Archive | March, 2012

A Fire Sale in Glasgow

27 Mar

Anyone in earshot of a sports radio program in Glasgow, or in eye-shot of a sports section in a Scottish paper could not escape the news that several conditional bids have been made for Rangers Football Club. Most likely the conditions that had to be satisfied involved the ongoing dispute with Ticketus which arose after current club owner Craig Whyte sold off 4 years worth of season ticket books in turn for £20M in which he used to clear off the debt owed to Lloyds TSB by Rangers Football Club. Another condition would likely involve the “big tax case” which may put Rangers further liabilities anywhere in excess of £24Million all the way up to £75M.

Craig Whyte’s Rangers Group is a secured creditor and owns a floating charge over the entire club. We are now in a situation where the administrators are legally trying to solicit open parties to purchase Rangers, without any legal authority to do so. The administrators are not legally empowered to sell the club under the Insolvency Act 1986, in fact, there is no legal precedent at all for a owner of shares to have a “forced sell” of those shares by an administrator in an Insolvency event.

Enter the Enterprise Act 2002. Why Rangers should have been put into a pre-pack administration.

pre pack administration sale is a powerful, legal way of selling the business on to a third party, a “newco” or to the existing directors if the business is facing serious problems and creditor threats.The main advantages of prepack administrations is continuity of the “business” and when the plan is ready and a contract of purchase is drawn up, the company is quickly protected by the Court while the administrator sells the “business and assets” (not the actual company) to the new owners. In Ranger’s case, it looks like Murray Park, Ibrox, and the Players along with any other assets could all be passed on to the “newco”. This gets rid of all of the old RFC debts, unwanted or onerous contracts, (possible Healy, Papac, McCulloch), and employees. There needs be no interruption to the business which in itself can destroy value. 

An advantage is that the cost of the process is lower as the administrators do not need to find funding to trade the business. The process, once the preliminary marketing, valuation work and discussions with creditors can be done in a couple of days if necessary.

If the business is to be sold to a connected party, ie the former directors (Paul Murray, et al), they will need to be able to fund the acquisition of the assets. However, the assets will need to be independently valued. Rangers’ own accounts value MP, Ibrox, and the Car Parks at over £100 million, extremely excessive if you ask my opinion!

The Enterprise Act 2002 allows an administrator to be appointed under Paragraph 68 of Schedule B1 of IA 1986. This allows the administrator to enter into an immediate sale of any of the company’s assets without any involvement of the creditors, like HMRC.

To see how this works in the real world, then we need to look at the case of DKLL Solcitiors v HMRC from 2007. DKLL’s liabilities totalled about £2.4M. About £1.7M of this was due to HMRC, a similar percentage of what is outstanding to HMRC and other creditors at RFC. HMRC was DKLL’s major creditor. HMRC had made a winding up order against DKLL and on the day before the hearing, an application for administration was made by two equity partners of DKLL for the purpose of enabling the proposed administrators to effect a pre-pack sale of DKLL’s business to a newly incorporated limited liability partnership for £400,000.

The court endorsed the use of a pre-pack on the following grounds:

  • In cases such as this it is appropriate that the court ‘places great reliance on the expertise and experience of impartial insolvency practitioners’ and the evidence presented to the court by such experts to determine whether the administration order was reasonably likely to achieve the purpose of the administration. No evidence had been produced by HMRC to suggest that the business could be sold for more than the price that would be achieved in the administration.
  • In relation to HMRC’s opposition to a pre-pack sale in administration, even a majority creditor did not have a veto on the implementation of the administrators’ proposals. The court can authorise the implementation of the administrators’ proposals, notwithstanding the opposition of the majority creditor or, indeed, any other creditors. Accordingly, HMRC’s opposition did not make it ‘reasonably likely’ that the objective of achieving a better result for creditors in an administration than in a winding up would not be achieved.
  • In exercising its discretion as to whether to make an administration order, the court ought to take HMRC’s opposition into account. But it should also consider the interests of the other stakeholders, and the proposed sale appeared to be the only way of saving the jobs of the 50 or so employees of the partnership. It was also likely to result in the affairs of the partnership’s clients being properly dealt and with the minimum of disruption to those clients.

The decision in DKLL also showed that the court accepted that in light of two other cases, Re T & D and Transbus, the administrators had power to complete the proposed sale without the sanction of a creditors’ meeting or a direction of the court. Therefore, pre-packs are not limited to administrators appointed out of court.

In Re T & D Industries [2000], the court held that administrators have the power to sell the whole of the assets and business of the company in advance of convening a creditors’ meeting, and without the need to go to the court for directions. The legislation on this point remains the same under the post-EA 2002 regime.

The courts have recognised that a pre-pack deal is a legitimate restructuring tool in appropriate circumstances and, in a series of cases, have confirmed that administrators have the power to sell a company’s business and/or assets without the prior approval of the court or creditors if the circumstances justify it.

However, it wouldn’t have been easy sailing for Rangers Football Club. The Insolvency Act (IA)1986, in particular s216 – restricts re-use of company names. If Rangers had gone down this route, they would have had to become something other than Rangers Football Club, Ltd. Section 216 is aimed at directors who take part in the promotion, formation or management of ‘phoenix’ companies (whether as a director or not) following an insolvency sale and breach of its provisions will, if convicted, lead to imprisonment or a fine. As well as this criminal sanction, s217 imposes personal liability for the company’s debts on those involved in the management of a ‘phoenix’ company in contravention of s216. Paul Murray better keep a retainer with legal counsel.

Secondly, this creates a whole slew of problems as far as UEFA, the SPL, the SFA, and as far as licensing goes.(Maybe the St Mirren story has something to do with this?) I had better leave that to someone else or try and tackle it at a later date. But Rangers would likely escape of its major creditor obligations. It would also not be Rangers any more. Its history would end. The “newco” would start in 2012. Maybe we will be seeing Govan Bears 2012, after all?  This begs the question as to why Sir David Murray didn’t go down this route instead of selling to Craig Whyte in the first place. 

So if pre-pack is no longer an option, then what options does that leave Duff and Phelps? A fire sale of the assets to new owner? Most likely.

Implications of the Richard O’Dwyer extradition

21 Mar

Fantastic piece from Krean Naicker from Open Org…

UK Home Secretary Theresa May has approved the extradition of British citizen Richard O’Dwyer to the United States, where he faces up to 10 years in prison for 2 counts of copyright infringement.

O’Dwyer is accused of setting up and operating the TVShack.net website that linked to copyrighted material on third party websites. O’Dwyer’s legal team argue that the TVShack website is a mere conduit and in many ways similar to how Google operates and should therefore be awarded the same protection that Google and other search engines benefit from. The courts rejected this defence and the extradition request was upheld. The defence also pointed out that a recent judicial decision in the TV-Links case suggests that linking websites are perfectly legal under UK law. While the issue of legality under UK law is an important one, it needs to be addressed separately. This article instead concentrates on highlighting the implications of the decision on the functioning of the internet.

Like many alleged crimes committed over the internet, this case encounters numerous jurisdictional problems. O’Dwyer operated the website out of his bedroom in Sheffield and its servers were located in the Netherlands. Taking these facts into account one wonders the legal basis for a jurisdictional claim by the US. According to official court documents, the United States Government argue US jurisdiction on the basis that the TVShack website was publicly accessible and that O’Dwyer made available copyrighted material to the public. The document also makes reference to Government agents in Manhattan being able to access, stream and download copyrighted material via the TVShack website. Manhattan is within the Southern District of New York and since the offences of downloading and streaming occurred there, they argue that O’Dwyer should be prosecuted under US law.

This reason for jurisdiction is truly a cause for concern. It essentially means that a website operator can be sued by any country that the website is accessible to.

This also poses a risk to people other than website operators since it is increasingly the case that people are active content creators rather than passive internet users. It may be the case that someone is sued for their content by a foreign jurisdiction on the basis that it is accessible and illegal there but perfectly legal in the creators country of residence. This is not a far fetched notion, considering the different laws that exist between countries. Laws regarding free speech and expression widely differ from country to country and even copyright laws differ as in some countries it is a civil offence rather than a criminal one. People should have the right to freely express themselves on the internet without the fear of prosecution in a foreign jurisdiction and without fear that someone on the other end of the world can sue them on the perceived notion that it contravenes their local laws.

Currently a system exists in which we have a choice of the content that we wish to view and this power of choice needs to be preserved as it a core function of the internet.

These jurisdictional claims add an unnecessary layer of fear and content creators may have to resort to drastic measures to protect themselves legally. This may result in creators limiting their audience and excluding parts of the world where they think their content may be illegal.

The worst case scenario albeit minimal chance of happening is nationalised internets, where citizens may only view country specific content. It is quite obvious that putting up these firewalls are counterproductive and damaging to the internets infrastructure. The open nature of the internet has given society a platform in which people can freely express themselves and it even gave sections of society a voice that they previously lacked. A perfect example of this is the Arab Spring in which like minded political activists, who were once fragmented, utilised social media to organise and mobilise a rebellion against their political dictatorship. The rebellion spread like wildfire and this is primarily attributed to the internet providing a platform in which people can freely express themselves and access information. Unhindered access to information is a fundamental characteristic of the internet that should not be meddled with.

Some may say that if you don’t infringe copyright there’s nothing to worry about, but it would be disingenuous to say so. The reasons for jurisdiction in O’Dwyer’s case were also used in the recent seizure of internet gambling company Bodog.com. Unlike in most parts of the world, internet gambling is illegal in the US. Government agents in Maryland apparently accessed and placed bets using the website. Like in O’Dwyer the offence occurred in the US, resulting in the US asserting jurisdiction and seeking the extradition of the owner. The owner is a Canadian citizen and the website was neither registered nor hosted in the US. It is because the website is accessible to the US that gives it the nexus to that jurisdiction.

It is evident that a trend is developing in using this jurisdictional rationale and the US is setting a very dangerous precedent in doing so. Although they have succeeded in their initial request to extradite Mr O’Dwyer, it is a pyrrhic victory which comes at a high cost that society has to bear. There needs to be a careful consideration of the implications and a proper weighing up of the costs and benefits to society before we allow other countries to export their local laws to those using the internet. This situation requires immediate clarification before the internet population is engulfed in jurisdictional chaos.

A mea culpa (of sorts) from Duff and Phelps, the Rangers administrators.

19 Mar

I am often asked my opinion on the “situation” at Rangers Football Club. I am often asked on the basis that a) I do not like Rangers (I grew up supporting DAFC, and although my extended family all supported RFC, I despised them out of spite)  and b) I am a student of the law and have a keen thing in all things Legal in Scotland.  Unfortuntely, the Scottish media has not been particularly up-front about what is really going on at Rangers. Several internet bloggers have made attempts to clarify what exactly is going on at RFC, including @grahamspiers, @pmacgiollabhan, and @rangerstaxcase) All have written extensively on the subject, and I would not begin to steal the varied and impressive work they have done so far. This blog is an attempt to make it all relatively clear to the layman. Ill try and keep it simple.

The situation is worse than the club and the administrators are letting on.

It has been widely reported that current owner and corporate takeover specialist Craig Whyte has used the money he received from the sale of season ticket books rom Ticketus to fund the takeover of the Glasgow Rangers Football Club.

To be clear, the deal can be broken down like this, in the simplest of terms.

Football financing company Ticketus physically bought 3 years of Rangers physical season ticket books from the club for a whopping £24Million. (of which £20 million was for the books, and £4million was VAT). This means the company literally owns 3 years of season tickets books. For the privilege Ticketus paid handsomely into an account, presumably into an account at Collyer Bristow, a London law firm. The deal operated like this:

Rangers gets cash in advance. When a supporter wants to purchase a season ticket book, they phone Ticketus ( or a subsidiary) and the books arrive in the post. Private estimations puts Ticketus profit on the deal to be within £30-40M.

By all accounts, Craig Whyte took this statement of  account at Collyer Bristow and showed it to Sir David Murray to prove his funds were there to facilitate the purchase of the club.

The deal likely took place as follows, “I’ll (DM) sell you the club for a £1 and you (CW) must pay off the club debt”.  The club debt was in the region of £18M and was owed to Lloyds TSB.

This seems simple enough. Except this isn’t a simple deal.

Craig Whyte  formed a company called Wavetower. Shortly afterwards, he changed the name of Wavetower to Rangers Group. The paperwork confirming this is here and here. The directors are Craig Whyte and property developer Andrew Ellis, who sit on the board of Rangers Football Club (more on this later).

It is my belief that Ticketus paid the £24 Million into the account of Wavetower/Rangers Group at Collyer Bristow. After the paperwork was signed, Rangers Group Ltd, (NOT Rangers Football Club Ltd) paid off the  £18M debt owed to Lloyds TSB.

In turn, Lloyds TSB assigned a security over the club to Rangers Group (not Rangers Football Club Ltd).

What this means is that Rangers Football Club owes £18M plus interest to Rangers Group. RFC never paid off the debt to Lloyds TSB. Rangers Group did. Afterwards, Lloyds assigned the security over RFC to Rangers Group.  Craig Whyte and Rangers Group own a floating charge over Rangers Football Club. Therefore, Craig Whyte is a secured creditor over Rangers Football Club. Rangers (Football Club) owe an additional £18M to Rangers Group (Craig Whyte).

And Duff and Phelps make a very subtle admission of this fact in a court document that was filed last week. (This was widely reported in the press as Rangers was not technically in administration)

Check out Note 3 of the Document filed in the Court of Session last week. (Available Here)

It reads as follows:

“otherwise dispenses with any further intimation, service or advertisement of this petition… blah blah blah…and the Rangers Group Limited as a holder of a qualifying floating charge”.

Duff & Phelps have stuck in to this document very quietly, what everyone including CW have always believed or suspected. Rangers Group have a floating charge over Rangers Football Club, Ltd.  So in addition to the £9M in PAYE owed, the £4M in VAT they owe on the Ticketus deal, the “small tax case” of £3-4M  and the “big tax case”, of up to £75M which has not yet been decided by the First Tier Tribunal, Rangers Football Club possibly owe Craig Whyte’s Rangers Group £18 million.

Watch this space…

Some more questions for Rangers and Sir David Murray…

19 Mar

From a legal point of view, what is going on at Rangers Football Club is fascinating and in many ways, a case study in UK Corporate Law, something in which I am really fascinated. For the clubs support, they care less about separate legal personality, liquidation, trusts, and administration, so this post won’t be for them. However, I am interested in what is going on at Rangers from a purely legal point of view. Rangers accounts certainly lead to many unanswered questions.

Here is a copy of Glasgow Rangers accounts for 2008 – the last ones available. If you look at note 6, Rangers were still using the EBTs as recently as 2008. Accordingly, Rangers and Sir David Murray must answer some obvious questions.

Q. When did the use of EBTs come to an end at Glasgow Rangers?

Q. In what time periods were EBTs used by players and staff? When did the use of the EBT come to an end? Are there currently any players that are currently paid by means of an EBT?

Q. The Report of the Directors (available here)  shows that the Blue Knights are basically the old guard.  If they were David Murray’s friends – why did he sell to Craig Whyte instead of the Blue Knights themselves originally?

Q. Note 15 shows that Rangers had £13m of what they describe as “trade creditors – payable within one year”. Is any of this amount owed to Ticketus?  Of course a club like Rangers would have creditors – but £13m worth? The comparable figure for 2007 is £6m so there was some hike!  There are several other places that could be Ticketus too.

One of the Scottish tabloid papers printed a copy of what Rangers called a “letter of Intent” – an agreement between the Club and the players for payment for playing for Rangers. Note the second box  on the right hand side makes reference to a clause in the letter that states that a player will received “payment” of £122,000 with the terms of the agreement redacted. Of note, is that the document contains a clause that states payment will be made “subject to you being a registered Rangers player on those due dates”.

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Rangers wage bill jumped dramatically between 2007 and 2008.  In 2007, it was around £24m. The accounts have the comparable figures for 2007.  In 2008 it was £34m – so almost £3m per month – so perhaps the administrators aren’t exaggerating as to how deep the cuts they were forced to make really were.

It has been reported that Rangers highest player received £25K a week. It has also been reported that there are some 30 players on the Rangers roster. So lets do some math. The administrators Duff & Phelps made very publicized statements about having to cut £1Million a month from payroll in order to maintain the club to the end of the season.

4 weeks in a month

£25,000 a week

30 players on £25K a week

4*25000*30 = £3,000,000

Now we all know that some of the young boys are nowhere on £25K a week. But I used this as an example.

Lets say for argument sake that they were, this brings the monthly cost of paying the players to £3,000,000.00

If all the players took a 75% pay cut, that reduces the payroll to £750,000

Now what we do not know is what each player was on, but lets assume there are 5 players on £25K, 15 players on 10K a week, and 10 players on 5K a week. How does the math work out then?

5*25000*4 = 500,000 (Most likely Davis, Papac, McGregor, Naismith, Whittaker)

10*10000*4 = 400,000

10*5000*4 = 200,000

All of a sudden, we are down to £1,100,000 in players monthly salaries and Duff and Phelps claims don’t make any sense whatsoever. Where is the other nearly £2,000,000 a month salary costs going?

Will Duff and Phelps release the actual costs of players and their financial obligations to pay into EBTs as recently as 2008? Do even they have access to this information?

Why is this relevant? Current players McCulloch, McGregor, Papac, Naismith, Alexander, Broadfoot, Whittaker, Lafferty, and Edu all played in the Season 2008-09.

A strict interpretation of the wording of the Letter of Intent implies that The Murray Trust may STILL be paying the players. EVEN now. There is no limitation. Read that clause again. The only demand is that the party to the contract still be registered as a player with Rangers. Thus, the payments from the Murray Trust to the players may still be ongoing.

Q: Is the trust still making payments to any players? Does it have any contractual obligations to fulfill?

Q. Is one of the reasons none of Rangers accounts from 2009 onwards available because they show the ongoing use of EBTs?

Clearly, this story is not going to die any time soon….

UK Parliament Asks For Public Comment On Six IP Policy Questions

19 Mar

It appears that the UK Parliament is asking for thoughts from the public on six key policy questions around intellectual property. You can be assured that the large lobbying organizations will make their voices heard, but it would be great if others in the UK, who have a more modern and nuanced view of what’s happening around intellectual property issues, would make their voices heard as well:

1) What should the objective of IP policy be? 

2) How well co-ordinated is the development of IP policy across government? Is IP policy functioning effectively on a cross-departmental basis? What changes to the machinery of government do you believe would deliver better IP policy outcomes?

3) There have been numerous attempts to update the IP framework in the light of changes brought about by the digital environment. How successful have these been and what lessons can be learnt from these for policy developments?

4) How effective is the Intellectual Property Office and what should its priorities be?

5) UK IP policy sits within European and supranational agreements. How should the UK government co-ordinate its policy at an international level and what should it do to promote IP abroad to encourage economic growth? Do you have examples of good and poor practice in this area?

6) Protecting, and enforcement of, the IP framework often sits in very different departments to those that develop IP policy and those that have responsibility for the industries most affected. What impact does this have and how can it be improved?

If you do decide to respond, obviously take time to carefully detail your position and back it up with facts and analysis, rather than any sort of emotional response. The details of how to respond to the request can be found in the official announcement (pdf) of this inquiry. It’s worth noting that the group organizing this does appear to come at these questions from an already biased position — in that the person collecting these responses works for “the Alliance Against IP Theft.” So, you’re already dealing with someone who falsely defines infringement as theft. That’s all the more reason to be careful, thorough and detailed in any response.

Maine Demands That The US Be More Open And Transparent In TPP & Other International Trade Negotiations

19 Mar

As the administration continues to be ridiculously secretive about negotiations on the Trans Pacific Partnership (TPP) agreement, it seems that even various state governments are growing concerned about the process. The Maine state legislature issued a joint resolution demanding that the administration be much more open in how it negotiates international trade agreements. The resolution states that it strongly supports good international agreements, but that they need to be open and transparent. It notes that the lack of transparency has meant that trade negotiations have come to agreements against states’ own interests and that the negotiators do not consult the states, despite the massive impact these agreements have on state economies. Then it specifically calls out the TPP, and says that the administration must improve the process. Here’s just a few of the lines from the resolution, though you can read the whole thing at the link above.

WHEREAS, existing trade agreements have effects that extend significantly beyond the bounds of traditional trade matters, such as tariffs and quotas, and can undermine Maine’s regulatory authority and constitutionally guaranteed authority to protect the public health, safety and welfare; and 

WHEREAS, a succession of federal trade negotiators from both political parties over the years has failed to operate in a transparent manner and failed to meaningfully consult with states on the far-reaching impact of trade agreements on state and local laws, even when binding the State of Maine to the terms of these agreements; and 

WHEREAS, the negative effect of existing trade agreements on Maine’s regulatory authority and constitutionally guaranteed authority to protect the public health, safety and welfare has occurred in part because United States trade policy has been formulated and implemented in a process that lacks transparency, fails to properly recognize the principles of state sovereignty and lacks any meaningful opportunity for congressional review and acceptance; and 

WHEREAS, the United States Trade Representative is currently negotiating the terms of a proposed Trans-Pacific Partnership Agreement, which will have a significant effect upon the citizens and commerce of the State of Maine; and 

WHEREAS, there is a current opportunity for improving the process by which significant foreign trade policy agreements such as the Trans-Pacific Partnership Agreement are negotiated; now, therefore, be it 

RESOLVED: That We, your Memorialists, respectfully urge and request the President of the United States and the Congress of the United States to improve the process by which United States trade agreements are developed and implemented in order to encourage meaningful transparency and appropriately acknowledge the vital role of state sovereignty and afford more meaningful opportunity for congressional review and acceptance

When even the state governments are complaining about the lack of transparency in trade negotiations that impact them, can the USTR really continue to pretend that there are no problems with the way it goes about these negotiations?