Like any business, a football club depends on revenue from a range of sources from which to pay its financial obligations. The most common sources of income will be gate receipts, television rights monies, sponsorship, merchandise and transfers. On the debit side, the football club will have to pay for the running costs of the club, footballer’s salaries and for buying players. In recent years, salaries and transfer fees have increased greatly and many clubs have had to borrow to afford new players. This underlying debt and the need to service it has led many to fall into financial troubles.

Unless the club has a benefactor with deep financial reserves and is not too concerned with making the club a viable business concern, the primary need of any business is to make a profit so as to pay shareholders and generate reserves with which to develop the business.

When a club can no longer meet its financial obligations, there is a real risk that a formalised change of management may be required to steer the club back to profitability. Whilst this may happen naturally through a sale of the business, it can be forced upon the club if a creditor believes that he/she is unlikely to be paid.

An Administrator or Administrative Receiver can be appointed by any of the following:

• A court, following an application by a creditor, director or partners owning the business;
• Anyone holding a qualifying floating charge over the assets of the business; or
• The directors or the company itself.

The role of the administrator is quite simple: it is to get the club out of financial trouble and trading profitably again if possible. The primary goal is to ensure that the business is able to trade as a going concern. If this fails, then the administrator will try to get a better financial result from the sale or break up of the club than would be achieved if the company were wound up. As a consequence, the administrator has the powers necessary to sell any of the clubs assets in order to satisfy, or part satisfy, the secured creditors of the club.

If the financial woes of the club are such that there is no belief that a period of administration can turn around the fortunes, then the directors (or partners) can propose a creditors’ voluntary liquidation. This means that the company will have to call a meeting of creditors who will vote to appoint a liquidator to wind up the company, sell all the assets and pay off the creditors in preference order.

It is also possible for the courts to order a compulsory liquidation on petition from a creditor. The end result is the same in that the role of the liquidator is to sell the assets of the club for as much as possible and use the proceeds to settle off the creditors in order of priority debt.

In simple terms, an administrative order allows the club time to regroup and try to find a way of settling its financial problems and come out as a trading concern. Certain protections are granted to a company in administration that ensure that assets cannot be taken by creditors and ensure that every opportunity is left open to get the company trading profitably again. Liquidation, either voluntary or compulsory, really is the end of the road and there is no coming back for the club, except maybe that some of the assets may be bought by a new owner and a so called ‘phoenix’ company may rise without the debt of the previous operation.