Sports Club Bankruptcy/Insolvency: Priority of Athlete Claims and Security Mechanisms

Introduction: The Financial Crisis and the Legal Fate of Sports Organizations

 

Professional sports clubs can face serious financial sustainability problems as a result of high exchange rates, volatile currency conditions, and unpredictable sporting failures . These financial difficulties may push clubs to resort to bankruptcy or debt restructuring. While these debts can be restructured through disclosures of club assets or debt restructuring, the greatest impact is seen in unpaid receivables owed to athletes and coaching staff .

In Turkish law, the order of priority for athlete receivables in bankruptcy proceedings or concordat processes varies greatly depending on whether they are secured or not. This article will examine the provisions of the Enforcement and Bankruptcy Law (EBL) regarding the bankruptcy and concordat of sports clubs; specifically, it will analyze the order of priority for football players' and coaches' receivables compared to other creditors (banks, tax authorities, ongoing claims). Furthermore, the legal lifespan and effectiveness of comprehensive solutions to secure the financial rights of athletes in these proceedings will be discussed in detail.

 

I. Definition and Application of Composition and Bankruptcy Processes

 

Bankruptcy and composition with creditors are two different legal avenues regulated in the Bankruptcy Law; however, both aim to reduce the financial losses of the debtor company.

 

A. Concordat (Restructuring)

 

A concordat is an agreement aimed at rescuing a club from its financial debts, whereby creditors, due to increased earnings, waive a portion of the club's debts or extend payment deadlines

• Temporary and Definitive Stay: When a club enters into a concordat process, a temporary stay . This stay can be extended, preventing enforcement proceedings and halting bankruptcy proceedings .
• Status of Athlete Creditors' Claims: In a concordat proposal, a critical battle is possible where athlete creditors' claims cannot be treated differently from other creditors. However, as a rule, a concordat proposal of equal treatment for all classes of creditors .

 

B. Bankruptcy (Liquidation)

 

Bankruptcy is the process by which a club's assets are liquidated by court order and distributed to creditors in order .

• Triggering factors: Bankruptcy, insolvency (Article 309 of the Bankruptcy Law), or rejection of a composition agreement are examples of actionable and claimable events.

 

II. Ranking of Athlete Claims in the Bankruptcy Estate

 

The most important legal distinctions in bankruptcy proceedings the priority order and option of creditors.

 

A. General Ranking and Secured Receivables

 

According to the provisions of the Turkish Enforcement and Bankruptcy Law, creditors are divided into those with priority (secured) and those without priority (unsecured)

1. First Priority Claims: These will be deprived of collateral (mortgage). Bank loans generally fall into this category.
2. Second Priority Claims: Government receivables (taxes, social security contributions) and certain employee receivables fall under this priority category.
3. Third Tier (Ordinary Receivables): All receivables that are not secured by collateral or are not privileged fall into this category.

 

B. Prioritization of Athlete Claims and Employer/Employer Relationship

 

Athlete and coach salaries, failure to perform maintenance not covered by the IİK (Internal Regulations ) .

• Priority of Employee Claims: If Article 206/1-4 of the Enforcement and Bankruptcy Law continues, the wage claims of employees for the last six months, as well as rights arising from the employment contract such as annual leave pay and overtime pay , are considered to have priority, within a certain limit .
• Status of Football Player Salaries: According to TFF and FIFA regulations, football player salaries are generally considered employee salaries. However, in high-value contracts, the limit (in the amounts specified in Article 206 of the Turkish Commercial Code) is exceeded, the excess amount ordinary wages .

The critical point is whether athlete receivables should be paid after secured (pledged) receivables but state-privileged receivables such as taxes and social security contributions, as determined by Supreme Court rulings and the practices of bankruptcy courts. General participation refers to the preferential treatment given to athlete salaries (as wages).

 

III. Securing Athletes' Claims

 

The strongest way for an athlete to protect themselves against the risk of bankruptcy or insolvency is to use their receivables as collateral .

 

A. Insurance Coverage (Mandatory Coverage)

 

As previously mentioned, the personal accident insurance that the club is required to register provides maternity coverage in case of permanent disability or death of the athlete . However, bus insurance usually covers a one-time compensation, not the full amount of salary payments

 

B. Contractual Guarantees and Mortgages/Pledges

 

The surest way to secure payment for a football player is to request specific guarantees in the contract:

1. Personal Guarantee (Surety): from club managers or third parties as a joint and several surety . This allows for recourse to protected personal assets in the event of bankruptcy.
2. Mortgage/Pledge on Assets: The establishment of mortgages on the club's real estate (facilities, facilities) or the assignment of a pledge on the club's cash reserves (broadcasting revenue, ticket revenue) . However, the assignment of the contents must not conflict with FIFA rules (attention should be paid to the TPO prohibition).

 

C. Guarantees Originating from FIFA/TFF

 

FIFA/TFF has the option of providing clubs with third-party guarantee letters . These guarantees are collectible directly from the bank if the club fails to pay and retain their validity even during bankruptcy proceedings.

 

IV. Management of Athlete Claims During the Bankruptcy Proceedings

 

While a concordat can be an opportunity for the club to demonstrate its "good faith," it can be disadvantageous for the athletes.

• Long Term: A concordat typically extends debt repayment deadlines 2-5 times. While the player makes payments over this period, they can continue playing for a new club (in which case the new earnings must be offset against the debt).
• Loss of Compensation: In a concordat proposal, while the athlete waives all of their receivables, unless otherwise agreed in the football player's contract, there is no obligation to waive compensation for wrongful termination.

 

Conclusion: Financial Protection and Proactive Law

 

The bankruptcy and insolvency proceedings of sports clubs are expanding, becoming the biggest financial risk for athletes' creditors. The key to protecting against this risk proactive legal action : High collateral breaches, personal guarantees, and collateral in accordance with the Bankruptcy Law are of vital importance.

If the bankruptcy process is resolved, even if athletes have a certain individual, free right to payment by utilizing their workers' wages, under the large debts, this order usually cannot overtake secured creditors. Therefore, the goal is to finalize the collection of FIFA/TFF or secure it with solid collateral.