1. Introduction

Following a dark two months, in which Premiership Rugby has lost two clubs to insolvency events, there may now be some light at the end of the tunnel. Both Worcester Warriors and Wasps have announced that takeover deals are on the table, which will save the stricken clubs.

In both cases, it is understood that a consortium of investors propose to purchase the assets of the respective clubs (including their league positions), via a new limited company, to allow their rugby businesses to continue. Under the RFU Regulations, the purchasing company in such a situation is known as a “Phoenix Entity”, and any such takeover requires the RFU’s approval.[1]

When determining whether to grant approval, the RFU will primarily have regard to the following considerations:[2]

Will the Phoenix Entity be able to play at its current ground next season and beyond?

Does the Phoenix Entity have sufficient financial backing to operate in its current league (and any other league specified by the RFU) for the following season and beyond?

Will all the outstanding Rugby Creditors of the insolvent Club be paid?

Are any new ownership arrangements for the Phoenix Entity suitable and will the new owners and management of the new entity be satisfactory to the RFU?

The Phoenix Entity must also comply with further conditions, such as the provision of information concerning both the insolvent club and the Phoenix Entity. This includes the provision of a “proper business plan…covering the next three years”; information as to how the Phoenix Entity will be financed; details of the ownership and management of the Phoenix Entity (albeit there is no formal fit-and-proper-persons test); and evidence that the Phoenix Entity will be entitled to use the usual home ground of the insolvency Club for a minimum of three years.[3]

Crucially, however, the Phoenix Entity must also “pay all the Rugby Creditors…within 28 days of being granted a licence to play”.[4] This article will consider the effects of this rule (the so-called “Rugby Creditors Rule”) and, in particular, what it means for the now-former players of Worcester and Wasps.

2. Who are Rugby Creditors?

The term “Rugby Creditor” is defined in RFU Regulation 5.1, as follows:

“Rugby Creditor” means players, ex-players, coaches, medics, physiotherapists, strength and conditioning coaches and any other employee of a Club, referees, other rugby clubs or rugby bodies in England or elsewhere, the RFU and any RFU subsidiary or associated undertaking, any Constituent Body and any other person or entity whose income is wholly reliant on a Club and who directly supports the ability of that Club to play rugby.

Clearly, this definition includes all those players and staff who have recently lost their jobs at Worcester and Wasps. Notably, it also includes other Premiership clubs but does not include agents (who may well be owed outstanding fees).

3. Scope of the rule

The effect of the Rugby Creditors Rule is to create a form of “sporting succession”. It allows Rugby Creditors (for example, players) to enforce debts owed to them by the insolvent club against the new, Phoenix Entity, despite the two corporate entities being legally distinct.

The rationale is set out in RFU Regulation 5.1 as being to “maintain the integrity and fairness of all RFU competitions and leagues by preventing clubs from gaining an advantage through financial recklessness or mismanagement, or to use insolvency procedures to walk away from rugby creditors”.

English football employs a similar rule and, although the ‘Football Creditors Rule’ has been subject to legal challenge in the past, it has been upheld by the courts.[5]

However, rugby union’s equivalent is less well-defined. Appendix 2 to RFU Regulation 5 simply provides, at paragraph 16, that:

The Phoenix Entity must pay all the Rugby Creditors (as defined in RFU Regulation 5.1) within 28 days of being granted a licence to play in one of the RFU’s leagues

It does not say what exactly Rugby Creditors must be paid; its scope is somewhat unclear.[6] For example, does the rule only cover debts pre-dating the club’s insolvency? Or does it cover all liabilities, including those arising from the club’s insolvency?

In the context of a club’s suspension following an insolvency event, RFU Regulation 5.5.14 provides that (emphasis added):

The RFU can temporarily lift the suspension upon application by the Club where the RFU is satisfied that the Club has in place a binding agreement to pay all Rugby Creditors who are contractually owed monies or other sums from the Club. The RFU can permanently lift the suspension upon application by the Club where the RFU is satisfied that all the Club’s Rugby Creditors have been paid any outstanding monies or other sums contractually due to them in full.

This might suggest that the Rugby Creditors Rule is limited to contractual liabilities, although the reference to “any outstanding monies” in the final sentence could be read more broadly. Certainly, there does not appear to be any limitation relating to when the debt arose. Indeed, paragraph 16 of Appendix 2 is drafted without any limitations or exclusions at all.

Players may therefore be able to assert claims not only for any unpaid wages as at the date their contracts were terminated, but also for wrongful dismissal, unfair dismissal and/or redundancy arising from the termination of their contracts against a Phoenix Entity. Likewise, clubs may be able to assert claims against a Phoenix Entity in respect of their losses from fixtures the insolvent club has failed to fulfil. [7]

Such an interpretation of RFU Regulation 5 would be consistent with the jurisprudence of the Court of Arbitration for Sport (the “CAS”) on the concept of “sporting succession”, the effect of which is summarised in CAS 2020/A/7290 ARIS FC v. Oriol Lozano Farrán & FIFA, as follows:[8]

The sporting successor of a former, no longer existing club can, as a matter of principle, be liable to meet the financial obligations of that former club notwithstanding that the successor is not a party to any agreement, arrangement or understanding pursuant to which the financial obligation arose or a privy of any of the parties to any such agreement, arrangement or understanding and regardless of whether there has been a change of management or corporate structure or ownership of the club in question.

Given that the principle has developed as an aspect of the lex sportiva, with which national sports federations must conform “regardless of the presence of such principles within their own statutes and regulations or within any applicable national law”,[9] this would seem appropriate.

Further, such an approach would mirror that of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE”), albeit with a modest extension,[10] and would be consistent with the rationale of the Rugby Creditors Rule.

4. What does this mean for players?

As noted above, the Rugby Creditors Rule may allow former Worcester and Wasps players not only to claim any unpaid wages that were already outstanding at the time their contracts were terminated, but also to bring claims for wrongful dismissal, unfair dismissal and/or redundancy against any Phoenix Entity which takes over. Each shall briefly be considered in turn.

Of course, any such claim would be subject to relevant deductions in respect of any sums received by the players from the government’s Redundancy Payments Service, or from the clubs’ insolvency process, to avoid double recovery. Further, and notably, in the CAS jurisprudence, “a creditor is expected to be vigilant and to take prompt and appropriate legal action to assert his claims” in the relevant insolvency proceedings, in order to be able to claim against the so-called “sporting successor”.[11] As such, players would need to notify the club and/or the Phoenix Entity of their claims, and may be required to start employment tribunal proceedings, if the club did not accept liability.

Wrongful dismissal

At both Worcester and Wasps, players’ contracts were terminated without any prior notice. Under the Standard Premiership Player Contract, clubs are unable to terminate a player’s contract before the expiry of its fixed term.[12]

Therefore, in principle, the players could claim damages equivalent to the sums they would have been paid under the remainder of their playing contracts (i.e., a claim for wrongful dismissal). However, such a claim would be subject to the doctrine of mitigation, meaning that players would need to take reasonable steps to minimise their losses by seeking rugby employment elsewhere, and would be reduced by any sums received by the players under any new contract (during the period in which their Worcester/Wasps contract would have continued).

Redundancy

In each case, eligible players may also be able to claim statutory redundancy pay.[13] In order to be eligible, a player must have been employed by the club for two years prior to being made redundant.

Unfair dismissal

The players may also be able to claim compensation for unfair dismissal on the basis that they were made redundant without any due process.

Failure to consult

Given that, at each club, more than 20 redundancies were made simultaneously, and that there was seemingly no prior consultation with appropriate representatives, the players may also be able to claim an additional protective award, of up to 90 days’ pay.[14]

5. Conclusion

The Rugby Creditors Rule is therefore of great significance to Worcester Warriors and Wasps, their now-former players and potential new owners.

From the players’ perspective, the seemingly broad scope of the rule may allow them to recover monies which they otherwise would not have received in an ordinary insolvency process, and thus to breathe more easily in these times of economic difficulty.

For the insolvent clubs, the Rugby Creditors Rule poses a substantial hurdle for any takeover deal. Any new owner will need to be able to satisfy all liabilities to Rugby Creditors, meaning that a “clean break” from the liabilities of the insolvent company will not be possible. However, the administrators of Worcester and Wasps will, no doubt, try to minimise those liabilities as far as possible, by settling Rugby Creditors’ claims. Nonetheless, there is sure to be a significant bill for any new owner to meet before the club can resume playing again.

Article by Ben Cisneros. Ben is an Associate at Morgan Sports Law, though this article reflects only the author’s personal views. Please email ben.cisneros@morgansl.com with any legal or media enquiries.

References

[1] See RFU Regulation 5.7 and Appendix 2 to RFU Regulation 5 (“Appendix 2”). Premiership Rugby’s consent will also be required, pursuant to Appendix 2, para 13.

[2] See Appendix 2

[3] See Appendix 2, paras 1-18.

[4] See para 16 of Appendix 2. The Phoenix Entity must also provide a bond to the RFU (see para 17).

[5] See HMRC v The Football League Limited [2012] EWHC 1372 (Ch)

[6] In contrast to the equivalent rules of the English Football League which explicitly exclude “all and any claims for redundancy, unfair or wrongful dismissal or other claims arising out of the termination of the contract or in respect of any period after the actual date of termination” (see Article 48 of the EFL Articles of Association).

[7] As the Premiership Regulations require any club which fails to fulfil a fixture to compensate the other club for any losses it has suffered as a result (see Premiership Regulations 2.5(e) and 4.4(l)).

[8] See para 82. See also CAS 2018/A/5618 Shabab Al Ahli Dubai Club v. Shanghai SIPG Football Club

[9] See CAS 98/200 AEK Athens and SK Slavia Prague v. UEFA, at para 156.

[10] See Sport: Law and Practice, Lewis KC and Taylor KC, 4^th edn, Bloomsbury, 2021, at B5.148. Under TUPE, all such liabilities would transfer to the new owner in the event that the players’ employment was transferred to the new and/or was terminated for the purposes of the transfer of the business to the new owner.

[11] See, for example, CAS 2020/A/7290 ARIS FC v. Oriol Lozano Farrán & FIFA, at para 102.

[12] Except in limited circumstances, which do not apply here – see clause 11.1 of the Standard Premiership Player Contract.

[13] See further information about the amount of statutory redundancy pay here

[14] See s.188 et seq of the Trade Union and Labour Relations (Consolidation) Act 1992. See, for example, Clarks of Hove v Bakers Union [1978] IRLR 366.