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Limerick FC, Insolvency and Irish Football

12/12/2019

 
By Sean Ó'Conaill
 
News emerged yesterday from the Circuit Court of the Examinership process that Limerick FC were engaged in had failed to produce a positive outcome. The unfortunate result of this is that, most likely, Munster Football Club Limited which trades as Limerick FC will have a liquidator appointed and the holding company will eventually cease to exist as a company.

Unfortunately, Irish football has a long and ongoing relationship with insolvency events over the years where a number of clubs have entered Examinership or have ultimately been liquidated. This is not a situation unique to Ireland with insolvency events a regular feature of football in most jurisdictions with Bury FC being a very prominent recent example in England.

For football clubs, insolvency events generally fall into one of two separate but often interconnected categories. Liquidation is the legal process under the Companies Acts whereby a company is effectively killed off because it cannot continue as a going concern. In the case of football clubs, this means the holding company behind the football club (usually a limited liability company of one sort or another) is being liquidated.

Examinership is the Irish legal process where a company is given some breathing space from its creditors for a set period, which can be extended, in order to try and get the company back on an even keel and to allow it to continue as a going concern. A very similar process to Examinership is known as Administration in the England and Wales and Chapter in the United States.

For football clubs, the process involves the creditors of the football club taking a significant hit on the amount they are owed but crucially it allows the company to continue in existence, usually under new ownership. Most Football Associations apply strict criteria and some sporting sanction for having entered examinership due to the perception of an unfair advantage arising from it. In the 2019 League of Ireland season Limerick FC amassed 36 points on the field of play notionally placing them 6th in the First Division (2nd tier) league table. However, having entered Examinership, Limerick were deducted 26 points which meant their adjusted league position was 10th and last.

Limerick FC entered into Examinership with a very experienced firm - Baker Tilly Chartered Accountants - taking the lead in the process. Unfortunately, yesterday’s developments demonstrate that Limerick FC and the Court Appointed Examiner were unable to secure the required investment and the holding company will now be liquidated.

This, however, does not necessarily have to mean the end for everything that Limerick FC does. The Courts have no jurisdiction to liquidate a football club, they can only liquidate the holding company. The club itself is a separate entity that exists in the football sense, is a member of the Football Association of Ireland and affiliated to the League of Ireland and some local leagues around Limerick at certain age levels. The club and the holding company, although closely linked, are not the same thing. The most superficial look at the various holding companies behind every current League of Ireland member will show that most have had multiple holding companies over their entire existence as football clubs with the vast majority having experience some insolvency events over the years.

Up until the arrival of Club Licensing this distinction made little difference. If the holding company behind a football club got into difficulty, the club would merely be spun off into a different company, and continue to compete as a club if the holding company behind it was liquidated, even if this occurred during the season (such as what happened to Cork City FC in 1996). Club licensing put a stop to these practices as it created a tighter link between the holding company and the licence required to compete at League of Ireland and UEFA level.

Cork City FC and Derry City FC in 2010 are two interesting examples of the impact of these changes with both clubs starting the 2010 League of Ireland season in the First Division. Cork City FC, while maintaining the same membership of the FAI after they were awarded the licence to compete in the First Division, had to compete under the name Cork City FORAS Co-Op for the 2010 season until the intellectual property rights were acquired by FORAS from the liquidator of the previous holding company in mid-2010.

Licences are now awarded to clubs who are members of the FAI, via their holding companies or legal entities. This ensures that clubs cannot simply preform a “phoenix trick” of running up debt and then running away from it to form a new holding company without any sanction. It does allow a certain degree of flexibility to the FAI.

This means there is effectively no prospect of Limerick FC competing next season in the First Division of the League of Ireland, due to the costs and licensing implications for the holding company at senior league of Ireland level. In any event it appears as though no licence to compete in the men’s League of Ireland has been made by those behind the holding company pending the outcome of the examinership process. There might however be some prospect of entities like the Limerick FC Women’s team and perhaps some of the other connected teams being spun out, with the help of a liquidator and the FAI, to a separate entity allowing the club to continue to compete in the Women’s National League and perhaps at some underage grades for example. This could, potentially in time become a vehicle to resurrect senior men’s football in Limerick pending the settlement of the liquidation of the holding company.

Dr Sean Ó'Conaill is a lecturer in the School of Law, University College Cork. Sean lectures sports law and is a Director of the Centre for Sports Economcis and Law (CSEL).


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