There has been considerable buzz in the news lately about the financial woes of one of the world’s best-known soccer teams, England’s Liverpool Football Club. The trouble involves loan defaults, ownership issues and lots of other juicy bankruptcy-related news – of course, Liverpool’s fans probably aren’t too thrilled.

Loan Defaults and Contract Breaches

According to Bloomberg news, Liverpool Football Club’s money problems are somewhat thorny:

• Parent company behind on its loan: It seems that Kop Holdings, the parent company of Liverpool FC, has fallen behind on a loan agreement with Wells Fargo bank. In fact, sources note that the loan is in default (more than 30 days past due).
• Potential buyout by an American company: According to reports, the American company New England Sports Ventures LLC has proposed a buyout plan that would let England’s most successful soccer team avoid bankruptcy.
• Contract breach might prevent the sale: But, news outlets report, the current owners of the team made eleventh-hour changes to the board to ensure that its members voted against the buyout. Royal Bank of Scotland, however, has challenged the board member change in court, apparently calling it a breach of contract.

So what might happen to the celebrated soccer team from across the pond?

Business Bankruptcy and Its Effects

When businesses file for bankruptcy, the court’s protection tends to work slightly differently than when individuals seek such protection. For example:

• Chapter 11 reorganization: In a Chapter 11 bankruptcy filing, businesses get the opportunity to reorganize their finances and agree to pay off creditors from future earnings. In rare cases, individuals can file for Chapter 11 bankruptcy, but it’s a more common move for corporations. When businesses are in Chapter 11 protection, they can still operate, selling their goods and services as usual.
• Chapter 7 liquidation: When businesses file under Chapter 7 of the U.S. Bankruptcy Code, a bankruptcy trustee generally sells off their assets and uses the money to repay creditors (much like a Chapter 7 filing for individuals). If a company files for Chapter 7 bankruptcy, it cannot continue operations.
• Automatic stay: As in personal bankruptcy filings, businesses that seek bankruptcy protection are protected by the automatic stay for the duration of their case. This legal stay prohibits all collection action against the filing company.

According to Bloomberg, the Royal Bank of Scotland (RBS) is not looking forward to actually enforcing any sanctions against the soccer team itself because of potential negative effects such sanctions might have.

While this story may not resonate with American readers quite the same way it would with those more familiar with England’s soccer leagues, it is a big deal. Consider the same thing happened to the Chicago Cubs last year when its parent company, The Tribune, filed bankruptcy.