Administration and liquidation: The different outcomes for employees of two collapsed sports clubs

Our insolvency, employment and sports law specialists consider potential outcomes for employees of collapsed sports clubs using two recent scenarios from rugby union clubs Worcester Warriors and Wasps.

On October 5, 2022, WRFC Players Limited, the company through which all players and staff at Worcester Warriors were employed, was ordered by the high court to be wound up. WRFC Players Limited, is just one company that makes up Worcester Warriors so the club itself has not been dissolved; however, the club’s holding company, WRFC Trading Limited, is also currently in administration.

Similarly, Wasps Holdings Limited, the holding company for the Wasps men and women’s rugby teams and Wasps’ netball team, was placed into administration on October 17, 2022, with 167 employees made redundant. The Coventry-based club reportedly had a £2m unpaid tax bill and faced having to repay a £35m bond, which helped finance the club’s relocation to Coventry in 2014.

As a result of the clubs’ off-field difficulties, it has been confirmed that both clubs are to be relegated from the Gallagher Premiership and suspended from the Premiership Rugby Cup for the 2022/23 season. In any event, following the liquidation and winding up of WRFC Players Limited, it was inevitable that Worcester Warriors would not be able to participate in any competitions this season, given that the club would have no players to field.

What happens after the holding companies enter administration?

The companies and their assets will now be under the control of an administrator and the administrator’s aim will be to attempt to achieve the best possible result for each company and its creditors, whilst also hopefully delivering an outcome that gives a long-term future to each club. This could be done by reorganising the businesses and/or by realising the assets of the company, possibly by attempting to sell the clubs or parts of them to interested third parties.

Recent news has confirmed that HALO22 Limited, a company owned by former non-executive director Christopher Holland, has recently purchased a substantial number of Wasp’s assets including the intellectual property of the club, a transaction which saw the club exit administration.

Although the facts of the transaction remain unclear at this point, it is welcome news which will likely mean that both the men’s rugby team and youth academy will be transferred from Wasps Holdings Limited to the new company as part of the purchase. Shortly after, Wasps Holdings Limited will likely be placed into liquidation given that it will no longer have the means to continue trading.

What does this mean for Worcester Warriors and Wasps’ employees?

When a company goes into compulsory liquidation, unfortunately, all employees immediately lose their jobs and are made redundant. Therefore, as a result of WRFC Players Limited’s liquidation, all employees at Worcester Warriors will have now been made redundant.

The position was different for Wasps’ employees given the company which employs the staff went into administration rather than liquidation. When a company enters administration, the first two weeks give the administrator time to determine which employees the business needs and can afford. During this period, it was decided that one employee would be retained to assist the administrator with the operation of the group’s subsidiary companies, which included the operation of the Coventry Building Society arena (where Wasps played), with the remaining 167 employees, including all members of the playing squad and coaching staff, all being made redundant on October 17, 2022. The only retained employee was made redundant shortly after the appointment of the administrator.

Redundant employees of both Worcester Warriors and Wasps are now preferential creditors of their former employer in respect of a proportion of unpaid wages, unpaid pension contributions and holiday pay. Preferential creditors of the companies are given priority over unsecured creditors to receive outstanding salary for the previous four months (up to a maximum of £800), accrued holiday pay of up to six weeks and some occupational pension payments under the Insolvency Act 1986.

What is the next step for redundant employees?

Former employees of Worcester Warriors and Wasps may look to claim from the National Insurance Fund (NIF) for some outstanding payments due to them as a result of the termination of their employment, if their former employer is unable to make payment.

The NIF guarantees payment of a basic minimum of certain employment debts such as:

• up to eight weeks’ arrears of pay (subject to tax and National Insurance)
• up to six weeks’ holiday pay (subject to tax and National Insurance)
• outstanding statutory notice
• a statutory redundancy payment.

All payments would be calculated subject to the current maximum statutory cap on a week’s pay of £571.

Any claims in excess of the above limits must be claimed from the insolvent employer by issuing proceedings against them; however, claims against companies in compulsory liquidation (such as WRFC Players Limited) cannot be made without the court’s permission. Even if permission is granted by the court, employees would need to carefully consider whether there is any realistic prospect of successfully recovering monies from an insolvent employer.

Administration and liquidation can be an extremely stressful and uncertain time for employees and others involved. If your employer is going through administration or liquidation, and you have been made redundant or have any questions about the process, our specialist insolvency, employment and sports lawyers are on hand to assist and provide you with tailored, practical advice. Please contact our team on 01772 258321 or at enquiries@harrison-drury.com.