By What does the winding-up petition mean for Scunthorpe United?
Scunthorpe United has been issued with a winding-up petition by HM Revenue & Customs today (11 January).
This is due to an alleged unpaid tax bill, which has also led to the National League side being forced to operate under a transfer embargo.
While the club’s well-documented financial struggles have caused anxiety amongst those associated with the Iron for quite a while, today’s announcement really brings home the gravity of the situation the club finds itself in.
Football finance expert Kieran Maguire told Radio Humberside the club will have “had a few warning letters from HMRC” and that the UK’s tax authority is “clearly not satisfied with the response”.
Begbies Traynor, the corporate restructuring firm hired to help facilitate a deal to sell the club, emphasised to the local radio station that the winding-up petition “shows the urgency required by any potential purchaser” to agree a deal.
But the company has confirmed the latest attempt to secure a deal this week has been rejected, although interested parties have “promised further offers will be received shortly”.
Simon Elliott, who is leading the local consortium looking to take over the club, said on Twitter a winding-up order is “no great shakes in the scheme of things”, as it will “take months to serve” and any likely buyer would “do a deal with HMRC to pay it over time”.
Let’s take a look at what the petition means moving forwards.
What does the winding-up petition mean for the club?
It’s not uncommon for football clubs to be issued with a winding-up petition – a position Southend United has found itself in on several occasions in recent years.
If a company or football club has been served a petition, it usually means all previous attempts at settling the debt have been unsuccessful, according to advisory firm Company Rescue.
The creditor then uses this “nuclear option”, as it believes the club has to be wound up because it simply can’t pay its debts and, therefore, an appeal is made to the High Court to wind the company up.
A High Court hearing is then arranged to consider whether or not the company should be put into compulsory liquidation, with a timescale of between 20 and 75 days for a hearing to be undertaken.
Company Rescue says that, once a winding-up petition has been made public, most businesses are, in effect, paralysed as the bank will freeze the account in order to avoid any “disposition of assets”.
It adds that the freezing of the club’s bank account doesn’t usually mean it has to shut immediately, as money is “often forthcoming from other sources connected to the owners”.
“Of course, it is also not unusual for the monies outstanding to be paid personally by the owners to avoid administration,” says the advisory firm.
“The personal circumstances of the owners are often complex and there are other companies that are involved in the actual running of the club. As such, the effect of a winding-up petition does not necessarily mean the end of the football club.”
What are the next steps to be taken?
Maguire says the next course of action is to try and recover the money, but he warns that if the club doesn’t pay up, there could be “more severe course sanctions taken”.
“You are given a period of notice that you can make payment and, provided that is the case, then it’s business as normal,” he adds.
“What you tend to see with football clubs is a series of red flags that do cause concern, and this is certainly one of them that has clearly added to some of the other issues surrounding the club in recent times.”
The finance expert says the players will be able to be paid if the money is there to pay them and doesn’t believe there’s any reason why the Iron’s game at home to Woking on Saturday should be in doubt.
“The only problems arise is if HMRC decides to enforce judgement if it gets that far,” adds Maguire. “That’s when you’ve got the problems of, potentially, bailiffs coming in to try and recover money on behalf of HMRC.”
But he emphasises the situation is “not at that stage yet” and believes there is “plenty of scope and opportunity” for the club to reach either a payment plan with HMRC or to settle the debt in total.
One of the biggest questions, though, is what happens to the club if the petition is successful.
Maguire says that’s when an insolvency situation is “likely to ensue” because the court will appoint someone to recover the money on behalf of the tax authority – something he stresses “nobody wants”.
“It is very much a last resort,” he adds. “We tend to go through a series of negotiated settlements or it could be that Mr Swann might find the resources to pay this outstanding bill and we return to where we were before.
“This does happen to quite a few clubs and very few clubs have the ultimate sanction of going out of business, so there are more good stories than bad that come out of this.
“But HMRC has a duty to the taxpayer at large to recover tax that has been deducted by the football club from people’s gross wages and also sales from tickets and merchandise in terms of VAT – they’ve got a legal obligation to try and get that money back.”
(Image: Luke Broughton)
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