What Exactly is Administration?

Plymouth look set to become the 25^th club in the top four tiers of English football to enter administration this century, probably not the most fun trend to come out of football in the 2000s, I'd give that accolade to rumblesticks but there we go.

Anywho, as a result, the term 'administration' has been bandied about so much that it's the meaning of administration have become just a little lost, a bit like the phrase "I did not see the incident". So, just what exactly is administration and what are the effects it has on football and the community?

First of all, let's explore the boring legal bit. Businesses that are taken to court (usually by Her Majesty's Revenue and Customs) and are defined 'insolvent' if they meet one of the following two conditions; it is proven to the court that the company cannot pay back its debts on time OR that it is proven to the court that the company's debts outweigh the overall value of the company's assets.

If the company is declared insolvent, an administrator is put in charge of the entire business to attempt to facilitate a sale and to provide the creditors with their money, who are often given a lot less than the money they are earned. Administration also prevents a winding up order being issued.

To put this in a football context, a football club will bring in an administrator, usually an accountant, to do all in his power to service the debt and find a buyer, essentially taking over the entire non-playing side of the club. This buys the club time from being wound up by HMRC as the worst thing that can happen in this situation is a community losing its football club.

However, the local community also suffers a blow due to administration. The creditors of a football club are a pretty ragtag bunch. In this bracket, you will have other football clubs awaiting money from transfers, players and coaching staff with their wages to be paid, stewarding, transport and catering companies for their services and various other small, local businesses such as builders or electricians.

Due to the Football Creditors rule, the first creditors to be paid, in full, are other clubs and playing staff whilst HMRC and other creditors do not have to be paid the full amount, often getting a couple of pennies for every pound that they are owed.

Whilst this is good for preventing a domino-effect where one club's failure to pay another club will result in the latter going out of business too, the negative effects are two-fold. Firstly, HMRC has an estimated outstanding £30 million tax bill over the last 7 years solely from football clubs meaning the taxpayer is losing out. Due to this, HMRC is fighting the Football Creditors rule. Secondly, local businesses lose out as they are not paid the full amount they are owed by clubs, potentially damaging their own business's long term stability.

From a fan's point of view, administration is bad news. In an attempt to prevent football clubs using administration as an easy escape clause from debt, by paying a fraction of their debt and then to start borrowing again, the Football League (and later the Premier League) introduced a points penalty to make administration a last resort. As the problem of debt will have been attempted to be serviced early by a club selling its best players, with poor performance in the league often following, which when compounded by a points deduction, relegation may well follow (Portsmouth, Stockport County, Leeds, Luton, Bournemouth to name but five examples), leading to a lower standard of football for fans.

Over the last 10 years, an unprecedented number of football clubs have entered administration. In contrast, just three clubs were declared insolvent from 1985 to 2000, two of whom were liquidated. However, whilst more often than not clubs do not go out of business, Chester and Halifax are rare examples; the effect of clubs entering administration has impacted way beyond the realms of football and into local communities as football clubs are big players in local economies.



This post also appeared on the online football magazine, http://www.footballfriendsonline.com