Southend United to 'prove' to HMRC it is solvent

Mon 26th Jul 2010 | Football Club Administration

Southend United Football club has until 2^nd August to prove it is solvent or face administration.

According to reports, the club was handed a stay of execution by the courts, despite HMRC seeking the appointment of administrators.

Southend United’s precarious financial position prompted HMRC to petition the High Court to wind up the club for non-payment of £238,710 in tax. As well as this, Southend United is also facing another winding up petition next week from Charterhouse Commercial Finance for £140,000.

HMRC said the club's history of failing to pay its taxes demonstrated it was insolvent and the High Court has given the club until 2nd August to prove it is solvent and able to continue trading.

The club are reported to have  said in court it had paid tax, albeit late, and was due to receive transfer payments of more than £180,000 for selling midfielder Nick Bailey.

However, the club has faced two other winding up petitions from the tax office in the last 12 months, one in November for £690,000, and one in April for £400,000, both of which were paid.

HMRC are using the petitions to add weight to their challenge of the Football Creditors Rule against the Football Association Premier League which sees other clubs, players and ‘football creditors’ being paid in full first if a club enters administration, ahead of the taxman and banks.

HMRC is challenging this rule which it described as "unlawful" when they filed a writ against the rule in May.

 “HMRC doesn’t initiate insolvency action against football clubs or any other business lightly but we will not hesitate to do so when that is the right way to protect the country’s tax revenues and other creditors from those who trade whilst insolvent and run up debts that they simply cannot pay” said a HMRC spokesman in Accountancy Age.

“Ensuring tax is paid on time should be at the centre of football’s business strategy just as it should be for any other enterprise. Any business that regards paying tax as an optional extra after other expenses are met or that uses tax collected from employees or customers as working capital is potentially heading for trouble."

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