Wasps and Worcester – a financial crisis in rugby?

Following the news that two premiership rugby teams have gone into administration within three weeks of each other, our insolvency specialists take a look at the process and what happens next.

What has happened?
The limited companies behind Premiership rugby rivals Wasps and Worcester have both entered administration. Insolvency Practitioners have been appointed as Administrators over the companies, taking control of them from the directors.

What is administration?
Administration is an insolvency procedure designed to allow a company to be rescued, restructured or its assets sold in order to preserve as much value as possible for the benefit of creditors.

The objective of administration is to rescue the company as a going concern or, if this is not possible, to achieve a better result for the company’s creditors than would be the case if the company were to be wound up. The Administrators once appointed must prepare a statement for creditors setting out how they propose to conduct the administration and meet this objective.

A key feature of administration is the statutory moratorium which prevents creditors from taking enforcement action against the company or its assets unless they have either the administrators’ consent or the permission of the Court. The moratorium provides the company and the administrators with breathing space to implement their proposals and attempt to rescue the company.

What is the effect of administration on the clubs?
In both cases Administrators are now in control of the limited companies behind the clubs and will make all financial decisions with the best interests of the clubs’ creditors in mind. In the short term the operations of both clubs have ceased and all playing and coaching staff have been made redundant.

As a result of the administrations both clubs have been suspended from competition and all games called off. The clubs will be relegated from the Premiership and into the Championship (the second tier) under Rugby Football Union (RFU) rules.

Administration also gives Premiership Rugby the ability to buy a club’s “P-Share”, which secures access to central funding. The Premiership is entitled to buy the P-Share based on an agreed formula, with the money being used to repay creditors. This would result in the clubs’ access to central funding being revoked and any new owners having to repurchase the P-Share at potentially a much higher value upon promotion. This could prove a significant barrier to securing a sale.

What happens next?
The Administrators of both clubs are now seeking buyers for the companies. If no buyers are found then the clubs will cease to exist

It has been reported that one of the parties interested in buying Wasps withdrew this week due to concerns that the club’s P-Share would not be protected, although Worcester’s Administrators are thought to be in negotiations with potential buyers on the basis of plans that do not include the club’s P-Share.

Both sets of Administrators have indicated that they remain in discussion with multiple interested parties in the hope of securing deals to allow rugby to return to both Wasps and Worcester as soon as possible.

That two well-established Premiership teams should have failed within such a short time however has raised concerns, both within rugby and within government. The Digital, Culture, Media and Sport committee has announced that it intends to meet with the RFU and Premiership Rugby next month to discuss the problems facing Wasps and Worcester as well as the financial viability of the game more generally.

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