Archive | April, 2012

Duff&Phelps… A Modus Operandi…

30 Apr

I have gained access to a Duff & Phelps document that outlines their modus operandi when they take over a firm and start acting as administrators. The company in question went into liquidation after D&P acted as administrators. The document sent to creditors of the liquidated company has some interesting tidbits as to what modus operandi they follow when acting as administrators. Read the letter available here…

Right at the top of the document is the claim:

Duff & Phelps delivers independent opinions of collateral value, be it on a fair or liquidation case basis, of assets to be used as collateral, ultimately providing comfort to investors, credit committees and other interested parties.”

In discussing their methodology, D&P claim to use  “valuation methodology”.

2. Valuation Methodology – Unlike an engineering consultant’s asset-based approach, we rely predominantly on a cash flow approach augmented by market and cost approaches. This is particularly relevant for syndicated or stapled situations, where stakeholders look for comfort in both liquidation value and ability to service debt.

We know all too well that this is the approach taken by D&P with Rangers.It had to be. The primary concern was to get to the end of the season, and a positive cash flow can ensure that.  Stakeholders in Rangers include Craig Whyte, Ticketus, and HMRC. My previous post argued that Ticketus was actually in a much better position by dropping out of the BK consortium and joining the queue of  unsecured creditors, arguing that the writing was on the wall for Ticketus. Personally, I think the approach that Ticketus has taken is the right one, as far as their investors are concerned. Lining up as unsecured creditors makes them likely to claw a significant bit of their assets back if liquidation is to occur. The alternative would be a long, drawn out process in which they owned a football club, rather than profited from it.

The letter goes on…

3. Customization of Valuation Approach and Report – We tailor the premise of value depending on the deal situation, the purpose of the valuation and the type of asset(s) being valued; e.g., while the fair market value premise may be may appropriate if a fairly liquid market exists for the asset being valued, a forced sale premise might be most applicable where only a limited market exists, e.g., for a power plant financed in use.

I think we would all agree that a football stadium and a training ground is a perfect example of a “limited market” and therefore, a forced sale premise would be most applicable.

Check out this letter that Duff & Phelps sent to creditors.  I refer you to this section about half way down the first page.

In my previous post, I argued that Craig Whyte is a secured creditor, and all of these “bids” and “counter offers” from the Blue Knights and Bill Miller are nothing more than a PR exercise. As the statutory obligation call on adminstrators to attempt to do the following , the fact is that nobody can now accuse Duff and Phelps of failing to satisfy:

clause A)  to rescue the company as a going concern, or 

If there ever is an example of how a single word can change the meaning of something, look at the word that comes at the end of clause a)…. “or”…

“OR” in this context means that there is no obligation to satisfy more than one of the conditions…

The administrators have to satisfy clause a) OR clause b) which reads

b)  “achieved a better result for the company’s creditors as a whole than would be likely if the company were wound up (without first being in adminstration), OR…

Clause C… Ill come back to that.

Earlier today, I read Paul McConville’s post on scotslawthoughts, available here. As Paul makes clear in his blog, D&P finally address the concerns of the creditors…

“However, since then, Mr Miller’s bid team have worked to develop a structure which enables the wishes of creditors to be taken into account whilst ensuring that the Club is taken forward well-capitalised and the requirements of the footballing authorities are met. Mr Miller hopes a solution to all regulatory issues can be found and his team has been in constructive discussions with all relevant parties this week.”

Does this mean that clause A has not been able to be satisfied? I really like Paul’s blogs and writing style. I am a novice to blogging, and Paul has supported me and given me advice.

Something he wrote struck me in his last post…

“There remains an SPL investigation into “double contracts” and illegal payments, and the SFA appeal process is still to conclude.”

This begs the following question: Can you imagine the embarrassment the SFA and the SPL would suffer if they were to rule that there were no double contracts in place at Rangers, only for the FTT to rule that Rangers did, in fact, on the balance of probabilities have double contracts and avoided paying tax and NI  through the use of EBTs?

Lost in the discussions about Rangers is the fact that we don’t even know Rangers true level of liabilities. It could rise to £120Million, if the FTT rule against Rangers. Why would Miller bid on a club when the level of  known liabilities might double after the FIRST TIER TRIBUNAL return their judgement?

Which brings me to clause C)…

C) realising property in order to make a distribution to one or more secured or preferential creditors.

Who are the secured creditors?

Close Leasing for at least £1.6 million. Craig Whyte. He owns a standard security over the fixed assets of Rangers. I presume this means Ibrox Stadium, Murray Park, and the Albion Car Park.

D&P are now under a statutory obligation to fulfill clause C, if Clauses A&B cannot be fulfilled.

Which brings me to my last point? What exactly is Bill Miller bidding £11.5M for? As CW owns a standard security over the fixed assets, what exactly is he getting?

The share in the SPL?

Nope. That is an intangible that is unclear right now. Maybe that is the reason he is adamant that the SPL refuse to hand out further sanctions for past, uh, indiscretions.

Players? Nope. Most of them have had their contracts reduced so they are free to leave in the summer.

Property? Maybe. But as CW owns a security over the fixed assets, I presume that he will want those without any involvement from CW.

The Club itself? Craig Whyte owns 83.5% of the shares in Rangers. D&P have no power to force him to sell his shares.

The unknown debt? D&P stated today, “this afternoon Brian Kennedy and Paul Murray submitted a bid which is conditional on a CVA being approved by creditors and we will seek guidance from prominent creditors.”

Colour me reactionary, but should D&P not have made clear from the creditors what would have been acceptable first? Remember in the Portsmouth case, HMRC sued to block a .30p on the pound CVA because it wasn’t enough in the Revenue’s eyes,  arguing they should have been able to block it  in order to get a better return.

If Miller’s bid is £11.5million,what does Mr Miller think he is getting? A club, possibly with an SPL share, with no players of any resale value, and property with two standard securities over them.

To put it into context, his bid also claims to leave the club “well capitalized”. Yowzer.

As Duff & Phelps have yet to receive a bid that accounts for  Craig Whyte’s 85.3% shareholding, and without an offer that makes a CVA a legitimate outcome, I agree with Paul’s analysis that liquidation is inevitable, but I also agree with @rangerstaxcase that it won’t be next week. For all the Rangers owe, they are owed quite a bit of cash. The SPL and other football clubs owe Rangers a few million quid.

Hopefully, this blog has shed some light on how OTT the D&P PR has been,but also explains the reasons they have behaved in the manner they have….


Are the Rangers Administrators Duff&Phelps Being Up-Front and Forthright?

27 Apr

Today Ticketus announced that they withdrew support for the Blue Knights consortium to buy Rangers Football Club and the Blue Knights and Bill Miller lodged improved bids. According to a statement released by the Brian Kennedy and the Blue Knights, the pair made a renewed bid conditional on Craig Whyte’s shares being acquired and subject to a CVA being agreed among the Ibrox club’s many creditors.

Craig Whyte has admitted that, through his company Wavetower as a vehicle to do so, he used a £24m payment for future season ticket sales from Ticketus to complete the takeover of the club by paying off an £18million debt to Lloyds Banking Group. This is simply a leveraged buyout. It is legal. The Glazer Family bought Manchester United in exactly the same fashion.  Accordingly Craig Whyte had Lloyds Bank assign a security over the club which @rangerstaxcase has linked to on his/her own blog. It was lodged with Companies House, as required by law.

Craig Whyte’s company Wavetower, therefore, is a secured creditor. A secured creditor is a creditor with the benefit of a security interest over some or all of the assets of the debtor. There are primarily two types of charges; fixed and floating.

A floating charge occurs when a security (i.e. mortgage, lien, etc.) is fixed to an underlying asset or group of assets which is subject to change in quantity and value. For example, a business that operates as a manufacturing company might apply for a loan to pay for new equipment. The lender will make the loan and take a floating charge using the businesses inventory as the asset to secure the loan. Although the equipment could be repossessed in the event that the business failed to make timely repayment on the loan, the floating charge does not prohibit the company from continuing to use the machinery as normal.

The special nature of a floating charge is that the company can continue to use the assets and can buy and sell them in the ordinary course of business. It can trade with its stock and sell and replace plant and machinery, etc. without needing fresh consent from the mortgagee. The charge is said to float over the assets charged, rather than fixing on any of them specifically. This continues until the charge ‘crystallizes’, which occurs when the debenture specifies. This will include any failure to meet the terms of the loan (non-payment, etc.), or if the company goes into liquidation, ceases to trade, etc.

This is different that a fixed charge, which is registered against a specific asset. A fixed charge is a charge or mortgage secured on particular property. A floating charge is a particular type of security, available only to companies. It is an equitable charge on (usually) all the company’s assets both present and future, on terms that the company may deal with the assets in the ordinary course of business. Very occasionally the charge is over just a class of the company’s assets, such as its stock.

When the charge crystalizes it fixes on the assets then owned by the company, catching any assets acquired up to that date, but missing any which have already been disposed of. If the charge was created before 15 September 2003 the debenture-holder is then entitled to appoint an administrative receiver, whose job is to collect the assets charged to pay off the loan. This is what is usually meant when a company goes into receivership or administration. If the charge was created after that date, the debenture-holder may appoint an administrator. The main purpose of any security is to enable the secured creditor to have priority of claim to the bankrupt party’s assets in the event of insolvency. However, because of the nature of floating charge, the priority of floating charge holder’s claims normally rank behind: holders of fixed security (such as a mortgage or fixed charge); and preferential creditors, who are given priority by statute.

As far as Craig Whyte is concerned, his company Wavetower, which is now known as Rangers Football Group (not to be confused with Rangers Football Club) owns 83.5% of the shares in and also has a standard fixed charge or security over Rangers Football Club.

In a normal insolvency event, there is not enough cash going around for everyone to be paid in case of liquidation. The liquidators come in and sell off all of the assets and divide them amongst all of the creditors, with the secured creditors paid first. In a normal event, there usually isn’t enough to go around, so the secured creditor is rewarded for his risk-taking by getting placed first in the queue – after the liquidators and before the administrators.

Both secured and unsecured creditors queue up in an orderly fashion (pun intended) and the liquidator slices up the pie accordingly.  This is why the CVA is so important and has been referred to as a “cat-and-mouse-game” as creditors bluff and counter-bluff with liquidators over what they will accept or not accept. Voting rights also become extremely important. As I pointed out in my earlier blog about Portsmouth Football Club, HMRC sued to prevent a CVA of .30p on the pound because it been given a lesser voting right than it thought it had been entitled to effectively ending its right to block a CVA agreed amongst the other unsecured creditors.

Let’s look at a couple of examples.

Example 1

If a creditor named ABC Ltd holds a security for £320,000 in a business called Widgets Ltd that has only £300,000 in assets, then ABC Ltd would get only £20,000 of voting rights in any CVA. That’s because the security is fixed against the assets of the company and the presumption is that the CVA works for the benefit of creditors. If the remaining unsecured creditors value their debt at £100,000, the secured creditor would be unable to block any CVA that the majority of creditors agreed to.

There are two major problems I can see here.  First, there is Ticketus.  In the Ticketus statement today, “there are a number of likely outcomes involving Ticketus re-obtaining its cash. If there is a CVA (company voluntary agreement) outcome, Ticketus is one of the biggest creditors and will get a share of what is left in the pot.”

Secondly, the “big tax case” judgement from the FTT is not in yet.  Until the judgement crystallizes, HMRC may only be a creditor to the tune of £13Million – £4million in VAT owed from the Ticketus deal and £9Million in unpaid PAYE.  However, figures released by Duff & Phelps earlier this month listed Ticketus as one of the club’s unsecured creditors to the tune of £26.7m. As we already know, any CVA must be agreed to by a 75% of the creditors’ value.

Let’s look at our example again of ABC Ltd and Widget Ltd. Previously I argued a secured creditor could not block a CVA if its value of the debt was less than 75% of the value of the entire debt. This was on the assumption that the assets did not EXCEED the VALUE of the SECURITY.

Look at it in a different way.

Example 2

Let’s say ABC Ltd owns a security over Widgets Ltd for £320,000 and the assets in Widgets were £350,000. Guess what happens? The liquidator must sell the assets to the benefit of the secured creditor with a security over the fixed assets. In this scenario, ABC Ltd gets £320,000 and £30,000 goes into the pot. A CVA could then be agreed by the unsecured creditors. In this example, the best unsecured creditors, that had claimed £100,000 in unsecured debt, can do is get .30p on the pound.

Let’s go back to Rangers and Craig Whyte.

Whyte claims he has given Ticketus, “personal and corporate guarantees underwriting their investment” and that he is “personally on the line for £27.5M in guarantees and cash.”  I don’t know about you, but if I had a security for £20-£30Million over a business with £100M in assets on the books, and I was potentially liable for £19M to another company because of “personal and corporate” guarantees”, would I sell to anyone for £11.2 Million?

Any offer that comes in for my business had better exceed the value of my security. Even David Murray knew this. He sold RFC for a security over £18M debt + £1.  As RFC already has paid Ticketus £8million I am sure a smart and savvy (I mean smarmy) businessman knows that the assets Rangers have on the books are grossly inflated and not worth in excess of £100Million. However, they will likely be in excess of the value of his security.

I have found no authority in the Insolvency Act, the Companies Act, the Enterprise Act or any other Act, quite frankly, that gives the administrators the right to sell Rangers. They may have been given permission to seek a buyer, but they cannot force CW to sell his shares. I have found no authority that allows Craig Whyte’s shares to be sold without his express permission, particularly when he owns 83.5% of the outstanding shares!  This is why Brian Kennedy and the Blue Knights can only offer a conditional offer to buy the club. The administrators have no power to force Craig Whyte to sell his shares. He is a secured creditor and is due £20-30Million. Like it or lump it. It is a fact.

Logic tells us then that the “pot” that Ticketus refers to has to fund itself from either from an offer to buy in excess of £20-30Million (Craig Whyte’s likely minimum buy-out price) or from the sale of the assets. I think Ticketus knows this.

Ticketus is actually in albeit a risky, pretty decent position. If CW gets paid, he is on the hook to them for £19M (27M – 8M already paid). The contract with Rangers Football Club is still in force, although they are not part of any consortium, so any new buyers will have to honour the contract they have with the club, which means they will get their funds back under the present season ticket arrangements, pending a successful legal challenge of course. If the club is liquidated, then the fire sale of the assets will likely mitigate their losses, if not pay off the entire amount owed. A sale of the assets MUST go to the benefit of the creditors not to the benefit of the football club, so none of the funds raised through the fire sale of the assets can be transferred to the NewCo. Even a bid for £33 million (three times the last Miller bid) would only satisfy the amount CW is owed and the debts to other football clubs. It would leave hardly anything else for Ticketus or HMRC who would then have to agree for pennies on the pound CVA allowing Rangers to come out of administration – when there is “£100Million” in assets sitting in Govan. Folks, this ain’t happening.

I am going to have to point out the obvious here, but with the HMRC “big tax case” judgement not in yet, how are even HMRC in a position to sit back and decide on a CVA when they don’t know what they are duly owed?!!? If I am right, it begs the question as to why and how D&P are taking offers for the club in the first place, especially since Craig Whyte can block any action to sell his shares.

Are the administrators fulfilling a PR exercise?

Of course. They must they be seen to be doing everything possible to save Rangers.  Are they under instructions from CW himself to try and find a buyer? To me, the whole thing reeks of incredulity and is an exercise in futility. Unless Craig Whyte’s security is less than publicly reported, it makes no logical sense as to why he would sell to either bidder and Duff & Phelps have raised a lot of Rangers supporters hopes for nothing. Again.

Save your Pennies and the Titles will Follow…

22 Apr

“For every fiver Celtic spend, I’ll spend a tenner” -Sir David Murray

Sir David Murray’s quote was once a bragging right for one half of Glasgow, but now serves as a taunt by the other.

It is actually a misrepresentation.

There is recent case authority in Scotland that provides guidance as to how the First Tier Tribunal may rule in the ‘big tax case’ against Rangers. HMRC has already ruled that Rangers owes the Revenue to the tune of around £24million in tax. Rangers have appealed this to the FTT. The decision is imminent.

In the case of Aberdeen Asset Management v Revenue and Customs Commissioners (1 Feb 2012), Aberdeen Asset Management had started a “discounted option scheme” to provide remuneration on top of base salary to some of its employees.  Under this “discounted option scheme”, Aberdeen Asset Management  established an offshore Employee Benefit Trust (EBT) and transferred to it a large amount of money. Furthermore, they created an Isle of Man “money box” co with a £2 share capital  for the employee and the trust subscribed for the two shares.

One share was paid for at a nominal cost, but the other at a very substantial premium which might range from about £100,000 to more than £1 million. The company’s authorised share capital was increased by £10,000 and it then granted to a family benefit trust, which had been set up for the employee, an option to subscribe for 10,000 ordinary shares in the company.

An employee participating in the scheme held the ‘beneficial interest in the ‘money box’ and was able to receive substantial cash loans at low interest rates which would not be required to be repaid.

Sound familiar?

In reality, the employee was able to receive substantial additional financial benefit. This is important because the emphasis was placed by the First Tier Tribunal after seeing evidence that the both the employee received significant financial benefit and the employer understood this to be immune for income tax and national insurance contributions.

Had the company thought the payments were not immune to NI and income tax, then every time AAM paid a cash bonus to an employee,  then National Insurance and income tax would have been owed on the identical amount. This puts the emphasis on the employers purpose in establishing the EBT.

In this case, Aberdeen Asset Management argued that the overall effect of the transaction was the receipt of shares, not money.  However, the FTT and the Upper Tier tribunal (on appeal) both ruled that the shares in the money-box company transferred to an employee were therefore a readily convertible asset, so that Aberdeen Asset Management was, for the purposes of the PAYE regulations, obligated to make payment on the amounts.

Much has been written about the Rangers players of the first decade of the second millennium participating in the EBTs. Much of what has been written as been based on whether or not the second contract existed that was hidden from the SPL/SFA.  As far the FTT is concerned, I think this is the wrong way to look at it.

As far as the FTT is concerned, the question is not whether or not the players got loans as payment under a second contract, but whether or not the EBT was setup in order to help Rangers Football Club pay those players without paying income tax or national insurance.

Let me explain.

In the Aberdeen Asset Management case, the FTT ruled there had been a composite transaction made up of  series of steps starting with  the establishment of, and transfer of money into, the EBT and ended with the transfer of the shares to employees.  The structures  simply operated to channel additional remuneration from employer to employee. The form and shape of the additional remuneration or benefit might have changed from the time it left Aberdeen Asset Management’s control to the time it came under the employee’s control but the substance of what was being provided did not.

The facts, viewed realistically, “showed unequivocally” that control was vested in the employee who had access to the pot of money contained within the corporate money box. The scheme was ruled to be nothing more than a mechanism to pay cash bonuses and that was a form of payment that the statutory provisions, construed purposively, were designed to catch.

The FTT expressly uses the term, “purposively”, which means that any court of tribunal must look at the purpose of the legislation in order to determine how any particular nuances of a case before it should be construed.

The shares were a payment which was taxable and subject to the PAYE and national insurance contributions regimes.

We must look at the Rangers case in light of this ruling.  (I use nice round figures for ease and for emphasis, not as a factual representation)

Lets say Rangers sign a player Billy Smith (fictional, of course) for a wage of £1million a year. (I like to use nice, round figures.) RFC tell Billy that he will be paid from two sources. First Billy signs a contract for £500,000. RFC, in turn, would  pay NI and income tax to HMRC at the rate of about 50% or £250,000. Billy gets about 20,833 a month deposited into his bank account monthly in take home pay.

No problem there. However, RFC then place £250,000 into a ‘money box’ in the Isle of Man or Virgin Islands. Billy can then withdraw £20K a month out of it as a loan that he never has to repay. The effect is that Rangers is then off the hook for paying £250,000 in NI and Tax.

In this scenario, Billy was able to take home a £500,000 a year wage, after tax.

Lets look at in a different way.

Lets say Celtic sign a player named Tim Smith (fictional, of course) for a £1million a year. He is paid from one source – his club’s account.  Celtic would be obligated to pay the revenue around £500K in income tax and National insurance, at roughly 50% income and NI rates.

Timmy would get about £500,000 in take home wages. Tim would still get a take home wage of about £41,666 a month.

However, in the scenarios above Celtic would have had to to pay the Revenue £500K in income tax and National Insurance. Rangers would only have to pay the Revenue £250K.

The players were not substantially better off. Rangers were.

The point I am making with this is this. The club benefited more than any of the players did. The club was saving a fiver for every fiver Celtic spent. The club could then spend this fiver on buying other players, ensuring participation in Europe, TV monies, cup runs, even 9-in-a-row.

If this is the case, and as expected the FTT rules on this matter in the coming days, the judgement will be dissected and analysed by those in the business to no end. Yet, if the ruling does go against Rangers, this will mean they were effectively able to invest in players by cheating the tax man…

If this is the case, would you agree to a CVA on PAYE and VAT for a pennies on the pound?

A look at Portsmouth FC for Guidance on Football Clubs and Creditor Voluntary Agreements

17 Apr

Not surprisingly there has been very little analysis by the Scottish mainstream media of how other football clubs have dealt with administration where HMRC have been a major creditor. Portsmouth Football Club, on a factual basis has a significantly similar back story to Rangers and their current ‘predicament’. They both have an owner that bought the clubs for a £1. Both clubs had an owner that owned 80-90% of the shares in the business. They both had potential debts of £135-£140 million. The major difference is the percentage of the debt that was owed to HMRC. Another difference was that the Premier League paid funds to the clubs owed funds by Portsmouth. And there was court action by HMRC to prevent the CVA…

As the early stages of the 2009–10 season progressed, the finances dried up at Portsmouth and the club admitted on 1 October that some of their players and staff had not been paid. On 3 October, media outlets started to report that a deal was nearing completion for new owner Ali al-Faraj to take control of the club. On 5 October, a deal was agreed for a non exeecutive director named Al Faraj and his associates via BVI-registered company Falcondrone to hold a 90% majority holding, with Al-Fahim retaining 10% stake and the title of non-executive Chairman for two years.

In December 2009, it was announced that the club had failed to pay the players for the second consecutive month, on the 31st it was announced player’s wages would again be paid late on 5 January 2010. According to common football contracts, the players then had the right to terminate their contracts and leave the club without any compensation for the club, upon giving two weeks notice. Despite the financial difficulties, Grant’s time as manager was initially successful. He gained two wins (against Burnley and Liverpool) and a draw away at Sunderland from his first five games. The only losses inflicted on Pompey in this period were by eventual double winners Chelsea and the previous season’s champions, Manchester United. HM Revenue and Customs (HMRC) filed a winding-up petition against Portsmouth at the High Court in London on 23 December 2009. In March 2010, this winding-up petition was dropped, leaving Portsmouth with a nine-point penalty for entering administration.

On 17 June, the CVA was formally agreed with creditors with a 81.3% majority; Her Majesty’s Revenue and Customs (HMRC), Paul Hart and the agent of Pompey midfielder Tommy Smith were the only ones to reject it, but HMRC appealed against the CVA due to the reduction of their considerable debt. On 15 July 2010 HMRC appealed against the proposed CVA on the last day before it would be formally agreed, the case was originally going to take place in October 2010, but after an appeal from the administrators at the club it was set for 3 August at the High Court in London. The case was heard by Mr Justice Mann from 3 to 5 August where, having heard submissions from both sides, he turned down HMRC’s appeal on all five counts put forward by the revenue service. HMRC decided not to appeal against the verdict, leaving Portsmouth’s administrators to formally agree the CVA and bring the club out of administration.

HMRC applied to the court asking them to revoke/suspend the approval of a CVA.  HMRC also appealed against the decision on the amount of its debt to be allowed for voting purposes at the CVA meeting. HMRC sought to vote in the sum of £37,768,387, which included a sum of about £11 million of tax for “image rights” payable to players which the club claimed were not taxable but HMRC claimed were a sham. The chairman of the meeting (one of the administrators) permitted HMRC to vote only in the sum of £24,474,435, having rejected the whole of a claim of £2,947,468 and placed a value of £1 on the sum claimed in respect of the “sham” image rights.

Under the Football League’s insolvency policy a club was required to exit administration by an approved CVA, and that all football creditor debts had to be paid in full or fully secured. Football creditors were other clubs (to whom sums might be due for transfer fees), players (for remuneration) and various football authorities and organisations.

The issue here was that the Premier League had paid funds to other football clubs during a period of administration out of the moneys it would otherwise have paid to the club. There is no suggestion that the SPL/SFA have paid any of the money due to Dundee United, Dunfermline, or Hearts, all clubs that are owed funds by Rangers Football Club.

As mentioned earlier, HMRC sought to vote in the sum of £37,768,387, but was only permitted by the chairman to vote in the sum of £24,474,435. The CVA proposals were passed by more than 75 per cent of the creditors. The Revenue brought its application and appeal under the Insolvency Act 1986 s.6 and the Insolvency Rules 1986 r.1.17. The Revenue contended that the CVA unfairly prejudiced its interests because it would result in the loss of valuable claims under s.127 of the Act and had approved payments past and future payments to football creditors in full. It submitted that allowing football creditors to vote amounted to a material irregularity as they, unlike the other creditors, would be receiving payment in full. The Revenue argued that if the football creditor votes had been disallowed then it would have had more than 25 per cent of the vote and would have been able to block the CVA.

On 17 August, Balram Chainrai completed his takeover of the club and passed the owners and Directors F&PPT. During the 2009–10 season, it had become apparent to the new owner that Portsmouth were approximately £135m in debt.

This makes clear that HMRC has a precedent for seeking to block a CVA when unsatisfied with the percentage on the pound offered by the administrators. What is different in Rangers case, is that if the ‘big tax case’ goes against RFC, then HMRC will likely be the majority creditor. Payout is limited by however much money is on offer and is distributed by creditor class/negotiation, with threats of liquidation & security interests complicating matters. What the Portsmouth case shows us is that HMRC will be tough, tough customers. There should be no expectation that HMRC will do any favours to Rangers when there are 100M worth of assets sitting on their books…

If HMRC was willing to sue to seek to block a CVA on a debt of £25 million when the total debt of Portsmouth was £135 million, then what will they demand when the business is in debt to the tune of  up to £140 million and over 75% of the debt is owed to Her Majesties Revenue and Customs?

I wonder if the “two Bills, Miller and Ng” have done their due dilligence…

Looking at ACTA

14 Apr


On a global scale, several treaties and multilateral agreements have been signed in order to bring about some form of uniformity and protection for intellectual property rights. For example, the Anti-Counterfeiting Trade Agreement (ACTA) is a plurilateral agreement for the purpose of establishing international standards for intellectual property rights enforcement. It is a broad agreement that aims to create uniform international standards to protect the rights of those who produce music, cinematic works, medicines, fashion and other products that are vulnerable to intellectual property theft.

The agreement was signed on 1 October 2011 by Australia, Canada, Japan, Morocco, New Zealand, Singapore, South Korea and the United States, largely without any meaningful protests. In January 2012, the European Union and 22 of its member states signed ACTA, bringing the total number of signatories to 31.

The idea for the treaty was born in October 2007, as a collaborative effort between the United States, the EU, Switzerland, and Japan. The general public remained mostly unaware of negotiations.  ACTA would set up a legal framework and independent governing body, rather than amending existing national laws in signatory countries. This would give ACTA a much wider reach than SOPA/PIPA, and would require changes to US copyright law and would be administered by US authorities. 

Counterfeiting, copyright and trademark infringements are covered by ACTA; thus, creating a one-size-fits-all instrument of enforcement which doesn’t meet the unique needs of each sector.

Furthermore, the European Parliament’s Industry, Research and Energy committee (ITRE) concerned by the lack of definition of key terminologies on which the ACTA enforcement mechanisms are based; It fears that this creates legal uncertainty for European companies and in particular SMEs, technology users, online platform and internet service providers.[1]

Amnesty International also expressed concerns that ACTA contain vague and meaningless safeguards. Instead of using well-defined and accepted terminology, the text refers to concepts such as “fundamental principles” and goes as far as inventing a legal concept of “fair process”. “Fair Process has no legal definition in international law.  “Worryingly, ACTA’s text does not even contain references to safeguards like ‘fundamental rights’, ‘fair use’, or ‘due process’[2].

While the ambition of ACTA was to strengthen key industries within the EU, it contradicts the European Parliament’s Digital Agenda which promotes net neutrality and access to the online digital market for SMEs.

SOPA/PIPA and the Digital Economy Act in the UK both required approval from their respective national legislatures to become laws — the major reason SOPA/PIPA were shelved. However, ACTA’s negotiations and signings have largely gone on behind closed doors, and they do not require the approval of national legislative bodies (which cannot undo it once ratified), or citizens, because it does not involve changes to existing laws or constitutions. 

The EU says ACTA will also not shut down any sites or cut off internet access for anyone, unlike SOPA, which threatened to target those posting pirated content on sites and host sites directly.[3]

The Committee for a Democratic United Nations (KDUN), a non-governmental think tank based in Berlin, Germany, said that the “shockingly [un]transparent and undemocratic” international negotiations for ACTA confirm the urgent need “for a global watchdog that is elected by the world’s citizens. There was no meaningful public consultation, no involvement of parliaments or elected representatives, the drafts were only published very late and after strong public protests, and on top of that, governments did invite global corporate lobbyists to provide feedback, giving them, and not the public and their elected representatives, an opportunity to influence the treaty’s regulations according to their wishes.”

…to be continued…


[2] COMMITTEE ON INDUSTRY, R. A. E. 2012. DRAFT OPINION of the Committee on Industry, Research and Energy for the Committee on International Trade on the draft Council decision on the conclusion of the Anti-Counterfeiting Trade Agreement between the European Union and its Member States, Australia, Canada, Japan, the Republic of Korea, the United Mexican States, the Kingdom of Morocco, New Zealand, the Republic. In: PARLIAMENT, E. (ed.).

[3]COMMISSION, E. 2012. ACTA – Anti-counterfeiting Trade Agreement [Online]. European Commission.  [Accessed 15 March 2012].

The SOPA/PIPA Controversy

14 Apr

The SOPA/PIPA Controversy

Rights owners have long struggled to protect their intellectual property in the digital era. Two decades of instant copying and high-speed broadband are to blame for a significant downturn in cinema receipts and individual unit sales of CDs, DVDs and software.  Rights holders have levied accusations that search engines have profited from linking advertising revenue to sites that host infringing material.  To combat copyright infringement, rights owners have undertaken a multi-pronged approach to tackle illegal file-sharing and other ‘pirated’ content. Measures taken have included education, pushing for the imposition of sanctions – both criminal and civil, and pressuring national legislatures to propose tougher legislation granting rightsholders’ broad authority to shut down infringing sites ultimately creating economic scarcity for creative work. SOPA in the US House of Representatives, and its companion legislation in the US Senate, the PROTECT IP Act or PIPA, attempt to address the perceived problem of non-US websites engaged in infringing activity.  Because these so-called “rogue” websites have domain names registered outside of the US (for example, “.uk” rather than “.com”) and are hosted on servers outside of the United States, they are out with the jurisdiction of American courts and the existing enforcement mechanisms under US law. (SOPA and PIPA are part of a broader enforcement strategy, including the federal government’s seizure of hundreds of domain names registered in the United States and criminal prosecutions brought against the operators of web site, “”.)  Although the bills have technical differences, their basic approach is the same.  They would require intermediaries subject to US jurisdiction to block access to the foreign websites, or to prevent the flow of revenue to these sites.  More specifically, SOPA and PIPA would authorise in rem lawsuits in US courts against a domain name associated with a site dedicated to infringing activity.  If the court found that the website met the statutory standard, the court would issue an order which would be served on four categories of intermediaries. ISPs would be required to prevent the domain name from resolving to an Internet protocol address.  In other words, when a user typed the domain name of the non-US site into his browser, the service provider would not connect the user to the non-US website. Search engines (for example, Google, Bing or other sites that direct users to other online locations) would be required to disable links to the non-US site. Payment systems (for example, Visa or MasterCard) would be required to refuse payment transactions between customers with US accounts and the account used by the operator of the non-US site.  Internet advertising networks (for example, Google AdWords or AdSense) would not be able to place advertisements on the non-US site or have sponsored links to the non-US site.

If intermediaries did not comply with an order, they would be subject to enforcement proceedings.  SOPA and PIPA provoked the following sharp criticisms from Internet companies and users. Although the bills’ sponsors said that they were targeting the “worst of the worst” foreign websites, the bills, as introduced, applied to both US and non-US websites.  Moreover, a small amount of infringing content within a large website could, conceivably, trigger a remedy that would apply to the entire website.  Compliance with the Digital Millennium Copyright Act’s (DCMA) notice-and-takedown procedures would not provide a safe harbour.  Thus, websites that host user-generated content, including cloud-computing sites, could be affected. All four types of actions required by intermediaries raised concerns, because they were targeted at websites rather than specific content within those websites. These were blunt instruments that could lead to the termination of the provision of lawful as well as unlawful content.

The domain name and search engine blocking remedies were particularly controversial.   Both approaches are used by governments which restrict free expression.  Thus, US endorsement of these methods to block access to content that the US government considers illegal (i.e. IP infringing) would legitimate other countries’ use of these methods to block access to content they consider illegal (e.g., criticism of the government).  Indeed, a letter from Members of the EU Parliament stated that “blocking of websites, by DNS or otherwise, severely undermines America’s credibility in the global information society.”[1]  Google has fully complied with DMCA requirements for rapid “take-down” of videos that conflict with intellectual property owners’ legitimate claims. Google has also gone much further than the DMCA requires, by implementing a comprehensive “Content ID” system to pro-actively flag uploaded content matching the “signatures” provided by content owners (resulting in various actions, some of which are punitive in nature). Some observers would argue that this latter feature can sometimes be too aggressive, by flagging content that actually meets “fair use” requirements. Additionally, take-down tools (or legal threats and actions) are sometimes used by governments not to enforce copyright restrictions per se, but in reality for raw censorship of political or religious material that is considered to be undesirable or offensive to particular groups — in the process sometimes cutting off access to those videos to everyone around the planet.

Domain name blocking also has the potential to introduce cyber-security vulnerabilities.  Court-mandated domain name blocking requires service providers to return authenticated and unencrypted responses to domain name queries in contravention of emerging cyber-security protocols.  Moreover, as users attempted to circumvent the domain name blocking they would use foreign domain name service providers that did not comply with US government cyber-security standards. Because both bills provide for private rights of action, the volume of cases could be very large, and the intermediaries would need to take action with regard to many sites, at great expense. 

[1]BAND, J. 2012. SOPA and Its Implications For TPP [Online]. Available: [Accessed 13 April 2012].