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Luton Town Football Club

Volume 470: debated on Friday 25 January 2008

Motion made, and Question proposed, That this House do now adjourn.—[Liz Blackman.]

I stand here today not only as Member of Parliament for Mid-Bedfordshire, but as the great-granddaughter of the founder of Everton football club. In those days it was a small community town football club known as St. Domingo’s. The principles of small football clubs were much as they are today: it was about community, young boys having a focus and a local club, and all that that entails. My great-grandfather’s son went on to play football as a goalkeeper, and his grandson has been a member of the amateur Referees’ Association for most of his life.

I am here today to try to protect another club that was started at almost exactly the same time as my great-grandfather started Everton: Luton Town, one of the oldest clubs in English football, founded in 1885. It has been witness to a lively past—unfortunately it has been in administration three times in the last nine years—but my interest today lies with its future more than its past, and with what we can do to ensure that that future remains stable and long-lasting.

The club went into administration in November last year. The financial directors and controllers had realised that its liabilities and costs were becoming greater, and that administration was the only option. As a result, in accordance with Football League rules, the club lost 10 points. Experienced football insolvency expert Brendan Guilfoyle was one of the three administrators appointed. He has a sound track record of helping other clubs in the same position, including Leeds United. His rescue of Leeds from its first insolvency culminated in the club’s paying off its creditors. If anyone is to secure the future of Luton Town football club, Brendan Guilfoyle will certainly be one of those who do so, but what we need, and what we have, is the right combination of administrator, loyal and dedicated fan base—some of whom are here today—and, of course, Luton Town itself.

All the ingredients are in place to ensure that a good bid is presented, as indeed it has been, by a consortium known as Luton Town 2020. The name represents the bid’s objective, which is to secure the club’s long-term future. The consortium is led by a lifelong Luton fan and television presenter, Nick Owen. He has done a fantastic job so far in attracting the investment that the club needs, and we hope that it will be possible to inject £10 million into the rescue operation.

As I have said, the priority is to stabilise the club and ensure that it remains stable in the future, without a repeat of its unfortunate past. As a member of the Football League, the club must abide by the league’s rules, which is why 10 points were deducted when it went into administration. It will face more stringent penalties if, during the administration process, it fails to meet other regulations laid down by the league. For example, it must now meet an additional 16-point plan set by the league if it is to emerge from administration. It must establish a company voluntary arrangement, which must be approved by the Football League before any progress can be made. The Football League, in more ways than one, sets the rules of the game and compliance with the CVA is effectively non-negotiable.

For the record, an exceptional circumstance arrangement can be established and sometimes that is permissible, but the cost would mean that the club would lose a further 15 points on top of the 10 points that have already been deducted. That would mean removal from the Football League, which would be a disaster for the club because it would have an impact on gates and the price of players. It would destroy Luton Town football club and must be avoided.

Following discussions I have had recently with the administrators, 2020, supporters groups and others, it appears that we are very close to securing the CVA, which would meet the approval of the Football League. That is extremely encouraging and would give Luton Town the fresh start that it desperately needs. However, the club is facing an extreme dilemma. As Benjamin Franklin famously said:

“But in this world nothing can be said to be certain, except death and taxes.”

As the Minister may be aware, the club owes about £2.5 million in unpaid taxes to Her Majesty’s Revenue and Customs, which is equivalent to about 80 per cent. of the club’s total debt. The magnitude of the debt means that HMRC is likely to object to the CVA and effectively will veto the club’s best chance of a sustainable future. That is because, under the CVA, the administrator is allowed to pay football creditors, such as players and other clubs, and they are allowed to receive 100 per cent. of what they are owed. However, other creditors, such as HMRC, are likely to receive nearer to 25 per cent. of what they are due. Ultimately, that will leave the club practically insolvent.

Clearly in an ideal world, in which none of us live, everybody would be paid in full, but 2020, which is the best option for securing the long-term future of the club, does not have access to the funds needed to extend 100 per cent. payment to everybody—to all the creditors. If HMRC continues to insist on such an arrangement, 2020’s bid, which is the only feasible one on the table, will fail completely. The irony is that the taxman will receive nothing if the club becomes insolvent rather than the 25 per cent. he would receive if he went into reasonable negotiations with the club. Although I understand the reasons for HMRC’s stance, I fear that intransigence and a lack of ability to negotiate on its part could prove a fatal blow to the club.

I want to take the opportunity to urge the Minister to make representations to ensure that HMRC takes a more flexible approach to the club’s outstanding payments. It is more than just a club; it is not just a case of negotiation between HMRC and the administrators. It is about the lifeblood of an important part of Luton and Bedfordshire. Many of my constituents support Luton Town football club, and football is a beautiful game. It is not just a beautiful game for Liverpool, Manchester United and the clubs in the big super-leagues; it is a beautiful game for the little boys who go home from school at night, put on their boots, go out into the street and pretend they are scoring a goal for the Hatters. It is a beautiful game for any small town that has its own club, which becomes such a vital part of the community.

Just this week in this Chamber, we had a debate on obesity and the danger it is proving to today’s children. The Government have sent out guidelines this week on how we need to encourage our children to move away from their PCs and to get out and engage in more sports. The club is situated in one of the poorest areas of the country and it is vital that a football club should exist in Luton that children can walk to. The club should be there to inspire children and to run youth training schemes and youth leagues so that it is part of the wider Bedfordshire community. I cannot say enough what a loss to Luton and Bedfordshire it would be if HMRC did not negotiate, the bid failed and Luton Town football club ceased to exist tomorrow.

The issue is not just about Luton Town; it is about other clubs. Many clubs across the UK all too often find themselves in a similar position to the one that Luton Town finds itself in today. If we want our kids to get out from in front of their PCs, let us make sure that local football clubs exist. Let us make sure that they are there to be an inspiration and to make sure that football is not just about those who have the big bucks and can afford to go to the big games and travel to the big matches. Football should be accessible to everyone, particularly in a town such as Luton, which is one of the poorest areas of the country.

There is another reason why I support the bid: the 2020 consortium is committed to ensuring that Luton Town football club fits snugly as close to Luton as possible. It recognises the importance of its being accessible to Luton fans. It is considering the feasibility of three options for re-siting the club at junction 10, so that Luton Town football fans could still travel to the club without great cost. It is also considering rebuilding the club in the Kenilworth road area, right in the heart of Luton. As far as I am concerned, that is where the football club should be. I agree that Kenilworth Road stadium should be rebuilt. Its rebuilding, and the resulting influx of capital to the area, would be fantastic for Luton. People in Bedfordshire who have always travelled to Luton town to watch the Hatters will still do so; there would be no great change there.

I am sympathetic to the bid, because those in the consortium take an objective view on what is right for the town, the club and the fans. The bid will not go ahead unless HMRC considers the issues more reasonably. It is not in anyone’s interests for the club to fall and to go into insolvency or liquidation. That would not benefit any club in the UK, or the fans or the people of Luton. I hope that the Minister will seriously consider arranging a meeting with HMRC, and bringing the parties together to talk. Perhaps he could arrange and facilitate a meeting between HMRC and the Minister with responsibility for sport, the hon. Member for Bradford, South (Mr. Sutcliffe), so that they can discuss the best way forward and the best way to help the consortium.

If the consortium trying to bring Luton out of administration meets the mandatory Football League obligations by paying all football creditors in full, and other creditors a reasonable percentage of the money owed, why should HMRC object? I would like an answer on that specific point from the Minister, if possible. Why would HMRC object, given that otherwise, the outcome would be a reduction in income for the Treasury?

If the consortium is forced to reduce its offer to football creditors, the Football League will object and refuse to reallocate Luton’s membership of the league, meaning that the club will be unable to play league football, and could be forced out of business altogether. I would like the Minister to say what the 2020 consortium should do. It is stuck between a rock, or HMRC, and a hard place, or the Football League. What does he think that the consortium should do to get itself out of that position? It is stuck between one set of measures that will take it into liquidation, and which would mean that the club will fall, and another. There seems to be no way for the club to steer itself out of the problem.

Will the Minister answering the debate join forces with the hon. Member for Bradford, South, if he still is Minister with responsibility for sport? On Wednesday, I was told that a Treasury Minister would respond to this debate. On Thursday, it was to be someone who would deal with the business side of the issue. The Minister present today is the Under-Secretary of State for Business, Enterprise and Regulatory Reform. I am not sure who the Minister for sport is at present, but if it still is the hon. Member for Bradford, South—I am not even sure whether he is still a Minister—will the Minister join forces with him and arrange a meeting between the football authorities, the Treasury and the consortium, so that they can reach an understanding that will allow them to deal more sensitively with clubs that find themselves in the same predicament as Luton Town?

Let us set up a framework, so that when another club finds itself in the same position, it knows what to do and where to go. The situation is impossible. Fans want to save the club, and administrators and local people want to do the best for it, but it seems as though everybody else is against the club surviving. Will the Minister facilitate such a framework? We need to know where clubs in such a position can go. The same thing has happened in Leeds. I have also been contacted by Labour Members whose local football clubs have been in the same situation. We need a framework within which small clubs can operate. Football is not just about the championship, or the premiership. It is not just about the super-clubs with the big money; it is about the small clubs, too. That is where the passion for football starts.

The 2020 consortium has established a reasonable and fair offer for the Treasury—the best offer on the table. The consortium would pay off many of the club’s debts and has pledged to prioritise financial stability. I wish that other such organisations considered long-term stability when companies went into administration. Luton Town football club is bringing forward the best deal that anybody could hope for; that is why it seems all the more ironic that HMRC is refusing to negotiate—“refusing” may be too strong, but it certainly seems intransigent about negotiating at the moment. The offer is the best on the table to pay off debts and pledge financial stability so that the club can survive. Stability will ensure that the Treasury sees an ongoing income. If the club fails, the Treasury will get no money at all, or just 25 per cent., but a successful club will bring ongoing income to the Treasury. That makes it all the more ironic and ridiculous that the club should face closure—if it closes, it will provide no income at all to the Treasury.

Will the Minister answer this specific question? Will he make representations to HMRC to ensure that the 2020 offer is accepted and the club can survive? Surely he agrees that the club’s long-term survival is paramount to all. Football is fundamentally a grass-roots sport; it is about little boys playing in the street who believe in their minds that they are playing for the Hatters when they get home from school. It is about people who walk to the match on a Saturday afternoon and about local communities and towns. Luton is one of the poorest towns in the country and it is important that Luton people have access to their football club.

The Hatters are a great team with a great past. After I attend constituency engagements on Saturdays, I frequently switch on the radio to find out what happened to the Hatters in the afternoon. Bedfordshire people either support the Hatters or their super-club and the Hatters as well. The club has a great past; will the Minister try to ensure that it has a great future as well?

I congratulate the hon. Member for Mid-Bedfordshire (Mrs. Dorries) on securing this debate and on the way she has reflected the no doubt considerable passions in her constituency about the subject. I recognise that other Members with significant numbers of Luton Town supporters in their constituencies will share some of her concerns. There are two small football clubs in my constituency—the excellent Harrow Borough and Wealdstone football clubs—so I recognise that Luton Town’s origins and the excellent work that it does in its community, which the hon. Lady has described, have helped to generate considerable enthusiasm for the Hatters and considerable concern about the club’s current circumstances.

For the hon. Lady’s benefit, and that of the House more generally, I should say a little about the law on administration and the legal environment in which Her Majesty’s Revenue and Customs and other creditors are engaging at the moment. The availability of managed exit routes from the market for companies in financial trouble is an essential aspect of any mature economy. In this country, we have an insolvency regime that balances the needs of creditors with those of the insolvent company or individual. Underpinning that regime is a targeted enforcement process, which ensures that those who have been reckless or dishonest are dealt with appropriately and that their ability to damage the interests of creditors is restricted.

The new administration regime, introduced by the Government in the Enterprise Act 2002, puts the survival of a company or its business at the centre of the procedure. Companies may encounter serious financial difficulties for a number of reasons, but their underlying businesses may be sound. Administration can be used so that those businesses, and the jobs of those whom they employ, can be saved. As part of their statutory role, administrators must try to achieve the purpose of administration—to try to rescue the company as a going concern. If that is not possible, they must seek to achieve a better result for the company’s creditors as a whole than would be likely if the company went into liquidation straight away. If neither of those outcomes is possible, the administrator may realise the company’s assets and pay one or more of the company’s secured or preferential creditors. That hierarchy of objectives ensures that the administrator’s first thought is the survival of the business—in this case, the football club.

Perhaps I can give some comfort to the hon. Lady and to those in Luton who are following this debate when I say that the majority of football clubs that have become insolvent in the past 16 years have gone into administration and survived, and occasionally thrived. No Football League club has gone out of business since the liquidation of Aldershot back in 1992.

I fully appreciate what the Minister says, but the nub of the issue is this: the football players and other clubs are to be paid 100p in the pound as the first line of creditors and, as normally happens in these situations, other creditors are to be paid 25p in the pound, which seems to be what HMRC is objecting to. If it is intransigent and definite in its objection, there is no way forward. I understand what the Minister says about other football clubs not having gone bankrupt, but that is a real possibility facing Luton Town if HMRC will not negotiate.

The hon. Lady describes the situation correctly.

I acknowledge that, as the hon. Lady said, football clubs play an important role, at all levels, in the social fabric of the nation. I hope she will acknowledge, however, that the rules that govern corporate life, including those on insolvency, cannot be selectively applied depending on the industry, business or activity in which a particular company is involved. In an administration, the survival of the company or business should always be balanced against the interests of the creditors.

Administrators usually have up to eight weeks from their appointment to send the creditors a statement of proposals for achieving the purpose of administration, although the legislation allows for that period to be extended. In the case of Luton Town, the joint administrators have made use of those provisions and obtained permission to extend this period by some eight weeks, and 2020 has been granted a period of exclusivity by the administrators in which to make a bid for the club in return for its agreeing to contribute towards the funding of the administration during that period, which ends, as I suspect that the hon. Lady is aware, at the end of February. The administrators’ proposals will be issued after the expiration of that period.

The administrators have stated that the proposal will be, as the hon. Lady described, to exit administration via a company voluntary agreement. The proposals then have to be agreed by the creditors, and the administrators will arrange a meeting for that purpose, which is due to be held on 13 March. If a majority of the creditors vote in favour of the proposals, they will be approved and the administrators will then work to achieve the agreed outcome. The creditors are able to modify the proposals, although if the administrators do not agree with the changes made by the creditors, they would have to go to court to determine how they should proceed with the administration.

If all the creditors respond favourably except HMRC, what position does that put the football club in?

It would put the football club in a very difficult position, as the hon. Lady is aware.

Let me outline one of the particular difficulties to do with insolvency and football clubs. There have been more than 40 football insolvencies in the past 15 years, with some clubs having entered administration on more than one occasion. With players’ salaries one of the largest expenses facing football cubs, even away from the heights of the premier league, the debt owed to Revenue and Customs in these insolvencies is often considerable.

Luton Town football club is a member of the Football League, which is essentially a private club with rules that its members must follow if they wish to remain a part of that club. Among these rules is the league’s own insolvency policy that members must adhere to should they enter an insolvency procedure—as the hon. Lady knows, that is one of the complicating factors in this situation. Failure to keep to this policy will, other than in exceptional circumstances, result in the loss of the member club’s share in the league. Without that share, the club cannot take part in league matches and will effectively cease to trade. In the case of a football club in administration, the loss of this share will almost inevitably result in liquidation. Players’ contracts would be void and they would receive what are known as free transfers, and the football club would, in effect, be dead.

The underlying principle of the Football League’s insolvency policy is that it is untenable for a league club to continue as a member of the league if football creditors are not paid in full. Football creditors are those organisations within the football family that are owed money by the insolvent club. I will not list all the potential creditors but it could be considerable, and it would include amounts owed to the football staff of the club, including players, and amounts owed to the league, the Football Association and to other clubs.

The league has stated that the conditions it places on insolvent clubs are tailored to conform to three key priorities: the continuation of the football club, if at all possible; full payment of all football creditors; and the best possible return for all other creditors. The insolvency policy goes on to specify that a club must exit administration via a company voluntary arrangement—a CVA—under the Companies Act 1985. For a CVA to succeed, at least 75 per cent. of unsecured creditors must vote in favour of the proposal.

Administrators are regulated professionals and are obliged by law to perform their functions in the interests of the company’s creditors as a whole. The administrators are not bound by the league’s rules on football creditors; they are required by law to treat all unsecured creditors equally.

It is clearly in the interests of a potential purchaser to abide by the league’s rules and ensure that football creditors are paid in full. If that stipulation is not met, there is a significant risk that the league will not allow the club to compete in its competition and the purchaser would own a worthless football club. Any proposal in the administration or CVA that is not approved by the creditors, or does not provide for the payment in full of football creditors, is likely to result in the end of the club.

I hope I have made it clear that I sympathise with Luton Town’s many loyal supporters and with the hon. Lady’s case, but football clubs are companies like any other and they must abide by the laws that govern companies. HMRC has a statutory duty to collect all tax and duty that is legally due. It has a responsibility to the vast majority of taxpayers who pay their tax on time to ensure that all tax debts are collected promptly and that taxpayers are treated fairly. HMRC must manage its relationship with football clubs as it would with any other individual or company.

The comfort I can, perhaps, give the hon. Lady and Luton’s supporters is that HMRC supports voluntary arrangements that meet its published criteria and where all the unsecured creditors are bound by the terms to receive the same treatment. It applies the same criteria to all businesses, and football is no exception.

The hon. Gentleman has just explained that if the club did that—if everybody had to be paid at the same rate—it would not be able to pay out and meet the Football League’s criteria, which would mean it would lose its golden share, so how on earth does he expect the football club to be able to do this?

Well, I was going to go on to say, by way of conclusion, that there is still time before the expiry of the period for further conversations to take place between the consortium and HMRC, and I hope that the consortium will be willing to have those conversations.

It is clear that the club was insolvent and that led to the directors’ decision to put the club into administration. I hope that a solution can be found to ensure Luton’s continued membership of the Football League, but that decision can be made only by the creditors of the club on the proposals put before them. We need to ensure that all creditors—not just those within the football family—are treated appropriately. Hence the concerns of HMRC.

The hon. Lady has asked me to bring the debate and the points made in it to the attention of other Ministers, and I shall do that.

Question put and agreed to.

Adjourned accordingly at Three o’clock.