Will Worcester Warriors Avoid Relegation?
Following the winding up of WRFC Players Limited on 5 October 2022,[1] the RFU announced that Worcester Warriors (“Worcester”, the “Club”) would be suspended from the remainder of the 2022/23 Premiership Rugby season, and would then be relegated to the RFU Championship.
WRFC Players Limited, the company which employed Worcester’s players, is just one company in the Club’s corporate group. As such, the Club itself has not been dissolved. However, WRFC Trading Limited, the Club’s holding company, is also in administration.
It appears that the Club’s administrators accept the decision to suspend Worcester from the Premiership. Indeed, without any players on their books[2] and the financial viability of the Club still up in the air, it seems that there was no alternative. The focus can now shift to securing the long-term future of the Club, providing greater certainty to all concerned and preserving the integrity of the Premiership competition.
However, in its announcement of the decision to relegate Worcester, the RFU noted that “[t]he club is able to appeal this decision if it can show there was no fault insolvency”. This is a reference to the provisions of the RFU’s financial regulations (RFU Regulation 5 (“Regulation 5”)), which will be the focus of this article.
1. Applicable Regulations
Regulation 5.5.5 provides that (emphasis added):
Regulation Subject to Regulation 5.5.8, where a Club suffers an Insolvency Event during the Season or after the end of the Season but before the playing schedules have been set for the following Season, that Club’s most senior first XV team, as determined by the RFU, shall in respect of the following Season be relegated to the League below that in which it participated at the time the Insolvency Event occurred and there shall be no right of appeal for any such Club.
An “Insolvency Event” is defined in Regulation 5.2 as including both the appointment of an administrator and the making of a winding up order, under the Insolvency Act 1986.
Worcester have therefore suffered two Insolvency Events and Regulation 5.5.5 thus provides the basis for the Club’s relegation.
Regulation 5.5.9 provides that (emphasis added):
Upon an affected Club’s application the RFU may in its absolute discretion reduce or waive in its entirety any sanction that would otherwise apply to a Club under Regulations 5.5.5 to 5.5.8 where it is satisfied that the Insolvency Event would not have occurred but for an event or circumstance which was beyond the control and without the fault or negligence of the affected Club and which by the exercise of reasonable diligence the affected Club was unable to prevent, including (but not limited to): riot, war, invasion, act of foreign enemies, acts of terrorism, earthquakes, flood, fire or other physical natural disaster, strikes at national level or industrial disputes at a national level and any epidemic or pandemic as categorised as such by the UK Government and/or the World Health Organisation.
Therefore, if, for example, Worcester were able to prove that the Insolvency Events would not have occurred “but for” the COVID-19 pandemic, these would be deemed “no-fault Insolvency Events”, such that the RFU may reduce or waive the sanction imposed on the Club (i.e., relegation). However, such a reduction/waiver would be at the RFU’s discretion (i.e., it would not be mandatory).
3. Appeal Process
Regulation 5.5.10 provides that (emphasis added):
If an affected Club wishes to make an application to the RFU for it to exercise its discretion under Regulation 5.5.9 the Club must include a request for relief from sanction in its notification of an Insolvency Event under Regulation 5.5.1 and provide full particulars of the event or circumstance which was beyond the control and without the fault or negligence of the Club and which by the exercise of reasonable diligence the Club was unable to prevent.
Under Regulation 5.5.1, clubs are required to notify the RFU of any Insolvency Event they suffer. According to Regulation 5.5.10, it is at this notification stage that a club must lodge its ‘appeal’ against the sanction that would otherwise be imposed pursuant to Regulations 5.5.5 to 5.5.8 (in this case, relegation).
From the RFU’s announcement, it is not clear whether Worcester has yet made such an application. However, the announcement would also suggest that the question of whether the Club has suffered a no-fault Insolvency Event has yet to be determined by the RFU. For the purposes of this article, it will therefore be assumed that the RFU has not yet considered any ‘appeal’ by Worcester, but that the Club remains able to make one.
Regulation 5.5.12 then provides for a further right of appeal, to an RFU Appeal Panel:
If the RFU elects not to reduce or waive a sanction under Regulation 5.5.9 the Club which has suffered the Insolvency Event shall be entitled to appeal against the decision and RFU Regulation 19.14 shall apply to any appeal. A Club entitled to appeal may do so only on the grounds that the RFU:
(a) came to a decision to which no reasonable body could have come; or
(b) made an error of law in reaching its decision; or
(c) failed to act fairly in a procedural sense.
Notice of appeal must be lodged with the RFU Head of Discipline within 48 hours of a party being notified of the decision and the relevant fee for the purposes of RFU Regulation 19.14 shall be £1,000.
3. Analysis
As explained above, if, for example, Worcester were able to prove that the Club entering administration and suffering a winding up order would not have occurred but for the COVID-19 pandemic, it would be deemed that the Club has suffered no-fault Insolvency Events, such that the RFU may reverse its decision on relegation or impose a reduced sanction.
The test for a no-fault Insolvency Event is a simple one. It seemingly does not require that events beyond the club’s control are the sole cause of the Insolvency Event(s), it merely requires the RFU to ask: “had the event(s) beyond the club’s control not happened, would the Insolvency Event(s) have occurred?”. If the answer to that question is “no”, then the no-fault test is satisfied.
Therefore, if Worcester could show that, without the COVID-19 pandemic, the Club would not have entered administration or had a winding up order made against it, the no-fault test would be met.
The Club may have had financial concerns previously,[3] and many questions are (rightly) being asked of the owners’ conduct.[4] However, it is clear that the COVID-19 pandemic had a significant impact on Worcester’s business (as it did for all professional rugby clubs). For example, the company accounts for WRFC Trading Limited suggest that, as a result of the pandemic, the Club’s operating profit of £12.9 million in the 2019 financial year became a £4 million loss in 2020.
Further, it is notable that the appointment of administrators was triggered by the Department for Culture, Media and Sport, in respect of the loan given to the Club as part of the government’s Sports Winter Survival Package, during the pandemic.[5] As a wholly owned subsidiary of WRFC Trading Limited, it would seem inevitable that these COVID-induced financial difficulties affected WRFC Players Limited, too.
It is likely that Worcester would need to provide expert (accountancy) evidence in order to satisfy the RFU of the causal effects of the pandemic, however, on the basis of publicly available information, it would certainly seem open to the Club to argue that “but for” COVID-19, these Insolvency Events would not have occurred.
However, that is only half the battle. The Club would also need to persuade the RFU to exercise its discretion under Regulation 5.5.9 to reduce or waive the sanction imposed (i.e., relegation).
In this regard, the principle of proportionality (which must be respected by sports governing bodies in the imposition of sanctions)[6] will likely be key. The Club would likely emphasise the serious effects that relegation would have, particularly in the context of the Club’s attempts to seek new investment and its already precarious financial position. In such circumstances, relegation may be ruinous. The effects not only on the club itself but also on the local community, professional and academy players will also need to be considered.
It is particularly notable that there was not due to be relegation from the Premiership at the end of this season, as part of the RFU’s COVID-19 recovery plan.[7] Thus, if the RFU accepts that COVID-19 was a “but for” cause of Worcester’s Insolvency Events, it would be wholly inappropriate (and disproportionate) for the Club to be relegated.
Further, the Club has been suspended from the 2022/23 Premiership season. It has thus already been excluded from rugby (and hence income) for (almost) a whole season. Is that not punishment enough?
There would seem to be several arguments as to why relegation would be disproportionate, in the circumstances. However, were the RFU to decline to vary its decision, the Club would have a (further) right of appeal under Regulation 5.5.12, albeit on limited grounds.
Whilst the immediate future of Worcester Warriors is now clear, there remains much uncertainty about its medium and long-term future. Indeed, what league the Club will be playing in next season may yet be the subject of a prolonged dispute with the RFU. At such a sad and challenging time for all those associated with Worcester, not least the players and fans, and it can only be hoped that the Club’s future will swiftly be secured.
References
[2] As a result of WRFC Players Limited’s liquidation.
[3] See, for example, the reference to the club’s plans to “reduce trading deficits” in the company accounts of WRFC Trading Limited (here), at p.21.
[6] See, for example, Bradley v Jockey Club [2004] EWHC 2164 (QB)
Great article.
I’d be really keen to know the legal basis for the potential buy back of Worcester’s P Share, either in the event of either a fault or no-fault insolvency event – perhaps something for next blog?
Thanks, Martin. Unfortunately, it seems to me that the P-share issue is likely to be determined by what the relevant (confidential) shareholders’ agreement says, to which I am not privy! However, I would imagine that, for as long as WRFC Trading Limited survives, Worcester’s P-share should be safe.
Very difficult that Worcester Warriors can see succesfully the appeal. They decided to appeal because of the pandemic, but excepting Wasps (A very different case), the rest of Premiership, the totality of Championship, great number of lower division and other sports clubs werenot affected byCOVID
We will have to wait and see. It is not necessarily fatal to their appeal that other clubs have not become insolvent – each club operates its business differently.