
7.	Notwithstanding the strong cash flow, or perhaps because of it, there has been what appears to be a high incidence of insolvencies among football clubs.  In the last ten years there have been 36 insolvencies among clubs which are or were members of the FL, some of which resulted from the collapse in 2002 of a lucrative broadcasting contract.
8.	The effects of the provisions enabling priority to be given to football creditors in these insolvencies have been striking.  Two examples illustrate this.  Crystal Palace FC went into administration on 26 January 2010, HMRC having presented a winding up petition on 2 December 2009.  Total unsecured liabilities were approximately £27 million of which debts to football creditors amounted to about £1,925,000.  A total of £2,415,552 was paid to unsecured creditors.  The football creditors were paid in full and the other creditors received a dividend of less than 2p in the pound.  Plymouth Argyle FC went into administration in March 2011.  The football creditors were paid in full while the other unsecured creditors received a dividend of 0.77p in the pound.
9.	It must be noted that in both these cases the funds to pay the non-football creditors came from third party purchasers of the clubs and that they would have received nothing if the FL had treated the clubs’ insolvencies as terminating their membership of the FL rather than allowing them to continue in the business, thereby allowing the clubs’ businesses to be sold.
The proceedings
10.	The present proceedings were commenced by HMRC as a Part 8 claim on 10 March 2011.  Previous attempts by HMRC to challenge the relevant provisions in the context of particular insolvency proceedings had failed because the FL, or, as appropriate, the FAPL was not a party: see In re Portsmouth City FC Limited [2010] EWHC 2013 (Ch).  There is no challenge to the jurisdiction of the court to deal with the issues in the present proceedings.
11.	The FAPL also has provisions which are intended to have a similar effect.  HMRC is challenging those provisions on substantially the same grounds in proceedings which were commenced as Part 8 proceedings on 18 May 2010, which have subsequently been reconstituted as proceedings under Part 7 because of issues of disputed fact.  FAPL has applied to strike out the proceedings against it, but for reasons which need not be recited it has yet to be heard.  Because of an overlap of issues, FAPL applied to intervene in the present proceedings and Newey J granted permission for FAPL to do so.  It has appeared by Mr Moss QC and Mr Bayfield who have confined their submissions to ones of principle and law.  I have not been concerned with the FAPL’s own provisions as regards priority for football creditors.
The Football League
12.	The FL is a company limited by shares with a share capital of £5 divided into 100 shares of 5p each, of which 72 shares have been issued.  The shares are held by the clubs which play in the League Competition, each club holding one share.  A member club itself must be a limited company incorporated under the Companies Acts.  Clause 8 of the Memorandum of Association of the FL provides:
“The income and property of The League shall be applied only for the promotion of the objects of The League as set out in clause 3 above.  No Member Club shall receive any dividend or share of profit.”
13.	The objects of the FL as set out in clause 3 of its Memorandum of Association are:
“3.1	To be a governing body for Member Clubs and to represent and further the interests of the game of association football, The League and Member Clubs.
3.2	To organise an annual League competition for Member Clubs and annual cup competitions, inter-league competitions or matches and small-sided games.
3.3	To regulate the activities of Member Clubs and their respective officers, employees, registered players and agents.
3.4	To provide registration, pension scheme (which include insurance and benefits of any kind) and other administrative functions for association football clubs and players of association football.
3.5	To carry on or participate in any business or other activity which, in the opinion of the Board may conveniently be carried on in connection with any of the other objects of The League.”
14.	As well as its function in organising the League and other competitions and regulating the activities of member clubs and their registered players, the FL has substantial commercial functions.  Television rights in respect of matches in FL competitions are negotiated by it and the contracts with media companies are made by it.  To the extent that member clubs would otherwise be entitled to negotiate terms for the broadcasting of matches played by their teams or at their grounds, they cede those rights to the FL.  The FL in substance acts on behalf of all its member clubs as a collective body for negotiating and making these contracts.  The FL readily acknowledges these commercial functions.  They are explained in the FL’s evidence and provision is made for them in the Regulations of the FL to which I refer below.  In responding to a request by HMRC in these proceedings for disclosure of the FL’s broadcasting agreements, its solicitors replied: “… it needs to be appreciated that the FAPL and the Football League are direct commercial competitors as regards the sale of broadcast, sponsorship and other commercial rights and disclosure of the agreements could result in the FAPL obtaining sensitive commercial information relating to the Football League, to the Football League’s potential financial detriment”.
15.	The financial benefits of the broadcasting and sponsorship agreements with the FL, after providing for its own costs, are distributed among the member clubs in accordance with provisions in its articles of association to which I refer below.  The holding of a share by a member club is a pre-requisite to the receipt of these benefits.
The articles of association of the FL
16.	Article 4.5 of the FL’s articles of association provides that in each of the circumstances set out in article 4.7 the board of the FL may give the member club concerned written notice to transfer its share or shares to such person as the board shall specify at the price of 5p per share.  One of the circumstances, set out in article 4.7.4, is “if any Member Club shall become subject to or suffer an Insolvency Event”.
17.	“Insolvency Event” is defined in article 2.1 to mean any of the following:
“a)	entering into a Company Voluntary Arrangement pursuant to Part 1 of the Insolvency Act, a Scheme of Arrangement with creditors under Part 26 of the 2006 Act, or any compromise agreement with its creditors as a whole;
b)	the lodging of a Notice of Intention to Appoint an Administrator or Notice of Appointment of an Administrator at the Court in accordance with paragraph 26 or paragraph 29 of Schedule B1 to the Insolvency Act, an application to the Court for an Administration Order under paragraph 12 of Schedule B1 to the Insolvency Act or where an Administrator Order under paragraph 12 of Schedule B1 to the Insolvency Act or where an Administrator is appointed or an Administration Order is made (‘Administrator’ and ‘Administration Order’ having the meanings attributed to them respectively by paragraphs 1 and 10 of Schedule B1 to the Insolvency Act);
c)	an Administrative Receiver (as defined by section 251 of the Insolvency Act), a Law of Property Act Receiver (appointed under section 109 of the Law of Property Act 1925) or any Receiver appointed by the Court under the Supreme Court Act 1981 or any other Receiver is appointed over any assets which, in the opinion of the Board is material to the Club’s ability to fulfil its obligations as a Member Club;
d)	shareholders passing a resolution pursuant to section 84(1) of the Insolvency Act to voluntarily wind up;
e)	a meeting of creditors is convened pursuant to section 95 or section 98 of the Insolvency Act;
f)	a winding up order is made by the Court under section 122 of the Insolvency Act or a provisional liquidator is appointed under section 135 of the Insolvency Act;
g)	ceasing or forming an intention to cease wholly or substantially to carry on business save for the purpose of reconstruction or amalgamation or otherwise in accordance with a scheme of proposals which have previously been submitted to and approved in writing by the Board;
h)	being subject to any insolvency regime in any jurisdiction outside England and Wales which is analogous to the insolvency regimes detailed in paragraphs (a) to (g) above; and/or
i)	have any proceeding or step taken or any court order in any jurisdiction made which has a substantially similar effect to any of the foregoing.”
18.	The board is empowered by article 4.8 to suspend the operation of the transfer notice on such conditions as it decides and to withdraw the notice if football creditors are paid in full.  Article 4.8 provides:
“The Board shall give such notice within 28 days of being notified of any such event and shall have authority to give such notice suspended for a period and to impose such conditions on the Member Club as the Board decides.  The Board may amend or withdraw any of the conditions and impose new conditions at any time.  The Board may subsequently withdraw the notice if football creditors are paid in full or payment in full is secured and any other conditions are satisfied.”
19.	“Football Creditors” are defined by articles 2.1 and 80 as the following:
“80.1.1	The League, The FA Premier League and the Football Association;
80.1.2	any of the Pension Schemes;
80.1.3	any Member Club and any Club of The FA Premier League;
80.1.4	any holding company of The League and any subsidiary company of that holding company;
80.1.5	any sums due to any full-time employee or former full-time employee of the Member Club by way of arrears of remuneration up to the date on which that contract of employment is terminated.  This excludes for these purposes all and any claims for redundancy, unfair or wrongful dismissal or other claims arising out of the termination of the contract or in respect of any period after the actual date of termination;
80.1.6	any sums due to the Professional Footballers Association in repayment of an interest free loan together with such reasonable administration and legal costs as have been approved by the Board;
80.1.7	The Football Foundation;
80.1.8	The Football Conference Limited;
80.1.9	The Northern Premier League Limited;
80.1.10	The Isthmian League Limited;
80.1.11	The Southern League Limited;
80.1.12	Any member club of the League or organisations listed in articles 80.1.8 to 80.1.11 inclusive;
80.1.13	Any County Football Association affiliated to The Football Association; and
80.1.14	Any Leagues affiliated to The Football Association and any clubs affiliated to any County Football Association recognised by The Football Association.”
20.	Provisions for the financial arrangements of the FL and for payments to member clubs are made by articles 65 to 80.  Article 65.1 provides:
“The League will maintain an account (“Pool Account”).  All the income of the League will be paid into that account and the payments referred to in the following Articles will be paid out of that account.”
21.	Article 69.1 provides for payments out of the Pool Account, first, to fund the business and activities of the FL, secondly, to football clubs and others by way of prize money, gate receipts and so on, and thirdly, to member clubs in accordance with article 70.  It is the third category, representing the bulk of the income under the broadcasting and sponsorship agreements, which is the most significant and which is the mechanism whereby such income is distributed among the member clubs.
22.	Articles 70.1 and 70.2 provide for the payments to be divided between the three divisions of the League, which are the Championship, League 1 and League 2.  In  broad terms, the Championship is allocated 59.6% of the first £33 million, 80% of the next £67 million and 90% of any further payments, with these amounts being adjusted in line with changes to the retail price index. 
23.	Article 70.2 provides:
“The payment allocated to each Division will, after deduction of any amounts expended by The League arising out of the appointment of any Executive officer appointed on behalf of that Division, be paid out to each Member Club as follows:
70.2.1	television facility fees as decided by the Board
70.2.2	a basic award as explained in Article 71.
70.2.3	a ladder payment as explained in Article 72.”
24.	Article 69.3 provides:
“The fee payments to Member Clubs are in return for the provision of facilities and services and for the Member Clubs’ participation in the competition of the League.”
This refers, I think, to all sums payable under article 70.2, although the reference to “fee payments” might suggest a reference to the television facility fees payable under article 70.2.1.
25.	Article 71, dealing with the basic award, provides:
“71.1	The ‘basic award’ means £620,000 for each Club of the Championship, £300,000 for each Club of League 1 and (subject to article 75.3) £210,000 for each Club of League 2.  Any Division may propose an increase in the basic award for that Division in accordance with Article 26.4.
71.2	if there are less than 24 Clubs in a Division for the whole of a Season, the unallocated basic award(s) will be divided equally between the remaining Clubs in that division.
71.3	if there is not sufficient to pay the basic awards in full, the payment to each Club will be reduced pro-rata.”
26.	Ladder payments under article 72 have not been made because the basic award has been set at a level which absorbs all available funds and it is therefore unnecessary to look in detail at the relevant provisions.  It is, however, worth noting that ladder payments would depend on the member club’s position in its division at the end of the season and that article 72.3 provides:
“Any Member Club which ceases to be a member or fails to fulfil its fixtures during a season shall not be counted in determining the number of places on the ladder and shall not receive any payment under the ladder principle.”
27.	Article 75 makes provision for so-called parachute payments to clubs relegated from one division to another, in each case conditional on the club remaining a member of the FL.
28.	Articles 77.1 and 77.3 are of particular importance to the issues in these proceedings and provide as follows:
“77.1	The Board may make interim payments from the Pool Account to any Member Club.  These will be based upon the sums likely to be paid to Member Clubs under these Articles and will be paid on account.
…
77.3	Payments to Member Clubs under the Articles only become a legal liability of The League to a Member Club, if the Member Club completes all of its fixture obligations to The League for the relevant Season.  This means that any interim payments under this Article 77 are repayable to The League on demand if the Member Club does not complete all of its fixture obligations.”
29.	Article 80 makes provision in the event that a member club defaults in paying any debts due to football creditors, providing that it shall be subject to such penalty as the board may decide and subject also to article 80.2.  Articles 80.2 to 80.4 provide as follows:
“80.2	Subject to the provisions of Articles 80.3 and 80.4, the Board shall apply any sums standing to the credit of the Pool Account which would otherwise be payable to a Defaulting Club, in discharging the creditors in Article 80.1.  As between the Football Creditors, the priority for payment shall be in accordance with the order in which those Football Creditors are listed in Article 80.1.
80.3	If, having discharged all Football Creditors in any preceding class of Football Creditor (as required by Article 80.2) the sum then available is not sufficient to discharge in full the Football Creditors listed in Articles 80.1.1, 80.1.2 or 80.1.4 the Board will decide the allocation.
80.4	If, having discharged all Football Creditors in any preceding class of Football Creditor (as required by Article 80.2) the sum then available is not sufficient to discharge in full the Football Creditors listed in Article 80.1.3, 80.1.5, 80.1.12, 80.1.13 or 80.1.14 the sum will be allocated pro rata amongst the creditors of the same class.”
The Regulations of the FL
30.	In its submissions, the FL drew attention to the Regulations of the FL.  Article 26.1 empowers the board “to propose regulations relating to the activities of the League, Member Clubs and the respective officers, employees, registered players and agents of Member Clubs”, which are subject to adoption and amendment by the members in general meeting.  Regulation 3.2 provides:
“… for the avoidance of doubt, every Club, by becoming and remaining a member of The League, agrees to compete in the League Competition, The Football League Cup, The Football Association Challenge Cup and all other competitions conducted or controlled by The League and in which it is eligible to compete.”
31.	The regulations contain provisions requiring clubs to notify the FL if they are in default in making timely payments to HMRC and impose on clubs in default an embargo on registering new players without the consent of the Executive of the FL.
32.	The regulations also contain provisions relating to the making of commercial contracts.  Regulation 72.1 provides:
“A ‘commercial contract’ shall include, but not be restricted to, any contract or agreement relating to television or broadcasting rights, the making of films or recordings of matches, the production of videos or any similar reproduction device, sponsorships, merchandising and advertising (including perimeter board advertising).”
33.	Regulation 72.2 provides for the making of commercial contracts in the following terms
“The Board is empowered on behalf of The League to enter into any commercial contract which is considered to be in the best interests of The League and the Clubs save that the Board is not empowered to enter into any contract or agreement relating to television rights or any other commercial contract which represents more than 25% of the projected income of The League over the period of the contract or agreement, unless such contract or agreement has been approved in principle by the Commercial Committee.  Any contract or agreement so entered into by The League shall be binding upon Clubs and Clubs shall not enter into commercial contracts which are at variance with commercial contracts entered into by The League.  The Secretary shall inform Clubs of the relevant terms of all such commercial contracts entered into by The League.”
Regulation 72.4 provides for the Commercial Committee to negotiate all commercial contracts relating to television, broadcasting and radio rights and internet programming and title sponsorship of the Championship and for such committee to comprise the chief executive, three representatives of the Championship and one representative of Leagues 1 and 2, with power to co-opt.  Commercial contracts negotiated by the Commercial Committee are subject to formal approval by the board.
The Insolvency Policy of the FL
34.	The FL has adopted an Insolvency Policy to provide guidance on the manner in which the board of the FL will exercise its powers in the event of the insolvency of a club.  The current Insolvency Policy was adopted in 2005.  
35.	Paragraph A10 states that the policy is “designed to offer guidance to clubs as to how a particular case will be considered” but goes on to provide:
“This document does not and cannot cover every eventuality and the Board reserve the right to review and amend the procedure for each individual case.”
36.	The preamble in paragraph A2 states that the FL’s starting point “is that no club should gain (or seek to gain) any advantage within the context of professional football over other clubs by not paying all its creditors in full at all times”.
37.	After summarising the powers to give and suspend transfer notices under article 4, paragraph A5 states:
“Therefore the choice for the League is whether to automatically withdraw membership from (and so expel) any Club which cannot pay its creditors in full or whether there is some compromise.  It is a fact that a policy of expulsion would have a significant impact on the constitution and continuity of the League.”
38.	As regards the payment of creditors, paragraph A6 states that “it is not tenable to allow a Club to remain in membership of the League if fellow Clubs are not paid in full” and that there are “other limited categories of football related creditors where the justification for payment in full is different but equally valid”.
39.	It goes on to state in paragraph A9 that the FL:
“… has arrived at a position which allows an insolvent Club the time and opportunity to re-establish its finances and to continue in business, whilst at the same time balancing (a) the interests of safeguarding the integrity of the competition (by requiring certain debts to be paid in full) and (b) the interests of all other creditors (by requiring the approval of creditors to a formal [company voluntary arrangement] or [scheme of arrangement], (save in exceptional circumstances).”
40.	Section C of the Insolvency Policy sets out the minimum conditions which will be attached to any suspension of the notice of withdrawal.  Those conditions are different depending on whether the club is served with the notice during the season or during the closed season.  In the former case, the conditions will include that the administrator confirms that the club will complete its fixtures for the remainder of the season and has sufficient resources to ensure that the club can reasonably be expected to do so, including making all PAYE and NIC payments due during his appointment.  In the latter case, there will be similar conditions but they will relate to the next season.
41.	Paragraph F1 provides that:
“Upon service of a Notice of Withdrawal of Membership, the League will withhold all sums payable to the Club by the League in accordance with the Articles of Association.  All football creditor claims will be scheduled and a running balance kept.  Administrators will be regularly updated as to the amounts held by the League and Football Creditor claims received.”
42.	Paragraph G1 provides that the notice of withdrawal will be cancelled where the board is satisfied that either the appointment of the administrator has been discharged following payment in full of all creditors, or a CVA or scheme of arrangement has been approved and the debts due to football creditors have been paid in full or secured, or in such other circumstances as the board thinks fit.
The purposes of the Insolvency Policy
43.	The principal evidence on behalf of the FL is given in a witness statement of Mr Andrew Williamson, its Chief Operating Officer.  He has been employed by the FL since 1971 and has immense knowledge and experience of its workings.  He noted that there was no insolvency of a member club between Accrington Stanley in 1962 and Wolverhampton Wanderers and Bristol City in 1982.  They remained infrequent until the late 1990s.  It was then that the FL started to provide a written statement of its insolvency policies and principles, which had been developed over the preceding 15 years.  This culminated in the present Insolvent Policy adopted in 2005.  Mr Williamson has been closely involved in the development of the policy and its application in individual cases.
44.	Its purpose is to ensure a consistent approach to the exercise of the board’s powers in the event of the insolvency of a member club, while retaining flexibility to meet the particular needs of individual cases.  He explains that a crucial element of the policy is to enable intending purchasers of the business and assets of an insolvent club, and I would suppose potential funders of the existing club, to know in advance the conditions they will need to meet.
45.	Mr Williamson sets out the three basic objectives of the Policy.  The first is the survival of the club (or a successor) and membership of the FL, where possible.  The FL recognises that a policy of expulsion would have a significant impact on the constitution and continuity of the League.  It is important to the long-term future of the FL and its competitions that its membership remains stable and secure.  It is particularly important that, if possible, a club should complete the current season.  The FL also recognises the importance of clubs in their local communities.
46.	The second objective is the payment of football creditors.  This is achieved by the provisions of the articles applied in accordance with the Insolvency Policy, which Mr Williamson describes as a “self help remedy”.  He states that:
“Notwithstanding what I have just said about the importance of keeping a club in membership, if at all possible, the fundamental importance of the self help remedy means that I would have no hesitation in recommending that a club be expelled from membership if it failed to satisfy its so called football creditors in full.”
47.	The third objective is “protecting the interests of other creditors, giving them the opportunity to determine their own financial settlement” by requiring their approval by the statutory majorities to a company voluntary arrangement or scheme of arrangement.  Mr Williamson recognises that the return offered under a CVA or scheme may be meagre.  Although Mr Williamson does not in terms make this point, the return may often be meagre because the available funds are largely used to meet the FL’s requirement of paying the football creditors in priority and, if possible, in full.  The requirement for a CVA or a scheme to be approved is not absolute.  Mr Williamson explains that:
“… the flexibility which the Board has to attach additional conditions to its agreement to a club remaining a member of The League (whether under existing or new ownership) is of primary importance.  That flexibility enables the Board to seek to fashion a solution that preserves the integrity of the competition, protects football related creditors, without letting down unsecured creditors, notwithstanding the failure to satisfy the requirement of a CVA.”
Member club insolvencies in practice
48.	Very helpfully Mr Williamson draws on his experience to set out the lines generally followed in insolvencies of member clubs, which is worth quoting in full:
“100.1	The League issues a notice to OldCo (the company that owns the member club, and holds the share in, or membership of, The League), requiring it to surrender up that membership, but then suspends the withdrawal of membership to give the administrators of OldCo time to try to sort out OldCo’s financial affairs so that the club can remain in membership.  
100.2	The administrators keep the club trading during this process by one of two means:
100.2.1	They sell assets of the club (principally, player registrations) to raise funds to pay operating costs in the interim.  A good example of this would be the recent case of Crystal Palace FC where the administrator used player sale proceeds to help fund the administration; and/or
100.2.2	A prospective purchaser advances funds on a loan basis, as happened in the case of Wimbledon FC, with those sums either reducing the purchase price if and when a sale to that purchaser is completed, or else they are paid as an expense of the administration if a sale to a third party is completed. Another example is the administration of Luton Town Football Club, where a consortium of local businessmen (under the banner “Luton 2020”) provided non-recourse, first priority funding for the club, their aim then being to keep the club going while they tried to complete its purchase.
100.3	The administrators propose a CVA to creditors, based on new funding coming into OldCO or a sale of the playing assets of the club to NewCo.  As part of the transaction, the football creditors have to be paid or provided for in full.
100.4	The CVA then has to be approved by at least 75% of unsecured creditors (by value) and the 28-day period for challenges to the CVA has to pass without challenge, or else any challenge that is filed has to be resolved so that the CVA can be completed (as, for example, happened in the case of Wimbledon FC referred to above, where the Inland Revenue unsuccessfully challenged the CVA based on the payment of football creditors).
100.5	Where no transfer is proposed, but instead OldCo simply emerges solvent from administration (usually by means of a CVA), then it will be on the basis that it retains its membership of The Football League.  In such cases, provided The League is satisfied, it simply exercises its article 4 discretion to cancel the formal notice to withdraw the share from OldCo, subject to the various conditions set out at section G3 of the Insolvency Policy (e.g. that OldCo complies with its obligations to its creditors under the CVA) and such other conditions as may be imposed by the Board.  This will include a provision that the debts owed to football creditors identified in article 80 are met in full.
100.6	As noted, however, more usually OldCo sells its assets to NewCo, applying the consideration to satisfy its obligations to its creditors under the CVA.  In such cases, if The League is satisfied, it cancels the formal notice to withdraw the share from OldCo by exercise of its article 4 discretion, and consents to the transfer of the share from OldCo to NewCo by exercise of its article 6 discretion, such cancellation and consent again given on such conditions as The Football League sees fit (including those set out at section G5 of the Insolvency Policy).
101.	Each of these outcomes satisfies the three underlying objectives of the Insolvency Policy, in that: (1) the football club continues to exist in membership of The Football League and so the interests of its supporters and their community and the continuity of The League are assured; (2) football creditors are paid in full; and (3) the interest of all other creditors are also satisfied, as confirmed by the creditors’ approval of the CVA which brings transparency to the sale process. ”
HMRC’s pleaded case
49.	HMRC plead their case in general terms, not linked to the facts of any particular case.  In paragraph 2 of the particulars of claim, they state that they seek “the determination of the Court on an issue of general public importance that arises as and when any member of the Football League becomes insolvent”. Administrators of clubs in the FL, and the proposals for CVAs, have until now proceeded on the untested premise that the provisions which are operated to give priority to football creditors are valid.
50.	HMRC’s case is summarised in paragraph 3 of its Particulars of Claim:  
“In summary certain of the Football League’s rules are expressly designed so that in the event of the insolvency of one of its member football clubs a particular class of creditors known as “Football Creditors” receive preferential treatment over ordinary creditors in breach of fundamental principles of insolvency law.  This effect is achieved as set out below through contractual machinery under which on insolvency a football club is deprived of valuable assets.  As a result of the operation of these rules HMRC has suffered loss and will continue to do so.”
51.	Paragraph 8 alleges that the share held by each member club in the FL has “very substantial ‘deprivation value’” and sets out the grounds for that assertion, to which I will later return.  Paragraphs 9 to 11 refer to a member club’s sources of income and paragraphs 13 and 14 set out relevant provisions from the articles of association and Insolvency Policy.
52.	Paragraphs 15 and 16 of the Particulars of Claim allege:
“[15] The Articles and the Insolvency Policy of the Football League, are in the respects set out below, an attempt to contract out of the provisions of the Insolvency Act 1986, namely the principle that the property of the insolvent company (free of any valid security given to secured creditors), should be preserved for the benefit of pari passu distribution amongst the unsecured creditors, and/or are in breach of public policy and unlawful as pleaded below.
[16] The Football League applies its Insolvency Policy so that the Notice of Withdrawal is suspended subject to conditions including that all Football Creditors are paid in full.  Thus the Football League acts with the deliberate intention that where a Club is insolvent Football Creditors are paid in full whilst other unsecured creditors who belong to the same class are not.  This intention is manifest from the provisions of the Articles and the Insolvency Policy referred to above.”
53.	In paragraph 19 it is pleaded that a share in the FL together with “the attendant right of a Club to play in the League, and its right to payment of sums which have or would fall due from the Pool Account” are each “property” of the company owning a club within the meaning of s.436 of the Insolvency Act.
54.	Paragraphs 20 and 21 plead as follows:
“[20] Article 4.7.4 and Section B1 are deprivation provisions and are void and unenforceable as a matter of public policy because property of the company – the FL Share – is purportedly removed from the company on the onset of insolvency.
[21] Articles 72.3 and 77.3 as applied under Section F and in particular F1 are deprivations and/or are penalty clauses and are void and unenforceable as a matter of public policy because their intended effect is that property of the company namely the right of the Club to payment is purportedly removed from the company on the onset of insolvency and the Club is obliged to repay all sums already paid to it by the Football League in that Season.”
The claim in paragraph 21 that articles 72.3 and 77.3 are penalty clauses was not pursued.  
55.	Paragraph 22 pleads:
“[22] Article 80.2 is void and unenforceable if it is applied in the context of insolvency, and Section F1 is also void and unenforceable, in providing that Football Creditors receive payment direct out of monies due to the Club from the Pool Account, and thus are an attempt to contract out of the provisions of the Insolvency Act 1986.  Monies falling due to an insolvent Club should be held for the benefit of all unsecured creditors.”
56.	HMRC seeks declarations that article 4.7.4 and section B1 of the Insolvency Policy, and articles 72.3 and 77.3 as applied under section F of the Insolvency Policy, are deprivation provisions and are void and unenforceable.  They further seek a declaration that “article 80.2 is void and unenforceable if it is applied in the context of insolvency, and Section F1 [of the Insolvency Policy] is void and unenforceable, in providing that Football Creditors receive payment direct out of monies due to the Club from the Pool Account”.
57.	The present proceedings were issued together with an application under paragraph 74 of schedule B1 to the Insolvency Act 1984 in relation to the administration of Plymouth Argyle Football Club Limited. It transpired that Plymouth Argyle did not have a substantial level of football creditors, with the result that it was not appropriate to proceed with it.
58.	HMRC has filed a large volume of evidence relating to the circumstances and outcomes of a considerable number of administrations, although some of the critical facts which would be relevant to a challenge specific to many of those cases are not apparent. I should mention that there is a good deal of evidence concerning Portsmouth City Football Club, but it was relegated from the Premier League in the course of its administration. Accordingly, it was subject in material respects to the articles and policy of the FAPL which do not arise for consideration in the present proceedings. In particular, the application of parachute payments to meet the claims of football creditors proceeded under FAPL provisions and I have not been concerned with any equivalent provisions applicable to the FL and its member clubs.
59.	The detachment of HMRC’s claim from the facts of any particular case causes some difficulty.  The arguments on the applicability of the pari passu principle and the anti-deprivation rule will vary according to the precise circumstances.  Relevant variations include the following.  First, for the reasons given later in this judgment, only the anti-deprivation rule will apply when a member club goes into administration, but both principles will apply if it goes into liquidation.  Secondly, the existence of a debt to a member club in respect of the basic award will, on the face of the articles, depend on whether it has completed its fixture obligations for a season.  Whether the two principles apply may therefore depend on whether the administration or liquidation commences before or after the fixtures are completed.  Thirdly, the application of the anti-deprivation rule may depend on whether the member club has defaulted on payment of debts due to football creditors before it goes into administration or liquidation.
60.	Certain conclusions may be drawn from the evidence before the court.  First, there have been a significant number of administrations of member clubs, but very few liquidations.  Secondly, most administrations commence during the season.  Thirdly, although one might expect defaults in the payment of football creditors to occur before a club goes into administration, there is no evidence before the court to show whether and, if so, how often this has been the case.
61.	I will therefore take as the paradigm case of an insolvency of a member club, an administration commencing during the season with no prior default in the payment of football creditors.  I will nevertheless endeavour to indicate whether my conclusions would differ according to variations in these circumstances.
The legal principles in issue
62.	The two principles in issue in this case are the anti-deprivation rule and the pari passu principle.  In the leading case of Belmont Park Investments Pty Ltd v. BNY Corporate Trustee Services Ltd [2012] 1 AC 383 (Belmont) Lord Collins explained at [1]:
“The anti-deprivation rule and the rule that it is contrary to public policy to contract out of pari passu distribution are two sub-rules of the general principle that parties cannot contract out of the insolvency legislation.  Although there is some overlap, they are aimed at different mischiefs:  Goode “Perpetual Trustee and Flip Clauses in Swap Transactions” (2011) 127 LQR 1, 3-4.  The anti-deprivation rule is aimed at attempts to withdraw an asset on bankruptcy or liquidation or administration, thereby reducing the value of the insolvency estate to the detriment of creditors.  The pari passu rule reflects the principle that statutory provisions for pro rata distribution may not be excluded by a contract which gives one creditor more than its proper share.”
The pari passu principle
63.	Taking first the pari passu principle, it requires that the distribution among unsecured creditors of assets available in an insolvent estate should be pari passu, in accordance with the statutory provisions contained in sections 107 and 306(1) of the Insolvency Act 1986 (voluntary winding-up and personal bankruptcy), rule 4.181 of the Insolvency Rules 1986 (winding-up by the court) and rule 2.69 (administration).  In British Eagle International Airways Ltd v. Cie National Air France [1975] 1 WLR 758, (British Eagle) the House of Lords upheld the rule that it was not open to parties to contract out of these mandatory provisions and that any attempt to do so was void.
64.	Thus the pari passu principle applies not only to the basis on which the relevant office holder carries out the distribution, but importantly it also applies to any contractual or other provision which has the effect of distributing assets belonging to the insolvent estate on a basis which is not pari passu.  In Belmont at [8], Lord Collins approved the statement of the ratio of the decision in British Eagle given by Peter Gibson J in Carreras Rothman Ltd v. Freeman Mathews Treasure Ltd  [1985] Ch 207 at 226:
“where the effect of a contract is that an asset which is actually owned by a company at the commencement of its liquidation would be dealt with in a way other than in accordance with [the statutory pari passu rule] …. then to that extent the contract as a matter of public policy is avoided.”
65.	The pari passu principle applies to any distribution whether or not it is expressly triggered by the relevant insolvency procedure: Belmont at [14].  It is enough that the effect of the relevant contractual or other provision is to apply an asset belonging to the debtor at or following the commencement of the insolvency procedure in a non-pari passu way, as was the case in British Eagle.  Contracts conflicting with the pari passu principle are void without any need to show that their purpose was to avoid a pari passu distribution.  The purpose of the parties is irrelevant and, as in British Eagle, a contract may be void once an insolvency proceeding commences even though it is a bona fide commercial arrangement made for reasons unconnected with insolvency.
66.	An important consideration in the present case is that the pari passu principle applies only to the distribution of assets belonging to the insolvent estate at the commencement of the insolvency proceedings, and, as it seems to me in the case of a company, any asset coming into its ownership at a later date.  It does not apply to assets which either never belonged to the insolvent estate or ceased to belong to it before the commencement of the insolvency proceedings.  The issue in British Eagle on which the House of Lords divided was whether there was a debt due to the insolvent company at the commencement of its winding-up, to which the netting-off provisions of the IATA clearing house rules then applied.  The majority held that there was such a debt and hence its distribution among members of IATA under the operation of the clearing house rules offended the pari passu principle. IATA amended its rules in the light of the decision and the issue whether the amended rules also offended the pari passu principle arose in proceedings in Australia.  The High Court of Australia held that the amended rules did not do so: International Air Transport Association v. Ansett Australia Holdings Ltd [2008] HCA 3, [2008] BPIR 57.  In a concurring judgment, Gleeson CJ said at [16]:
“The purpose of the amendment made to reg 9(a) was to remove the premise upon which the reasoning of the majority in the House of Lords proceeded (that, at the time of its insolvency, British Eagle owned property in the form of a debt owed to it by Air France), and to restore the contractual position found at first instance, and in the Court of Appeal, and accepted by the minority in the House of Lords.  If there never was any property of British Eagle in the form of a debt owed to it by Air France, then there was no attempt to dispose of or deal with such property in a manner inconsistent with the insolvency laws.”
The anti-deprivation rule
67.	Lord Collins in Belmont at [1] referred to the anti-deprivation rule as “aimed at attempts to withdraw an asset on bankruptcy or liquidation or administration, thereby reducing the value of the insolvent estate to the detriment of creditors”.  While there is some overlap with the pari passu principle it is distinct from it and aimed at a different mischief. It applies only if the deprivation is triggered by the insolvency proceeding, and the deprivation must be of an asset of the debtor which would otherwise be available to creditors: see Belmont at [14] and [80].  These are both important elements in the present case.  
68.	While this is a judge-made rule, statute has provided additional measures to protect the estate against pre-insolvency transactions which diminish the assets of the debtor available to the general body of creditors: see ss.238-245 of the Insolvency Act 1986 in the case of companies and ss.339-344 in the case of individuals.  The enactment of these statutory provisions has not displaced the anti-deprivation rule: see Belmont at [102].
69.	Lord Collins deduced from the authorities decided over a long period that the anti-deprivation rule applies only where there is a deliberate intention to evade the insolvency laws, although a subjective intention is not required: Belmont at [78]-[79].  In borderline cases, a commercially sensible transaction entered into in good faith should not be held to infringe the anti-deprivation rule.  At [104], Lord Collins said:
“The policy behind the anti-deprivation rule is clear, that the parties cannot, on bankruptcy, deprive the bankrupt of property which would otherwise be available for creditors.  It is possible to give that policy a common sense application which prevents its application to bona fide commercial transactions which do not have as their predominant purpose, or one of their main purposes, the deprivation of the property of one of the parties on bankruptcy.”
70.	The provisions in issue in Belmont involved, on the occurrence of various defined events of default, a reversal in the order of priority of security over collateral as between noteholders of a special purpose vehicle and Lehman Brothers Special Financing Inc (LBSF) as the counter-party to a swap arrangement with the special purpose vehicle.  Applying the test just quoted to those provisions, Lord Collins said:
“[108] The answer is to be found in the fact that this was a complex commercial transaction entered into in good faith.  Although, as a matter of law, the security was provided by the Issuer out of funds raised from the Noteholders, the substance of the matter is that the security was provided by the Noteholders and subject to a potential change in priorities.  
[109] The security was in commercial reality provided by the Noteholders to secure what was in substance their own liability, but subject to terms, including the provisions for Noteholder Priority and Swap Counterparty Priority, in a complex commercial transaction entered into in good faith.  There has never been any suggestion that those provisions were deliberately intended to evade insolvency law.  That is obvious in any event from the wide range of non-insolvency circumstances capable of constituting an Event of Default under the Swap Agreement.”
71.	While there are features of certain types of transactions, such as leases and licences, which are by longstanding authority outside the reach of the anti-deprivation rule, the court will look at the substance not the form of the transaction: see [105].  What Lord Collins meant by this is illustrated by the facts of Belmont.  The collateral was held by a trustee on the terms of a trust deed which contained the order of priorities and the provisions for their reversal.  At [107], Lord Collins rejected the Noteholders’ submission that the rights of the parties were to be analysed as beneficial rights and that LBSF retained its beneficial interest:
“The fact that the security interests were held by the Trustee is not determinative.  The court has to look at the substance of the matter, which is that LBSF had a security interest, the content and extent of which altered when it filed for Ch 11 protection.”
72.	It will not normally matter that the provision for divestment has been in the documentation from the start or that the debtors’ rights are expressed as terminating, rather than being divested, on bankruptcy: see [105].
Do the pari passu principle and the anti-deprivation rule apply to a company in administration?
73.	There is one issue of principle in dispute which is of general application and which does not turn on the FL’s arrangements.  Do the pari passu principle and the anti-deprivation rule apply when a company goes into administration or, if at all, only if and when an administrator issues a notice of intention to make a distribution under rule 2.95(1) of the Insolvency Rules?  
74.	Mr Phillips QC for the FL and Mr Moss QC for the FAPL submitted that they apply, if at all in an administration, only when a notice of intention to make a distribution is given.  It is only then that an administration becomes a process by which assets are to be realised and their proceeds distributed among creditors, whereas that is the purpose of a liquidation or bankruptcy from its commencement.  
75.	In considering this issue, it is necessary first to set out a few of the salient features of liquidation, bankruptcy and administration.
76.	Liquidation and bankruptcy can be taken together.  Leaving aside the cases of winding up a solvent company by members’ voluntary winding up or by order of the court on the application of a contributory or specified public authorities, both are procedures for administering the estate of an insolvent person, corporate or individual, for the benefit of creditors.  The assets are realised and, subject to the satisfaction of prior charges, the expenses of the liquidation or bankruptcy and a few classes of debt given a statutory preference, the proceeds are distributed among the unsecured creditors on a pari passu basis.  Together with providing an individual debtor with a discharge from the liabilities provable in his bankruptcy, this is the sole purpose of liquidation or bankruptcy.  Once a company goes into liquidation, or an individual is declared bankrupt, the procedure is working towards that end.
77.	The applicable legislation in the Insolvency Act and the Insolvency Rules, together with judge-made principles such as the anti-deprivation rule, contain the provisions necessary to achieve this object.  For example, as an essential element of a pari passu system, there is a single date as at which provable debts are ascertained and quantified.  It is the date on which the company goes into liquidation or the individual is declared bankrupt.  The provisions for set-off apply as at that date: see rule 4.90 (liquidation) and section 323 (bankruptcy).  As regards the recovery of assets or setting aside transactions under statutory powers the provisions apply to transactions occurring in periods ending on the date on which a company goes into liquidation (ss.238-245) or an individual is declared bankrupt (ss.339-343).
78.	Until the Insolvency Act 1986 came into force, liquidation and bankruptcy were the only statutory insolvency procedures.  Administration was introduced as a new corporate insolvency procedure.  It marked the start in statutory terms of the rescue culture, whereby a formal insolvency procedure could be used to rescue the company rather than achieve the realisation of its assets and the distribution of the proceeds of realisation among its creditors.  
79.	As originally enacted in Part II of the Act, an administration required an order of the court, which had to be satisfied that the company was or was likely to become unable to pay its debts and that the administration would be likely to achieve one or more of the following purposes, as set out in s.8(3):
“(a)	the survival of the company, and the whole or any part of its undertaking, as a going concern;
  (b) 	the approval of a voluntary arrangement under Part I;
  (c)	the sanctioning under Part 26 of the Companies Act 2006 of a compromise or arrangement between the company and its creditors or members; and 
  (d)	a more advantageous realisation of the company’s asset than would be effected on a winding up.”
80.	The effect of the order was that “during the period for which the order is in force, the affairs, business and property of the company shall be managed by a person (“the administrator”) appointed for the purpose by the court”.  During that period the company enjoyed a moratorium on enforcement action:   s.11.  In broad terms the administration would end either when its purposes had been achieved or were no longer capable of achievement.  If the administration resulted in the survival of the company, the order would be discharged and the company would continue in being under the ownership and control of its shareholders and directors.  Otherwise, the administration would be followed by liquidation.  An administrator did not have power to make a distribution of assets among creditors, which would be undertaken in the liquidation if there were available assets.  
81.	Significant changes to the process of administration were made by the Enterprise Act 2002 which repealed Part II and replaced it with Schedule B1.
82.	Many of the essential features of the previous regime remain.  Although an administrator may be appointed out of court by the holders of a floating charge or by the company or its directors, as well as by the court, it remains an insolvency procedure applicable only to companies which are or are likely to become unable to pay their debts or when the floating charge has become enforceable: paragraphs 11, 16 and 27(2).  The administrator is appointed to manage the company’s affairs, business and property and does so as the company’s agent: paragraphs 1(1) and 69.  There is a moratorium on enforcement processes during the period of the administration: paragraph 43.  
83.	For present purposes, there were in particular two significant changes to the previous regime.  First, the purposes of an administration were altered.  Paragraph 3(1) of Schedule B(1) provides:
“The administrator of a company must perform his functions with the objective of 
(a)  rescuing the company as a going concern, or
(b) achieving a better result for the company’s creditors as a     whole than would be likely if the company were wound up (without first being in administration), or
(c) realising property in order to make a distribution to one or more secured or preferential creditors.”
Paragraph 3(3) provides that the administrator must pursue the objectives in sub-paragraph (a) unless he thinks either that it is not reasonably practicable to achieve it or that the objective in sub-paragraph (b) would achieve a better result for the creditors as a whole.  Paragraph 3(4) provides that the objective in sub-paragraph (c) may be pursued only if achievement of the other objectives is not reasonably practicable and it does not unnecessarily harm the interests of the creditors as a whole.  
84.	Secondly, an administrator may now make distributions to all or any creditors, subject to the permission of the court unless the creditor is secured or preferential.  Rules 2.68-2.105 contain detailed provisions for distributions, including the general principle that all non-preferential debts rank pari passu: Rule 2.69.  The administrator must give notice to the creditors of his intention to declare and distribute a dividend: rules 2.68(2) and 2.95.  The ascertainment of provable debts is as at the date when the company entered administration.  However, the set-off of mutual debts is as at the date on which the administrator gives notice that he proposes to make a distribution: Rule 2.85.
85.	Under both the earlier and the current administration regimes, the administrator is entitled to challenge preferences and transactions at an undervalue occurring within periods before the company goes into administration.  Those provisions apply whether or not the administrator achieves objective (a) or makes a distribution, and whether or not the company subsequently goes into liquidation.  
86.	Mr Phillips and Mr Moss submitted that if the pari passu principle applied at all to companies in administration, it could only be from the date on which notice of a proposed distribution was given.  While not formally accepting that it would apply at that time, they were not concerned to argue that point because the provisions relevant to football creditors will have taken effect at an earlier stage.  Mr Phillips accepted that it would be extremely difficult to argue that the pari passu principle did not apply once notice of a distribution is given, in the light of rule 2.69.  
87.	It is plain that the pari passu principle exists to support and protect the legislative requirement that a distribution among creditors must be on a pari passu basis.  It does so by ensuring that the parties cannot circumvent the pari passu requirement by contractual or other provisions.  It operates from the time of liquidation or bankruptcy because they are procedures which must lead to a pari passu distribution, provided only that there are available assets for that purpose.  By contrast, as is evident from the statutory provisions to which I have referred, an administration need not lead to a distribution but is aimed primarily at the survival of the company, even if in fact that is achieved in only a minority of cases.  Unless there is to be a pari passu distribution, the pari passu principle has no part to play or, as Mr Phillips put it, nothing to bite on.  As long as the survival of the company is the aim, or even the survival of the business as a going concern albeit under new ownership, application of the pari passu principle so as to render void some of its contracts could be very damaging.  If the insolvency of British Eagle had occurred after the Insolvency Act 1986 and if that company had gone into administration, its inability to operate under the IATA clearing house rules could well have jeopardised its ability to continue in business. 
88.	Mr Mitchell suggested that any particular difficulty that might be caused in a case where survival of the company or the business remains the aim could be cured by the administrator exercising his power to pay in full creditors important to the continuation of the company or its business.  While this may alleviate the problem in particular cases, it does not address the issue that contracts entered into by the company, which survive administration, would nonetheless be rendered void by a legal principle designed to protect a distribution which never happened and was never intended to happen.  
89.	In my judgment, the pari passu principle serves a purpose and should come into play only if the purpose of the insolvency procedure is to effect a distribution. In the case of liquidation or bankruptcy, this is when the company enters liquidation or the debtor is declared bankrupt.  In the case of administration, this is when the administrator gives notice of the proposed distribution.
90.	It is, in my judgement, significant that insolvency set-off applies in an administration to debts as at the date of such notice, and not earlier.  It indicates that it is at that date and not before that the pari passu regime is to operate.
91.	Turning to the anti-deprivation rule, its application to companies in administration has been referred to in a number of cases, but not decided.
92.	Butters v BBC Worldwide Ltd, which with Belmont was one of three appeals heard together by the Court of Appeal and reported as Perpetual Trustee Co Ltd v BNY Corporate Trustee Services Ltd [2010] Ch 347, concerned a company in administration.  There was no argument that the rule did not apply to administrations.  At [89], Lord Neuberger MR recorded the common ground that “administration is treated for present purposes like liquidation”: see also [70].  Nor was it argued in Folgate London Market Ltd v Chaucer Insurance Ltd [2011] EWCA Civ. 32G, in which specialist leading counsel did not take the point despite the paucity of arguments available to him (his “cupboard of arguments was bare” as Rimer LJ commented at [23]).  
93.	In Belmont, Lord Collins said at [1] which I have earlier quoted, that the anti-deprivation rule is “aimed at attempts to withdraw an asset on bankruptcy or liquidation or administration, thereby reducing the value of the insolvent estate to the detriment of creditors”.  This was the view of Professor Sir Roy Goode in his article cited by Lord Collins.  The company in question in Belmont, LBSF, had filed proceedings in the United States under Chapter 11 of the US Bankruptcy Code, which in the particular circumstances of the case was accepted as equivalent to the making of a winding up order for the purposes of the anti-deprivation rule.  There was therefore no scope for argument on this issue in the Supreme Court.  
94.	The question whether the anti-deprivation rule applies from the commencement of an administration or only from the later date, if any, on which notice of a proposed distribution is given by an administrator was expressly left open by Briggs J in Lomas v JFB Firth Rixson Inc [2011] 2 BCLC 120 at [98].  
95.	In their submissions on this issue, Mr Phillips and Mr Moss did not much distinguish between the pari passu principle and the anti-deprivation rule.  Their submissions treated the anti-deprivation rule as an aid to a distribution, and Mr Moss emphasised that while the pari passu principle was concerned with the division of the estate, the anti-deprivation rule was concerned with the assets which would constitute the estate.
96.	In my judgment, there is no necessary reason for viewing the anti-deprivation rule as limited in its purpose to a support for the distribution of assets among creditors.  Its purpose is to prevent insolvency proceedings from being undermined by dispositions of assets designed to avoid the effects of the insolvency proceeding.  While liquidation and bankruptcy were the only insolvency proceedings, it was naturally referred to as a fraud on the bankruptcy law.
97.	But the purposes of an administration, which are as much a proceeding for the benefit of creditors as liquidation or bankruptcy, are equally hampered or frustrated by dispositions designed to avoid the administration process.  The interests of creditors are likely to be best served by a survival of the company or its business, but depriving the company of assets on or by reason of administration may make that outcome more difficult to achieve and will certainly reduce the assets available to meet creditors’ claims whether in full or on a composition under a scheme of arrangement or a company voluntary arrangement.  
98.	The statutory provisions relevant to administration are again significant.  As earlier mentioned, ss.238-245 apply to transactions occurring within the specified periods before the commencement of an administration.  In Belmont, the Supreme Court held that the existence of those provisions does not displace the common law anti-deprivation rule.  They are all aimed at achieving broadly analogous results, but covering different types of transaction.  It would, in my judgment, be contrary to principle and inconsistent with the application of these provisions to all administrations if the anti-deprivation rule did not also apply to all administrations with effect from their commencement.  
99.	In its judgment in Lomas v JFB Firth Rixson Inc [2012] EWCA Civ. 419, the Court of Appeal said 
“[96] The relationship between the anti-deprivation principle and the pari passu rule is both dependant and autonomous.  The former is concerned with contractual arrangements which have the effect of depriving the bankrupt estate of property which would otherwise have formed part of it.  The pari passu rule governs the distribution of assets within the estate following the event of bankruptcy.  It therefore invalidates arrangements under which a creditor receives more than his proper share of the available assets or where (as in British Eagle) debts due to the company on liquidation were to be dealt with other than in accordance with the statutory regime.
[97] The anti-deprivation principle therefore protects the value of the estate from attempts to evade the insolvency laws and, as a consequence, facilitates the application of the pari passu rule.  But their areas of operation are distinct and it is clear that the pari passu rule is only engaged in respect of assets of the estate as at the commencement of the bankruptcy or liquidation.  This was why in British Eagle the decisive issue was whether a debt was owed to the company when the resolution for voluntary liquidation was passed” 
Each party might seek to draw support from this passage, but the present issue did not arise for consideration in that case and in my judgment there is nothing in it which requires the two principles to apply concurrently.
100.	For these reasons, I hold that the anti-deprivation rule applies on a company going into administration as it does to a company going into liquidation.  
101.	I should add that I do not consider that the application of either the pari passu principle or the anti-deprivation rule depends on whether there is a “statutory trust” of the assets of the company.  I mention this because Mr Moss submitted that the pari passu principle, and the anti-deprivation rule, applied only once the assets of the company were held on the statutory trust, constituted by the insolvency legislation.  The nature of this “trust” was explained by the House of Lords in Ayerst v C & K (Construction) Ltd [1976] AC 167.  Mr Moss submitted that the earliest time at which it could arise in an administration was when notice of a proposed distribution was given.
102.	I think Mr Moss is probably right when he says that the statutory trust, as discussed in Ayerst, does not apply to the assets of a company in administration, at least before notice of a proposed distribution is given and even then difficulties may arise if only some of the assets are to be distributed.  
103.	But I cannot see that this matters to the application of the pari passu principle, still less the anti-deprivation rule.  What matters as regards the former is that there is to be a distribution pursuant to the insolvency legislation among creditors on a pari passu basis.  What matters as regards the anti-deprivation rule is that the law has provided for an insolvency process which would be undermined by disposals to which the anti-deprivation rule would apply.  
104.	The conclusion that the anti-deprivation rule applies from the commencement of administration but the pari passu principle from a later date, if ever, leads to this question: can the same transaction offend both principles?  In Belmont, Lord Collins observed at [1] that there was some overlap between the two principles, although they are aimed at different mischiefs.  At [83], he considered on the facts of Ex p. Newitt 16 Ch D 522 both principles may have been engaged. At [149] Lord Mance noted that “it is unsurprising that the facts of some of the authorities (e.g. Whitmore v Mason  2 J&H 204 and ex parte Mackay) might plausibly have been analysed as falling within either principle”. In my view, if a transaction has the effect of depriving a company of an asset in order to distribute it among some only of the creditors otherwise eligible to participate in a distribution, it offends both principles but, if the deprivation occurs on the company going into administration, only the anti-deprivation principle will be engaged for the reasons just given.  
HMRC’s case in summary
105.	The essential nature and tenor of HMRC’s challenge is well conveyed by its written submissions.  Paragraph 3 states:
“This case raises a point of law as to the validity or otherwise of the so called “football creditor rule” (“FCR”).  In essence the point is a simple one – albeit the rules under which it arises are complex in their drafting.  The FL have, by way of certain provisions of their articles, Regulations and Insolvency Policy, constructed a device under which, on insolvency, “football creditors” are paid in full whilst ordinary unsecured creditors of the same class receive a very modest dividend.  Great skill has been used in the drafting of the device, and also in making a challenge to the device difficult.  HMRC contend that the rules under which the device is operated are against public policy and void – in offending both the anti-deprivation rule and also the pari passu principle.  In essence, on insolvency the FL causes the transfer from the insolvent club of the share which each club has in the company owning the FL (this is termed the “golden share” in the remainder of these submissions – a term which is widely used in the football world).  Absent the “golden share” the club loses its assets (players’ contracts and registrations, income – both for the current Season and for the future).  Income that would otherwise be paid to the club is paid direct to “football creditors”.  The “golden share” is only returned on condition that football creditors are paid in full.”
Paragraph 4 notes that “this device has been operated in nearly all football insolvencies that HMRC are aware of”.  
106.	Paragraphs 11 and 12 state:
“[11] The FCR operates in two basic ways which offend against the principle that the assets of the insolvent estate, whether in administration or liquidation, should be held for the creditors generally.  On certain defined insolvency events a football club is subject to having its “golden share” withdrawn by notice served by the FL.  If that withdrawal took immediate effect then the club would cease to exist as a football club because its players would leave, the club would lose any transfer value and, on ceasing to be a member club of the FL by virtue of losing the “golden share”, the valuable registrations would be held by and for the benefit of the FL.  In addition the club would come under an obligation to repay to the FL all of its income derived from the Pool during that Season even if (for example) the club had only one more match to play.
[12] In practice, however, the FL does not in fact cause the destruction of an insolvent club.  Under the FL’s Insolvency Policy the contractual right in the Articles of              Association (4.7.4) to withdraw the “golden share” is suspended upon certain conditions.  A central condition is that football creditors are paid in full – this condition is a distortion of the statutory scheme.  Football creditors are not a class recognised by the IA 1986 and they should merely rank alongside other unsecured creditors.  Thus, the contractual right to destroy the club is used by the FL “in terrorem” to ensure that the FCR is applied.  Unless the administrators and the creditors follow the policy laid down by the FL and submit to the requirement that football creditors are paid in full, then the FL threaten complete destruction of the club.”
107.	Paragraph 14 states that “there can be no doubt that the threat of a destruction of value is deliberately used by the FL in order to ensure that football creditors are paid in full”.
108.	Paragraph 17 states:
“HMRC’s case is that in applying the anti-deprivation rule and the pari passu principle the Court must look at the substance of the contract and treat the insolvent club’s contractual rights as a package, with the “golden share” as comprising that package of contractual rights (and obligations).  Public policy cannot be defeated by mere clever drafting.”
109.	The FL’s defence of the football creditors’ rule is dismissed as “self-interested special pleading”.  
The FL’s case in summary
110.	The FL’s position is that, when carefully analysed, none of the provisions challenged by HMRC offends either the pari passu principle or the anti-deprivation rule.  The share in the FL owned by a company in administration or liquidation has no value, and therefore neither rule can apply to its compulsory transfer.  Under the terms of the FL’s articles, particularly  article 77, a member club has no right to the payment of any sum derived from television and other commercial contracts made by the FL unless and until it has completed all its fixture obligations for the relevant season.  If it ceases to be a member before the end of the season it is therefore not deprived of any debt or accrued right to payment.  The provisions of article 80, providing for payments to football creditors, do not divert money to which a defaulting club has any entitlement under article 77, are not triggered by administration or liquidation but by default in the payment of any football creditors and are in any event outside the scope of the pari passu principle and the anti-deprivation rule by reason of authorities on “direct payments” clauses in construction contracts.
111.	If any of these provisions might otherwise infringe the anti-deprivation rule, the FL submit that they exist for bona fide commercial and regulatory reasons and so, in accordance with the principle set out in the authorities and in accordance with the general principle of respecting the autonomy of contracting parties, they do not infringe the rule. 
112.	By way of preliminary response to HMRC’s case, Mr Phillips submitted that any claim for a declaration that parts of the Insolvency Policy are void and unenforceable was “hopeless because the Insolvency Policy is simply guidance offered to clubs as to how the Football League will apply those of its articles relevant to insolvency situations where such a situation arises.”
113.	I do not accept this objection.  The contract between the FL and its member clubs constituted by the articles confers powers on the FL and its directors, and their exercise of those powers is accordingly binding on a member club.  In order to promote consistency and predictability, the Insolvency Policy sets out how the board will normally exercise those powers.  It seems to me that the court can declare as void the combination of provisions in the articles and the exercise of powers conferred by the articles in accordance with the board’s established policy.  Mr Williamson is clear in his evidence that the FL will in fact exercise the powers so as to ensure the payment of football creditors. At paragraph 87 of his witness statement, he says: 
“Among other crucial conditions that the Board will require an insolvent club’s successor to meet is the satisfaction in full of the debts owed to Football Creditors.”
Shares in the FL
114.	The essence of HMRC’s case is that the share in the FL held by a member club is a valuable asset and that the power under article 4.5 to require the transfer of the share on liquidation or administration is void as contrary to the anti-deprivation rule. Except for the very occasional case in which a member club goes into liquidation, a member club in administration is not in fact deprived of its share because the notice to transfer it is, first, suspended and, subsequently, withdrawn pursuant to article 4.8, on terms which include payment of football creditors in priority to other unsecured liabilities. If the power of compulsory transfer is void, it follows that the FL cannot use the power to suspend the transfer as a means of requiring the priority treatment of football creditors. To the extent that the FL uses its powers to deprive a member club of other assets to ensure the payment of football creditors, these too are void on the same grounds. This will require examination of article 77 and 80.
115.	As has often been said, a share is a bundle of rights and a consideration of the potential value of a share in the FL must start with the rights attached to it. Shares in the FL are significantly different from ordinary shares in conventional commercial concerns. They carry no rights to dividends and they are not freely transferable or capable of separate sale at a profit. The holding of shares is confined to companies owning clubs which are members of the League. Clubs promoted to the Premier League or relegated from the Football League are required to transfer their shares at a price of 5p to the replacement clubs.
116.	There are three principal rights available to member clubs as holders of shares in the FL, all dependent on each other. First, the member is entitled and obliged to participate in the FL competitions. This enables the member club to carry on its business as a football club within the League, generating revenue from gate receipts, advertising, exploitation of its name and brand, player sales and other commercial activities.
117.	Secondly, member clubs are entitled to payments from the Pool Account. I have earlier set out the articles which provide for and govern these payments. An important issue between the parties is what, if any, rights to payments a member clubs has, which are lost when a club ceases to be a member.
118.	Thirdly, member clubs are entitled to have players registered with them, and during their contract period the players are normally the clubs’ most valuable assets. Under regulation 61 of the FL regulations, all registrations of players with a club terminate if it ceases to be a member of the FL, and the registrations vest in the FL. The club thereby loses any possibility of selling its players.
119.	Although HMRC emphasised in their evidence the loss of value resulting from a member club’s loss of player registrations, it did not feature greatly in the parties’ submissions. The reason, I think, is as follows. If a member club goes into liquidation, it will cease business. The players’ contracts of employment will terminate and the club will lose the value of its playing squad, irrespective of the termination of their registration with the club. If the member club does not cease business, albeit that it goes into administration, its registrations are not lost. I was not taken to any of the detailed provisions in the regulations governing registration and HMRC addressed no argument that they operated in a manner contrary to the anti-deprivation rule, for example by diverting payments received for player transfers.
120.	Because at least part of the value of a share in the FL lies in the entitlement that it brings to payment from the Pool Account, I propose first to look at articles 77 and 80, before returning to the issue of the loss or threatened loss of a share pursuant to the exercise of powers arising under article 4. It is in any event necessary to look at article 77 and 80 in view of the specific relief sought by HMRC as regards those articles.
Article 77
121.	As earlier explained, the benefit derived by member clubs from the television rights for the matches they play and from sponsorship deals for the FL’s competitions in which they play is through payments out of the Pool Account.  The television and sponsorship contracts are made by the FL as principal.  They are made with a view mainly to benefiting the member clubs, but the revenue received under the contracts by the FL is in law its revenue and the sums paid into the Pool Account are its assets.
122.	As a matter of contract between the FL and its members, the latter’s entitlement to receive payments from the Pool Account is governed by the FL’s articles.
123.	The FL relies in particular on article 77.3 and for convenience I will repeat its first sentence:
“Payments to Member Clubs under the Articles only become a legal liability of The League to a Member Club, if the Member Club completes all of its fixture obligations to The League for the relevant Season.”
Completion of all fixture obligations for the relevant season is therefore under the terms of article 77.3 a condition precedent to any right to payment out of the Pool Account.  The provisions of articles 71.2, 77.1 and 77.2 are consistent with this requirement.
124.	Payments are in fact made to clubs during the season, but article 77.1 provides that these are interim payments made on account, on the basis of what is likely to be paid to member clubs at the end of the season, and article 77.3 provides that they are repayable on demand if a member club does not complete its fixtures.
125.	Taking article 77 at face value, it has two relevant consequences for a club which loses its share during a season and is therefore unable to complete its fixtures.  First, it has no entitlement in respect of the matches which it has already played during the season.  Without a legal right to payment of “accrued” but unpaid amounts, it has not been deprived of an asset in respect of those amounts.  Secondly it is unable to fulfil the condition precedent to any entitlement to payments from the Pool Account.
126.	As to the first of these consequences, HMRC submit that a right to income from the Pool Account accrues to each club during the season.  Its written submissions are that the television and other revenue paid into the Pool Account “are earned by the Clubs performing at matches - and those matches being televised” and that articles 77.1 and 77.3 are:
“a transparent device of drafting that purports to delay the creation of a “legal liability” owing by the FL to the Clubs but which does not reflect the substance or reality of the payments which accrue to Clubs over the course of the financial year.”  
They submit that:
“The true position, as a matter of substance, is that the accrued and earned broadcasting income is property of the Club as soon as it is earned.”
127.	The practice of the FL is to pay the basic award to member clubs by 12 equal monthly instalments, notified to the clubs before the start of a season. Mr Mitchell submitted that these were stage payments to which member clubs were entitled and that they earned their right to payment as they played matches.  He submitted that it was analogous to stage payments due to a contractor under a construction contract, where the amounts earned for each stage were an asset of the contractor although payment was contingent on the issue of an architect’s certificate.  He referred to the decision of the New Zealand Court of Appeal in Attorney-General v McMillan & Lockwood Ltd [1991] 1 NZLR 53, a case which is relevant to the direct payments issue.
128.	HMRC’s case, in summary, is that the television revenue is earned as a result of the clubs playing their matches, some of which are televised, that the basic award is in fact paid to clubs by equal monthly instalments, and that therefore the reality is that the basic award is paid to the clubs as they earn it and, crucially, as they become entitled to it.  HMRC submit that the legal entitlement of the member clubs to these stage payments is reflected in and evidenced by three matters to which I refer below.
129.	HMRC did not plead that article 77 was a sham nor was it formally argued on that basis, although Mr Mitchell came close to it when he described article 77 as “completely artificial”.
130.	I will consider first the three matters relied on by HMRC as showing that the true position is that member clubs are entitled to stage payments.  First, they pointed to audited accounts of clubs which recognised an entitlement to income from the Pool Account as assets of the clubs.  These do not assist HMRC because the end of the relevant financial years was 30 June, after the season had ended and the clubs had completed their fixture obligations.  Secondly, they pointed to assignments by clubs of future income receipts to banks and other lenders by way of security.  However, the assignment can be of no more than the club’s entitlement, which is governed by article 77 and, in addition, a note to articles 68-80 states that any assignment of future entitlements are subject to article 80 and that this must be brought to the attention of the other party.  Thirdly, they pointed to agreements made by administrators of particular clubs and the FL or FAPL which are drafted in terms of an entitlement to instalment payments.  The agreement cited was with the FAPL, rather than with the FL, but in any event the drafting of the agreement does not appear to be based on the recognition of a legal entitlement to stage payments.  Even if it was, an agreement or agreements with particular clubs would be an insufficient basis for HMRC’s case that article 77 did not contain the real agreement between the FL and its members.
131.	HMRC must therefore rely on the facts, first, that revenues are paid in stages to the FL under the television contracts during the season and, secondly, that monthly instalments are paid by the FL to the member clubs out of the Pool Account.  
132.	The problem for HMRC’s submission is that the payments to the clubs are entirely consistent with the articles, including article 77.  Unless article 77.3 is a sham, it creates the legal entitlement and obligation between the FL and its members.  There can be no doubt as a matter simply of construction of article 77.3, that any legal entitlement to payments is conditional upon completion of all fixture obligations. Moreover, in the letter to member clubs dated 1 June 2010 to which HMRC referred, the monthly instalments were stated to be “on account of the sums likely to be paid to clubs under the League’s Articles”.  
133.	In reliance on Belmont and other authorities, Mr Mitchell submitted that the court should look at the substance of the matter.  Looking at the substance of a transaction does not allow the court to disregard the legal rights and obligations created by the contract in favour of different rights and obligations which are said better to reflect the commercial realities between the parties.  This is not what Lord Collins did in Belmont when looking at the substance of the relevant arrangements in that case.  As a matter of the rights expressly created, the note holders and LBSF held security interests in the collateral, and that was not affected by the creation of such security through the medium or form of a trust.
134.	The position of contractors entitled to stage payments on issue of an architect’s certificate does not assist HMRC’s case.  Construction contracts of that type entitle the contractor to payment for each defined stage, subject to the architect’s certificate that the work included in the relevant stage has been completed.  Unlike article 77, they do not make entitlement to all payments conditional on completion of the entire contract.
135.	HMRC also rely on the absence in practice of any attempt to enforce the obligations in the second sentence of article 77.3 to repay interim payments if a club does not complete a season.  Because all clubs which go into administration in the course of a season are permitted to complete the season, the occasion for its enforcement has arisen only in the rare cases of liquidation or non-completion of a season by a company in administration.  I am not aware of evidence before the court as to whether the FL has then made a claim for repayment of interim payments.  Even if it did not do so, it would not be a sufficient basis for saying that there is a legal entitlement to stage payments, contrary to the terms of the first sentence of article 77.
136.	HMRC submitted that, particularly when read with article 80, it was clear that article 77 was drafted in such a way as to prevent the anti-deprivation rule and the pari passu principle applying to the loss of entitlement to payments derived from the television contracts.  If an individual member club has no legal entitlement to payments from the Pool Account until it has completed its fixture obligations for the relevant season, it is not deprived of an asset if, as a result of going into administration or liquidation, it cannot or is not permitted to complete the season.  Likewise, if sums from the Pool Account which would have been paid to a club if it completed the season are paid instead to football creditors following an administration or liquidation occurring before the end of the season and preventing the club from completing its fixtures, there is no asset of the club to which the pari passu principle can be applied.  
137.	Assuming in favour of HMRC that article 77 is drafted for the reasons they suggest, it does not alter the legal rights and obligations of the parties.  The two principles apply in so far as an asset of the company at the relevant date is dealt with contrary to those principles.  They are not broader anti-avoidance rules, permitting the court to re-write contracts and property rights so as to create in the company’s favour an asset which it does not have.  
138.	In fairness to the FL, it should be said that there are valid reasons for viewing participation in the FL’s competitions as a single venture for the entire season.  For example, the point of The League competition, and its value, lies in the fact that each club plays every other club in the same division twice in the season.  Failure by a club to finish a season creates obvious problems for the competition, meaning for example that all previous results of matches involving that club have to be disregarded.  The competition is devalued even if only one club drops out during the season and would in effect be destroyed if a number did so.  
139.	While in my view there accordingly exists a rational basis for viewing participation in the competitions as a single venture, it nonetheless appears likely that the advantage it provides for the operation of article 80, giving priority to football creditors, also plays a part in the current formulation of the articles.  But, in my judgment, that makes no difference to the operation of the anti-deprivation rule and the pari passu principle.
140.	I have so far considered the operation of article 77 to a member club which does not complete its fixture obligations for the relevant season.  If it does complete them and if it does then become entitled to payment of the basic award and other monies from the Pool Account and if it was then deprived of that entitlement, by termination of its membership of the FL, the anti-deprivation rule would be engaged and would apply to avoid the deprivation of the entitlement unless it was justified on the sort of bona fide commercial grounds discussed in Belmont.
141.	In fact, as earlier stated, insolvent member clubs which go into administration are permitted to complete the current season.  Default in paying football creditors, which would be almost certain to occur, results in the operation of article 80.  The question therefore arises as to whether the operation of article 80 means that there is no entitlement to payment under article 77 at the end of the season and, if so, whether article 80 is invalid.   

Article 80
142.	Article 80 applies where a member club defaults in making any payment due to any of the football creditors, who are listed in article 80.1.  In that event, article 80.1 provides that the member club shall be subject to such penalty as the board of the FL may decide and shall be “subject also to article 80.2”.  Article 80.2 provides that “the Board shall apply any sums standing to the credit of the Pool Account which would otherwise be payable to a Defaulting Club, in discharging the creditors in article 80.1”.  
143.	If the anti-deprivation rule or the pari passu principle is to apply to article 80, the first requirement is to identify the asset of the member club of which it is deprived by the operation of article 80 or which is distributed on a non-pari passu basis to football creditors in priority to other unsecured creditors.  If there is no such asset vested in the member club at or after the date of administration or liquidation, then the anti-deprivation rule cannot apply. Equally, if there is no such asset vested in it at or after the date of notice by an administrator to make a distribution or the date of liquidation, the pari passu principle cannot apply.  
144.	HMRC submit that the asset is the debt due from the FL to the member club in respect of the basic award.  
145.	Taking first the case of the club which does not complete the season, the answer follows from what I have earlier said.  Completion of all fixture obligations is a condition precedent to the debt arising in favour of the club.  If therefore it does not complete its fixtures, no debt becomes due to it, and the operation of article 80.2 does not therefore deprive it of an asset or direct the distribution of an asset in a manner contrary to the pari passu principle.
146.	It might be said that if a member club were to be unable to complete the season only because it lost its share in the FL, and that it had the financial resources to complete the season, it had been deprived of the contingent asset represented by its contractual right to payment of the basic award once it completed the season. This appears to be wholly theoretical because in practice all clubs with the financial resources to complete a current season are permitted to do so.
147.	In almost all cases, insolvent clubs complete their fixture obligations because the FL permits them to do so.  Accordingly, on completion of the season a debt would become due and payable to the club under article 77.3 unless no debt arises by virtue of article 80.2.  
148.	The first question is whether the requirement imposed on the board by article 80.2 to apply sums in the Pool Account in discharge of a defaulting club’s football creditors applies during a season or only at the end of it. The difference is critical because, if it is the former, the member club is clearly not, for the reasons already given, deprived of an asset in the form of a debt due to it.  
149.	This turns on the meaning to be given to the phrase “any sums standing to the credit of the Pool Account which would otherwise be payable to a Defaulting Club”.  On one view sums “which would otherwise be payable to a Defaulting Club” refer to sums which are now payable but for article 80.2. On that basis, article 80.2 could apply only after the end of the season.  In my judgment, however, Mr Phillips is right in his submission that it includes sums which would but for the operation of the article become payable to a member club at the end of the season.  Article 80.1 provides that a member club is subject to article 80.2 whenever it defaults in making any payment to a football creditor.  The season lasts for about nine months, with sums likely to fall due from clubs to such creditors throughout that period.  It is commercially implausible that it was intended that no payments should be made under article 80.2 until what may well be many months after the default has occurred.
150.	Mr Mitchell submitted that the words “any sum standing to the credit of the Pool Account” refer to sums in that account standing to the credit of the club, therefore constituting a debt due to the club.  On my reading of article 77.3, although not on Mr Mitchell’s, this would necessarily refer only to the period after the end of the season.  I do not accept Mr Mitchell’s reading of this phrase.  Funds paid into and held to the credit of the Pool Account are the FL’s own funds (see article 65).  The articles create debts in favour of member clubs and provide for payment of such debts out of the Pool Account but that does not mean that equivalent sums in the Pool Account are held to the credit of clubs before the debts are due.
151.	Article 80.2 therefore applies during a season so that where there is a default in the payment of debts due to football creditors during the season, the FL is obliged to pay such debts out of the Pool Account to the extent of the amount which would otherwise become due to the defaulting club at the end of the season, so far as not previously paid to the club on account.  The result is that the only sum which becomes payable to a defaulting club which completes the season is the balance, if any, after the FL has paid football creditors during the season.  The defaulting club is not deprived of an asset, namely the basic award, because in these circumstances there never was a debt due to it beyond the amount of the balance, if any.  
152.	This is the result whether or not the member club goes into liquidation or administration during the season.  The liquidator or administrator can claim no asset as due to the club unless and until it has completed all its fixture obligations for the season.  The asset, if any, due at the end of the season is the sum payable by way of the basic award and so on, less the payments made during the season by the FL under article 80.2.
153.	The FL relies also on the trigger for article 80.2 being that a member club defaults in making any payment due to a football creditor, not the commencement of an administration or liquidation.  The older authorities were generally clear that the anti-deprivation rule applied only to a deprivation occurring on bankruptcy or liquidation, and not on some prior event such as a breach of contract or attempted alienation of the property.  It was, however, possible to argue by reference to Whitmore v Mason (1861) 2 J&H 204 that the anti-deprivation rule applied if the deprivation was triggered by prior insolvency leading to the bankruptcy or liquidation.  It might be said that a default in payment of a debt is itself evidence of insolvency.
154.	This possible line of argument is, I think, closed off by Belmont.  In the Court of Appeal it was addressed and rejected by Lord Neuberger MR: see [2010] Ch 342 at [70]-[72].  In the Supreme Court, Lord Collins refers to this point   at [99] but at [80] he says without qualification that the anti-deprivation rule “is intended to operate only where the provision is made for deprivation on bankruptcy”.  It follows that where article 80.2 is triggered by a default in payment of a football creditor which occurs before the administration or liquidation, the anti-deprivation rule will not apply.
155.	It may, however, be that in some cases the member club goes into administration or liquidation before a default in payment of any football creditor has occurred.  An administration or liquidation will lead to a default in payment of football creditors unless the administrator or liquidator for special reasons chooses to pay them.  The Court of Appeal in Belmont held that a deprivation occurring after the commencement of administration or liquidation could not avoid the application of the anti-deprivation rule whatever the trigger, and for that reason considered that Ex p Newitt 16 Ch D 522 could not survive British Eagle: see [93] (Lord Neuberger MR)              and [162]-[163] (Patten LJ).  The Supreme Court left this question open as regards the anti-deprivation rule: see [82]-[83] (Lord Collins) and [156] (Lord Mance).  Lord Collins noted that in Ex p Newitt, which concerned a landowner’s right to re-enter land and forfeit materials belonging to a builder if the builder defaulted in performance of the contract, the controversial point was “that the forfeiture took place after bankruptcy, but it is not clear when the breach occurred”.  
156.	I incline strongly to the view that in a case where the trigger is default in paying a debt, and the default occurs after the commencement of an administration, the anti-deprivation rule applies to avoid the contractual right to deprive the debtor of the asset.  Otherwise, as Lord Collins remarked in Belmont at [89] in the context of flawed assets, “it would represent such an easy way of avoiding the application of the principle, that the principle would be left with little value”.
157.	I am reluctant to express a final view on this point, where, first, it was not fully argued and, secondly, in my view there is no debt and hence no asset of which the member club can be deprived before the end of the season.  This question would arise only if the administration commenced after the end of the season and before the FL had operated article 80.  I am not aware whether this has occurred but it would appear to be highly unlikely.  
158.	I should add that on this point the position is clear as regards the pari passu principle.  If it is engaged, because the company has gone into liquidation or because an administrator has given notice of a proposed distribution, it will prevent a subsequent application of an asset in a non-pari passu distribution, whatever the trigger is expressed to be. 
159.	In the event either that on its true construction article 80.2 did not apply until a debt arose at the end of the season or that the administration or liquidation commenced after the end of the season but before article 80.2 had been applied, Mr Moss for the FAPL, supported by Mr Phillips for the FL, submitted that there would still be no breach of the anti-deprivation rule or pari passu principle, in reliance on cases concerning “direct payments”. All these authorities concern provisions in construction contracts under which, in the event of the main contractor’s insolvency, the employer will pay directly to the sub-contractors amounts due to them from the main contractor and pay correspondingly less to the main contractor. Since the decision in British Eagle the validity of such provisions has been controversial. There do not appear to be any English decisions on these provisions since British Eagle, but there are conflicting decisions in a number of jurisdictions, including Northern Ireland, the Republic of Ireland, New Zealand and Australia.
160.	The validity of direct payment provisions is an important issue of principle, with potentially far-reaching consequences in the construction industry and perhaps other business sectors. I take the view that it should be decided only in a case where a decision is necessary, and that it is unhelpful to venture what would essentially be obiter views. In the light of my decisions on other aspects of articles 77 and 80, it is not necessary to seek to resolve the issue in this case.
Article 4.5
161.	I return now to the question whether the power of the board of the FL under article 4.5 to require the transfer of a share if a member club goes into administration or liquidation is void by reason of the anti-deprivation rule.
162.	Assuming that the administration or liquidation occurs during a season, it follows from what I have said about articles 77 and 80 that the member club is not thereby deprived of any existing right to receive any payments from the FL.  It is at most deprived of a right to continue to play in the competitions for that and future seasons. The value of player registrations is dependent on the club’s ability and entitlement to continue playing in the FL’s competitions. If it can no longer do so, the club can no longer provide playing opportunities and its players will be entitled to, and almost certainly will, terminate their contracts.  
163.	For a solvent club, able to pay its liabilities, the right to play in the FL’s competitions is in my judgment clearly a valuable right, as is demonstrated by the sums paid for member clubs or for their assets including their share in the FL.
164.	It is, however, a different question whether it is a right of any value to an insolvent club.  A club can play in a competition only if other clubs are willing to play against it.  It would not be in the least surprising if other clubs refused to play matches against a club which owed debts to them or would or might well be unable to pay debts to them arising in the future.  In those circumstances, the clubs could either refuse to play the insolvent club or do so only on terms that existing and future debts to them and to such other persons as they nominate are paid in full.  This is the effect of the articles of the FL and the power of the FL to suspend notice of transfer on terms that football creditors are paid in full.  
165.	It is true that this stems from the articles and the power of the board, not from the ad hoc decision of clubs individually or collectively.  However, the FL is composed of the member clubs.  The articles are the collective expression of the member clubs.  The articles were adopted by the member clubs and they can be amended by the member clubs.  The obligations of member clubs to play all other member clubs in the league exist alongside the provisions in the articles applicable to insolvent clubs.  The latter are the terms on which member clubs commit themselves to play the other member clubs.  As HMRC put it in their particulars of claim, the articles, regulations and Insolvency Policy “are the terms upon which clubs contract with the Football League and with each other”.
166.	In the absence of specific statutory provision, insolvency law does not compel a party to continue to deal with a company in administration or liquidation, nor does it prohibit a party from stipulating that all future dealings shall be on terms that not only future debts but also existing debts are paid in full.  It is then for the administrator or liquidator to decide whether to accept these terms.  
167.	This is well illustrated by Wellworth Cash & Carry (North Shields) Ltd v Northeastern Electricity Board [1986] BCC 99, 265.  In that case the plaintiff company was in insolvent liquidation and the defendant electricity board was a creditor for arrears of charges.  The electricity board was under a statutory obligation to supply electricity to the company unless the company was in arrears.  The company’s business depended on the continued supply of electricity and the liquidator had decided to continue the business as being in the best interests of creditors generally.  The electricity board refused to continue the supply unless all arrears, which would be provable debts in the liquidation, were paid in full.  Peter Gibson J refused to grant an injunction requiring the electricity board to continue the supply without this condition, holding that it was entitled to impose the requirement as a condition of further supplies, even though it would result in priority for the electricity board contrary to the pari passu principle.  The decision would have gone the other way if by then s.97 Insolvency Act 1985 (now s.233 Insolvency Act 1986) had been brought into force.  Section 233 prohibits utility suppliers from requiring the payment of pre-administration or pre-liquidation arrears of charges as a condition of future supplies.
168.	The same approach underlies the decision of the Court of Appeal in Sea Assets Limited v PT Garuda Indonesia [2001] EWCA Civ 1696, affirming the sanction of a scheme of arrangement which provided for certain categories of unsecured creditors of an insolvent company to be paid in full.  At [45], Peter Gibson LJ said:
“Mr Cohen’s complaint appears to be primarily that the trade creditors and the procurement contract creditors are outside the Scheme and are not to be treated like the Scheme Creditors under the Scheme.  But to suggest that those who in the real world would not accept less than the due payment of one hundred per cent of their debt in order to continue supplying the company (and thereby to enable the company to continue trading) must be included in the Scheme as Scheme Creditors, defies not only commercial logic but would defeat the legislative purpose of s.425 to facilitate compromises and arrangements.”
169.	The FL and the FAPL rely on the decisions of the Privy Council in The Official Assignee of Bombay v Shroff (1932) 48 TLR 443 (Shroff) and Neuberger J in Money Markets International Stockbrokers Ltd v London Stock Exchange Ltd [2002] 1 WLR 1150 (MMI). Both cases concerned the compulsory transfer for no consideration of a share in the company or association owning the assets of a stock exchange from which a member had been expelled on account of his insolvency. Both were claims by the trustee in bankruptcy or liquidator of the expelled member that the compulsory transfer offended the anti-deprivation rule and both claims failed.
170.	In neither case was the expulsion from membership of the stock exchange challenged. In MMI, Neuberger J said at [110]-[111]:
“…. the loss of membership of a financial institution, such as a stock exchange, where one has failed to meet one’s debts or has gone bankrupt cannot, in my view, be said to fall foul of the principle. Membership of such an exchange turns on the personal attributes and acceptability of a particular individual, and expulsion on the grounds of not honouring financial obligations (or, indeed, insolvency) would seem to be almost an inevitable incident of membership.
111. It is, presumably, for this sort of reason that no argument was advanced in the Bombay Official Assignee case 48 TLR 442, or indeed in this case, to support the contention that loss of membership of a stock exchange on the grounds of failure to honour obligations, or bankruptcy, could be challenged. In the instant case, and, I think, in the Bombay Official Assignee case, it was accepted that a person’s membership of such an exchange depends on his personal characteristics, and is, in any event, not transferable.”
171.	It was in each case default in paying sums due to other members of the exchange which led to the expulsion from membership. In a continuing business relationship among members which involved dealings on credit between them, the right of the exchange to terminate membership on such a default was hardly surprising. As Neuberger J observed at [130]:
“….That a member firm should be expelled from membership in the event of failing to meet its Stock Exchange liabilities seems to me to be more than understandable. While there may well be exceptional cases, I can see a great deal to be said for the view that any self-respecting stock exchange would not want to retain as a member anyone who had not honoured his commitments to other members of the exchange.”
Under the rules of the exchange in issue in Shroff default in payment to other members resulted in the termination of membership and the sale of the member’s “card” for the benefit of the members to whom he was indebted: see p.7 of the report. 
172.	In each case the share in the association or company owning the stock exchange was ancillary to membership of the exchange and could not be separated from it, so that the loss of membership justifiably involved the loss of the share for no consideration.
173.	The position of member clubs of the FL is different to the extent that there is no distinction between the right to play in FL competitions and thereby carry on business as an FL club on the one hand and ownership of a share in the FL on the other hand. They are one and the same thing. It is ownership of a share which entitles a club to play in the competitions, to own registrations of players and, through playing in the competitions, to receive the basic award and other payments from the FL. The importance of these cases for present purposes lies in their recognition that members of a trading association cannot be required to deal with, or play against, a member which defaults in its obligations to other members and the loss of membership for no consideration is a permissible response to such default. An exception to this might be where membership carried rights to assets of present significant value which were not personal and which were capable of being detached and separately sold: see Belmont at [160] per Lord Mance. 
174.	HMRC accepted this, and it is worth quoting Mr Mitchell’s submission:
“… the reason why those cases pass the good faith test, we say, is because insolvency, for reasons which are clear in those cases, is an absolute disqualification from being a stockbroker. If a stockbroker doesn’t pay his debt to other brokers, he can’t remain a member of the club. 
The purpose of the deprivation is to preserve the integrity of the stock exchange, to prevent it being compromised, because you can’t have people who can’t fulfil their contracts being part of a stock exchange.”
175.	If that is so, it would as Mr Moss submitted be odd if it were impermissible, instead of terminating membership, for it to be continued on terms that the defaults were made good. Mr Mitchell submitted that while this might be right as regards defaults in payments to other members of the association it could not be right if payments to other creditors were also required to be made as a priority. He did not, however, explain why a creditor could not insist, as a term of further dealings with the debtor, on payments to other specified creditors.
176.	The provisions of the articles and the Insolvency Policy, giving the FL power to permit an insolvent member club to participate in its competitions on terms that other member clubs and other specified creditors are paid in full, is no more than the exercise by the member clubs through the FL of their right to refuse to participate further with the insolvent club save on these terms.  
177.	In addition to this commercial approach, the FL and the FAPL relied on a number of grounds to justify the approach taken by the FL.  They submitted that these grounds brought the provisions of the FL’s articles and Insolvency Policy within the category of sensible transactions entered into in good faith to which, as held in Belmont, the anti-deprivation rule does not apply.  
178.	In his witness statement, Mr Williamson explains very fully the rationale, as the FL sees it, for the priority given to football creditors.  For example, in paragraph 29 he says: 
“Serious problems can arise, from a “sporting” perspective, when a club spends more than it can afford in chasing that dream.  It is very damaging to the integrity of The League’s competition if member clubs working hard to live within their means, (only taking on player wages and other commitments that they can afford) have to compete with others that do not feel so constrained.  A club that spends beyond its means is able to acquire better players and so achieve better results than those that operate prudently.  It is cheating.  It achieves an obvious and improper competitive advantage, in particular (but not only) where some of the debts in question are owed to clubs against which it is competing, which are more socially and financially responsible.  The actions of the reckless risk tempting other clubs also to act imprudently just to compete on equal terms.  Those that resist the temptation are further disadvantaged.”
179.	In paragraph 39 he says:
“In that sense, clubs and players operate in a closed market.  The League is, in effect, still a joint venture to which all member clubs contribute so that they too are “involuntary” creditors of other clubs because they cannot elect not to play fixtures against financially unstable or even insolvent clubs in The League’s competitions.  They are dependent on other clubs paying their debts so that they can themselves meet their own obligations to creditors, players and other clubs.  A payment default can start a chain reaction that undermines the integrity and the stability of The League’s competition on a widespread basis.  This is the so-called ‘domino effect’ which, after maintaining the integrity of The League’s competition, is the second principal reason why the existing regulatory regime is in place.  For these reasons, it is simply untenable for a club to be allowed to continue to compete in a competition against other clubs (and players) to whom it has failed to pay its debts in full and may not be able to do so for the foreseeable future.”
180.	By contrast, Mr Williamson says in paragraph 40:
“Of course, football clubs also operate in the open market, as with any other business.  Football clubs are consumers which purchase normal stock in trade and various services (kit, replica shirts and other merchandise for the club shop, hotel accommodation etc), and also enter into numerous commercial arrangements (including taking loans).  The key difference here is that each of those suppliers or lenders has a choice as to whether to contract with the club or not and can use its own commercial judgment in making that decision.  That is not to say that they are unimportant in the context of the integrity of competition, but it is an important factor in how we seek to address issues arising out of a football club insolvency as discussed below (paragraphs 92 to 99).”
181.	Mr Williamson goes on to justify the approach taken by the FL to insolvent clubs, including the priority given to football creditors, on the grounds that (i) it secures the survival of clubs and therefore promotes the rescue culture underlying the statutory provisions for administration, (ii) it secures the payment in full of football creditors and thereby protects the integrity of the FL competitions and (iii) it usually involves the consent of other creditors through a company voluntary arrangement (CVA).  
182.	This basis of justification is inextricably bound up with the simple fact that an insolvent club cannot continue to compete unless the other clubs are prepared to continue to play against it.  But if that essential factor were extracted from it, what is left could not in my judgment provide a justification of the sort recognised in Belmont, if the articles and Insolvency Policy would otherwise be contrary to the anti-deprivation rule.  There are two reasons for this.
183.	First, the grounds advanced by Mr Williamson do not, viewed objectively, provide a relevant justification.  The competitive advantage to which Mr Williamson refers is gained as much by a failure to pay creditors other than football creditors as by a failure to pay football creditors.  A club which buys players and is able to pay for them by not paying its lenders, suppliers or HMRC gains a competitive advantage over those clubs which live within their means.  The involuntary characteristics of football creditors to which Mr Williamson refers goes only a small way, as regards for example match receipts payable to the away club.  It does not extend to the transfer of players between clubs which often account for a very significant part of the debts due to football creditors.  No club is obliged to sell a player to another particular club.  Like any party taking a credit risk, it must assess the credit-worthiness of its counterparty.  There is nothing unusual or unique to football about this.  If a domino effect results from a failure to pay the price for a player, there is again nothing unique to football about this.  Any market may be affected by this type of contagion, particularly where there are a limited number of participants.  HMRC makes the point that the priority given to football clubs may encourage risk-taking, and certainly does not deter it.
184.	As for the consent of other creditors being obtained through a CVA, this is forthcoming only because the prior payment of football creditors in full is the condition imposed by the FL.  If compliance with that condition results in a higher payment to other creditors, they are likely to accept the proposal.  It provides no independent justification for the priority given to football creditors.  Nor does such priority advance the rescue culture.  The rescue culture is not designed to advance the interests of one group of creditors over another.  
185.	Secondly, and again on the two assumptions that (i) it was possible to separate out the need to secure the agreement of other clubs to continue to play against an insolvent club and (ii) the right to payments from the Pool Account was an asset of the insolvent club, the purpose of depriving the club of that asset would be to avoid the application of the insolvency laws.  The grounds advanced by the FL do not deny that purpose, but seek to provide justification for it.  However, what matters is whether the dominant purpose or deliberate intention of the arrangement is to evade the insolvency laws, not whether there is a good or bad motive for doing so.  The distinction between purpose, i.e. what is to be achieved, and motive i.e. the reason why it is to be achieved, is clear: see Brady v Brady [1989] AC 755.  In Belmont at [104] Lord Collins said: 
“The policy behind the anti-deprivation rule is clear, that the parties cannot, on bankruptcy, deprive the bankrupt of property which would otherwise be available for creditors.  It is possible to give that policy a common sense application which prevents its application to bona fide commercial transactions which do not have as their predominant purpose, or one of their main purposes, the deprivation of the property of one of the parties on bankruptcy.” [emphasis added]
The transaction under consideration in Belmont was held not to offend the anti-deprivation rule because it was “a complex commercial transaction entered into in good faith” in respect of which “there has never been any suggestion that those provisions were deliberately intended to evade insolvency law”: see [108]-[109].
186.	Mr Moss on behalf of the FAPL developed an argument that special latitude should be allowed in this case because the FL is properly to be seen as a regulator.  While it is certainly the case that the FL acts to regulate the competitions which are run by it and the conduct of clubs and those who act on their behalf in relation to their footballing activities, the FL is every bit as much a commercial organisation acting on behalf of its members as it is fulfilling a regulatory function.  As previously elaborated, it negotiates and holds commercial rights to broadcasting and sponsorship which essentially it negotiates and holds for the benefit of its member clubs whose footballing activities give rise to the opportunity for commercial exploitation.  There is in my judgment no parallel to be drawn with a statutory regulator whose function is solely to regulate a particular activity in the public interest.  Even in the case of a statutory regulator, I doubt very much that it would have power to impose a different order of priority for the payment of debts in an insolvency without express statutory authority.  
Conclusion
187.	It follows that in most circumstances in which the relevant provisions of the FL’s articles and Insolvency Policy will operate, they will not be rendered void by the anti-deprivation rule or the pari passu principle. It may be that either or both might be engaged in particular circumstances, for example in the event of an administration or liquidation commencing after the end of a season but where there has been no application of article 80.2. Whether that is so would have to be decided in the context of a real case if and when it ever arose. The right course in the present proceedings is to decline to make the declarations sought by HMRC.
188.	The overall approach of HMRC seemed at times to be treat the anti-deprivation rule as a general anti-avoidance principle. If the effect of the relevant provisions taken as a whole was to produce a different order of priorities than prescribed by insolvency law, they must be void. This is to misunderstand the anti-deprivation rule which is specific in what it prohibits. Broader or different restrictions would require statutory intervention, as has occurred in the cases covered by ss238-246 of the Insolvency Act 1986.
189.	The FL should not regard the result of this case as an endorsement of its approach to football creditors. It is, as I said at the start, a decision on a challenge brought on a particular legal basis.