Appendix E scrapped, but controversy continues in non-league finances

Supporters of Conference clubs will be acutely aware of Appendix E, the clause that rules that any club in step one or step two any club subject to an insolvency event (administration or a CVA) has until the second Saturday in May to pay off all of their debts, including to the taxman, in full. Failure to do so results in said club being thrown out of the Conference and having to enter the system at step three.

Salisbury City and Northwich Victoria both failed in their appeals against this punishment recently and their chairmen have both been outspoken in their anger.

Vics chair Jim Rushe (pictured) told The Non-League Paper that "What's happened to us is wrong, disproportionate and outrageous." The club has agreed a CVA worth 42p in the pound and significantly reduced its wage bill over the last two seasons, but this clearly falls short of Appendix E requirements. Northwich are likely to compete in the Evo-Stik Premier next season, but Rushe has written to the Court of Arbitration for Sport.

Salisbury have arguably been even more harshly dealt with. Chairman William Harrison-Allan claims that the club has paid all its creditors except for the taxman, with whom it has an agreement of 27p in the pound. The tax debt is £228,000 and City offered to pay that 27% in one, an offer rejected by the Inland Revenue.

Just to rub salt in the wounds, the Conference's annual meeting overhauled the league's insolvency rules and standardised them from step one all the way down to step four. Appendix E has been scrapped and replaced by Rule 14b, which gives clubs three years to meet the same requirements as Appendix E before a relegation of one division only. All debts must still be paid in full, meaning that clubs cannot operate under a CVA without facing sanctions.

If that seems strict, it's understandable. Such restrictions are not imposed in league football in England.

The NLP, by accident of design, has covered all the sides of what would be a fascinating debate. Rushe and Harrison-Allan clearly feel that clubs should be in a position to agree their way out of debt, particularly in cases like Northwich where Rushe inherited rather than caused the problems. The Vics chairman told the paper that the rules are so stringent that they do more harm than good:

"All Appendix E has done is send clubs underground. Nobody will admit to their real financial position because they'll get kicked out of the league. I can tell you now that I have spoken to several chairmen whose clubs are in not dissimilar positions to ours. But they haven't sought advice from administrators or financial experts because the penalty clauses are so severe."

Rushe wants a one-off amnesty from the Conference to allow struggling clubs to come clean and begin to solve their problems without fear of punishment.

Such a proposal would anger Dover Athletic chairman Jim Parmenter, whose guest column in The NLP argues that clubs should be punished for competing from a position of artificial financial strength, i.e. spending beyond their means. In a strongly worded article referring to such clubs as "parasites", Parmenter declares himself a big fan of Appendix E and writes that clubs should be forced to pay their dues.

It's difficult to argue against Parmenter's view that such clubs are effectively cheating, but there is an important distinction to be drawn between punishment and solution. It's sometimes too easy to think of clubs as businesses alone, but these entities are of huge community and cultural value. If Rushe's suggestion that a record number of clubs are expected to breach Rule 14b next season is accurate, then the Conference must consider trying to help those clubs out of debt. 14b itself seems to be a step in the right direction because it is more lenient than its predecessor but still offers sanctions.

However, clubs already suffering from problems, albeit often self-inflicted, may be best served by being allowed to operate under a CVA and settle on agreed repayments with their creditors. A ten-point penalty could be considered penalty enough, whereas automatic relegation - sometimes double relegation under the now defunct Appendix E - is a punishment greater than those imposed higher up the pyramid.

My instinct is that these clubs need solutions rather than sanctions. But I'd be lying if I said Parmenter's words aren't causing a nagging crisis of conscience in the back of my mind.

(Pic via Northwich Guardian)