Battle commenced between the Football League and Her Majesty's Revenue Customs at the high court on Wednesday over the controversial football-creditors rule.
Mr Justice David Richards, who is no relation to his namesake Sir Dave Richards, the chairman of the Premier League, will adjudicate on what is one of the most emotive issues in football. Under the rule, buyers of insolvent clubs in administration must pay in full every penny owed to other clubs and to their own millionaire footballers, while other unsecured local-community creditors receive much-reduced sums.
Gregory Mitchell QC, for HMRC, argued that the rule represents "the ugly side of the beautiful game".
Mitchell pointed to the 36 Football League insolvencies since 2002 that have led to the tax authorities receiving "a very modest dividend".
"The football creditors' rule has been invented by the Football League and the Premier League. It is not a rule created by parliament," he told the court. "As far as we know there is no similar rule operating in any other country or industry.
"We say [the rule is] contrary to fundamental principles of insolvency law."
Mitchell stressed that insolvency is not limited to Football League clubs: Portsmouth had collapsed into insolvency with a nine-figure debt in February last year, when at the time they were a Premier League club. Coincidentally, Portsmouth's parent company, Convers Sport Initiatives, separately filed for administration on Tuesday.
Mitchell said: "Whenever the football creditor rule is applied, there is always a loss to the taxpayer, which is why we bring these proceedings."
The League is vigorously defending the action as being in the best interests of its members and of the sport. It will argue that clubs failing to honour their transfer commitments in insolvency jeopardises the integrity of the competition – a club could not be compelled to play matches against a defaulting creditor, potentially wrecking the fixtures list.
The League will further claim the rule is a condition of entry to its competitions and that if it is overturned it could lead to a cascade of club insolvencies across the game. The League's logic is that solvent clubs would be affected by the actions of defaulting creditors. In the case of Portsmouth last year, for instance, Watford's solvency was maintained only when central Premier League funds were allocated to the Championship club after transfer fees it was owed went unpaid.
In written depositions handed to the judge, Mr Mitchell said: "The Football League have … constructed a device under which, on insolvency, 'football creditors' are paid in full whilst ordinary unsecured creditors of the same class receive a very modest dividend.
"Great skill has been used in the drafting of the device, and also in making a challenge to the device difficult. HMRC contend that the rules under which the device is operated are against public policy."
The League believes that there are already earnest deterrents to insolvency in football. In recent years the football authorities have introduced lower-league salary caps, heavy points deductions for insolvent clubs and the requirement for quarterly reporting of financial accounts to the league.
HMRC has not presented an alternative to the status quo. "It is not for HMRC or this court to suggest how the Football League should reformulate their rules," Mitchell said.
"If the court finds [in HMRC's favour] … then it is for the Football League to consider how best to amend their articles, regulations and insolvency policy in order to comply with these fundamental principles of insolvency law."
The case is expected to continue into next week.