If a company is proved to be trading while insolvent the Court normally issues a winding up order and appoints of a liquidator to begin the closure process immediately. However, Portsmouth’s lawyers managed to successfully argue for more time and the business currently remains open.
Every day, HM Revenue and Customs petition for the winding up of companies which are unable to pay their taxes. Generally they are closed without ceremony. No so for high profile businesses such as Portsmouth football club it seems.
To all intents and purposes, Portsmouth football club is an insolvent business. The club owes approximately £60m to its creditors including c£11.5m to HM Revenue and Customs for unpaid PAYE and VAT. As a result, HMRC has petitioned for Portsmouth FC to be wound up.
Winding up is the process used to force a business to close if it cannot afford to pay its creditors. As a result of non payment, one of the company’s creditors will apply to the court for a winding up petition.
HMRC will often petition for winding up
As in the case of Portsmouth, it is usual for HMRC to petition for the winding up of a company if tax remains unpaid. If the petition is granted, a hearing is carried out at the High Court in London where a decision is made as to whether or not the company should be closed.
At the Portsmouth FC winding up hearing held in Wednesday, the Court registrar Christine Derrett, stated that she believed that the club is trading while insolvent. If this is allowed to go on, the business will continue to build up debts which will not be paid.
If a company is proved to be trading while insolvent, the court normally issues a winding up order and appoints of a liquidator to begin the closure process immediately. However, Portsmouth’s lawyers managed to successfully argue for more time and the business currently remains open.
One rule one, one for another
It seems to me that this smacks of rules being disregarded because a business (or its owners) is able to afford an expensive legal team.
I do understand that every effort must be made to save a local institution of which Portsmouth FC is undoubtedly one. There is also the welfare of the club’s 600 employees to consider.
However, if Portsmouth had been any other businesses, the company would now be closed.
The court’s objective is to minimise additional losses for any potential creditors. As Christine Derrett mentioned in yesterday’s hearing, the court is aware of the consequences of winding up businesses but these are not their concern.
As such, where other businesses are insolvent, they are wound up by the court with very little regard to the potential suffering of the employees.
Portsmouth FC has only been granted a 7 day reprieve and after this time, there is no guarantee that the club and business will be saved from closure.
However, I am sure that this amount of leniency would not be extended to a lower profile company.