Tag Archives: Craig Whyte

Rangers in Crisis: The Hunt for Whyte October and a Pretty “Poison Pill” Woman

18 May

WEB3dLAW is back with a significantly shorter blog post today.  I have been waxing lyrical lately about popular films. One of my favourite of all time is The Hunt for Red October – the film adaptation of the Tom Clancy novel about Cold War era submarine warfare between the Yanks and the Russians. In one of the latter scenes, former US senator Fred Thompson asks the protagonist Dr Ryan, played by Alex Baldwin, “What’s his plan?” To which Dr Ryan retorts, “His plan?”  The Captain points out that “a Russian submarine captain doesn’t take a dump without a plan”.

One of my partner’s favourite films is the Richard Gere/Julia Roberts RomCom, Pretty Woman.  Do you remember this scene from Pretty Woman when Gere takes Roberts to a dinner meeting with the father and son owners of one of Gere’s takeover targets?


Gere wanted to buy a large family owned ship building business and in what is commonly referred to as a “hostile takeover”, the duo had come along to the meeting to persuade Gere’s character to end his bid for their family business.

I mention these because both films lead into my nice little transition into a discussion about the business concept called “poison pills”, something I mentioned yesterday.

Poison Pills” and “Shark Repellents” sound like they belong in a James Bond film, but they are actually generic terms for business strategies to repel or reduce the attractiveness of a business to hostile takeovers.  I often wonder, “What was Craig Whyte’s plan?” He doesn’t look like a man that takes a dump very often, or without a plan. I have been thinking about this for a long time. Something doesn’t sit right in this whole thing, so I will give this idea a whirl. It is an idea, but would love to hear your input on its feasibility or accuracy. If I have missed anything out, let me know.

A “poison pill” is a generic term used to describe shareholder rights plan, and is a type of defensive tactic used by a corporation’s board of directors against a takeover. Shareholder rights plans, or poison pills, are controversial because they hinder an active market for corporate control. They also devalue the company and benefit the directors.  A poison pill also has other meanings:

It is sometimes used more broadly to describe other types of takeover defences that involve the target taking some action. The broad category of takeover defences (more commonly known as “shark repellents”) includes the poison pill.

Other anti-takeover protections include:

  • The target business adds to its charter a provision which gives the current shareholders the right to sell their shares to the acquirer at an increased price (usually 100% above recent average share price), if the acquirer’s share of the company reaches a critical limit (usually one third).
  • The target takes on large debts in an effort to make the debt load too high to be attractive—the acquirer would eventually have to pay the debts.[1]

Let’s look at the facts.

  • CW bought Rangers from Sir David Murray’s company for £18,000,001.00. There was a £1 transaction between the two men.  Craig Whyte then paid off Lloyds TSB debt at HBOS by wiring £18,000,000 from Collyer Bristow to an account at Lloyds.
  • CW then had Lloyds assign all relevant securities over to him or his company Wavetower, now “Rangers Group FC”.  Although it is widely accepted that Craig Whyte used Ticketus money to fund the purchase, what is important to remember is that Craig Whyte and Sir David Murray valued the company at £18Million + £1 or £18,000,001.00.
  • Ticketus becomes an unsecured creditor after Rangers enters into administration and is owed £26.7 Million.
  • Rangers cannot raise money from season ticket holders for the next few seasons.
  • Charles Greene and his “20-man consortium” buy Rangers from CW for the nominal charge of £2.  There is no agreed £18M paid into a lawyers account to pay off a debt to HBOS this time. The £8.4M is set aside for the creditors’ pot IF a CVA can be agreed to.  If the CVA can’t be agreed to, is there any contractual obligation to put the £8.4M into the club’s coffers? NO.
  • A new only comes in and cancels the Ticketus deal altogether. They sue the old owner – Craig Whyte. The Ticketus deal is null and void, and CW only pledges his shares and debenture if a CVA goes through.
  • I may be wrong, but I have seen no-one from the MSM ask this question. If the CVA is not agreed, then what happens to the £8.4M held for the creditors? If the answer is nothing, and it doesn’t go into the CVA pot, then it means…

Charles Green bought the club, Ibrox, Murray Park, and the car parks for £2.00. If a CVA cannot be agreed to, and the club has been sold to a 20 man consortium in equal shares that RFC have been bought for 10p each share! Any new owner could come in and buy these shares in a newco company – a debt free football club playing in the SPL with a TV contract with Sky and ESPN. A rights issue WOULD make the original owners a tidy profit on the stock exchange. 

I want to be clear this is me hypothesising. However, it is very suspicious to me that a company that was sold a year ago for £18,000,001.00 has been sold again in less than a year for £2.00. It is worth knowing if the Ticketus deal was a double poison pill– not only did it fund the purchase of the club, but it effectively ensured that “the target company takes on large debts in an effort to make the debt load too high to be attractive. It would be so unattractive that no acquirer would want to pay the debts.”

Here is a classic anti-shark repellent move! This strategy also assumes that the club pays their debts in the long-run. However, under today’s company laws, in particular the Enterprise Act, struggling businesses can continue in new forms as government would rather see businesses keeping jobs going at the expense of toxic debt – which keeps far less in employment.

A plan to shed my business debts in a morally ambiguous, but legal way might look like this:

Run up massive debts and get served with massive bill from more creditors including, hopefully HMRC! Be unable to service those debts. Limit the ways the company can gain access to working capital. Then bankrupt your own business by putting it into administration. Make the company unattractive to legitimate parties of interest by taking on massive amounts of debt. Hire the same people who advised you on this strategy to run the company during the administration process. Offer to sell to a buyer (outside of the circle) to make the whole thing seem legitimate, but as soon as he sees the financial picture, he walks and walks away. Make it as unattractive as possible to any other potential buyers by having an element of your customer base threaten any potential buyers, but at the same time pay for the Old Guard (fine gentleman like Sandy Jardine, Andy Kerr and Mark Dingwall) to wax lyrical about how great Rangers is to anyone eager to lap it up. 

Forego your debts to the tax man other legitimate creditors and form a “newco”… Get a slap on your wrist from the regulatory organizations.  Cancel all of your debts. Buy your partners in consortium out. Return to the glory days of the past.

Smell a rat now?



[1] Fundamentals of Corporate Finance (6th ed.), Editions McGraw-Hill Ryerson, §23: Mergers and Acquisitions


Rangers in Crisis: Some Legal Explanations and Questions for the Mainstream Media

17 May

Having listened to several mainstream media outlets struggle to explain to its listeners how the law operates in situations like the one Rangers find themselves in, I decided to spell it out for our less legally inclined.   One of the most common claim listeners make is, “How can Rangers be punished for the acts of an individual like Craig Whyte?”

Another one is,  “Why are the SFA making the rules as they go along?”

Thirdly Graham Spiers claimed last night on Clyde Sports Scoreboard that “he had seen no evidence to suggest John Mclelland or John Greig has done anything wrong”.

The balance of this blog post will debunk these 3 claims and whether you love Rangers or loathe Rangers, the laws have operated clearly and predictably.  These are the laws of the land and in part, govern how businesses and corporations operate.

The second part of this blog asks some real questions that the media are not asking.

Thirdly, I wrap up by laying out where Rangers are now and where Rangers will likely be at the start of next season.

For the avoidance of doubt, Rangers Football Club is a company, subject to the Companies Act 2006 and several other legal instruments that govern how the laws treat companies and businesses. In a legal sense, there is no such things as a ‘club’…

Some lawyers may cringe at the simplicity that follows, but this is for the layman, not you…

Point 1:

In the late 1800’s the House of Lords ruled in the case of Salomon v Salomon that a company is a separate legal entity from a person. This is one of the founding principles of our economic and company policy over the 20th Century. If I am worth a £1billion and I setup a business, specifically a limited company, and I fund it to the amount of £10,000, then I am only liable for £10,000 if it goes bust. Yours truly, me myself, and I do not own the assets of the company, the company does. Accordingly, this also means the company owns its own debts and liabilities. This is commonly referred to as separate legal personality and encourages entrepreneurship and risk taking. By creating a separate legal entity, one of the legal effects is commonly referred to as limited liability. This means, except in rare circumstances, if my business goes bust, my company’s creditors cannot hold yours truly, me myself and I accountable for the company debt – even if I am personally worth £1 trillion by the time my business goes bankrupt.  This is almost absolute – with a few exceptions, but importantly even when my business is in debt up to £120M.  I get to keep my £1 trillion and the creditors are doomed to accept their cruel fates.

What this also means in practice is that a person who makes decisions on behalf of a company is not liable, barring a few exceptions, for the dealings of the company. If a person makes a decision to the gain of the business, it is the business that is meant to gain the benefit. Likewise, if a person in charge makes a poor decision it is the business that suffers the consequences.

In football terms, let’s look at this way. Say a Rangers Chairman buys 2 talented schoolboys for £10K. One turns out to be a dud 5 years later. The other turns out to be the next Messi seven years later. When Chairman A leaves the company in year 6, knowing that he cost the business 5K for the dud player. Rangers own the loss. The chairman doesn’t have to take it with him. The same rule applies when the 2nd boy goes on to be sold for £50M. The club gets to keep the money. The ex-owner can’t come back demanding money for his hit purchase. This works great in practice and ensures a level of certainty. However, like any legal principle when things go bad, the same rule applies and this is where most Rangers supporters and the media are going wrong.

When someone suffers a loss as a result of the actions of a company, either a creditor or a party litigant or a shareholder, they often sue the business. They don’t sue the CEO or the senior manager or the call centre operative. They sue the corporation.

In reality, most CEOs or Chairmen have very little contact with customers about the day-to-day operations of the business. There is no point in suing Bill Gates if Windows 7 crashes. Bill Gates is separate from Microsoft.  You’re unhappy with your contract with Microsoft, you sue them.  When a manager doesn’t clean up aisle 6 at Tesco’s, and little Sally slips in the puddle, Sally sues Tesco’s, not the manager of the Silverburn Store.

The courts have developed a test to determine when a company and its representatives are acting out-with their official role, and when they are acting as a representative of the company. There is a very important distinction.

The SFA disciplinary panel made reference to this in the case of Tesco’s v Nattrass [1972] AC 153 – 9 times. This is the law. This is relevant law today and this case is the basis for the decision and the appeal.  The disciplinary panel make reference to this case throughout their reasoning.

Here are the facts of the case:

Tesco was offering a discount on washing powder which was advertised on posters displayed in stores. Once they ran out of the lower priced product the stores began to replace it with the regularly priced stock. The manager failed to take the signs down and a customer was charged at the higher price. Tesco was charged under the Trade Descriptions Act 1968 for falsely advertising the price of washing powder. In its defence Tesco argued that the company had taken all reasonable precautions and all due diligence, and that the conduct of the manager could not attach liability to the corporation.

The House of Lords accepted the defence and found that the manager was not a part of the “directing mind” of the corporation and therefore his conduct was not attributable to the corporation. The corporation had done all it could to enforce the rules regarding advertising.

In the House of Lords Tesco were successful with their defence showing that,

  • a store manager was classed as ‘another person’, and,
  • a system of delegating responsibility to that person was performance of due diligence, not avoidance of it
  • The store manager was not the directing mind and will of the company – the company had done all it could to avoid committing an offence and the offence were the fault of another person (an employee). The company was acquitted.

Lord Reid held that, in order for liability to attach to the actions of a person, it must be the case that “The person who acts is not speaking or acting for the company. He is acting as the company and his mind which directs his acts is the mind of the company. If it is a guilty mind then that guilt is the guilt of the company.”

Let’s look at that again. A person who is acting as the company and his mind which directs his acts is the mind of the company. In other words, according to the law of the land, if Craig Whyte is guilty then Rangers MUST be guilty. Every time a Rangers supporter screams, “its CW that guilty not us”, they are effectively reinforcing Rangers own guilt under the Tesco’s v Nattrass doctrine!

Point 3

This brings us to the Board of Directors and John McLelland and John Greig.  This section might sit uncomfortable with some of the Rangers support, especially Graham Spiers…

If a football club fans are going to insist that a person the fans can relate to is sitting on board level, they need to be aware that the law doesn’t recognize symbolism.  It recognizes statutes, regulations and case precedent.  When Mr McLelland and Mr Greig take the position on the Board as Non-Executive Directors (NEDs), they are under legal obligations to act in a certain way.

Both men sat on the Board during Mr Whyte’s tenure as NEDs.  If one is to sit at board level as a NED, then several legal obligations fall upon them.  NEDs are differentiated from inside directors, who are members of the board who also serve or previously served as executive managers of the company (most often as corporate officers). Sometimes NEDs are often confused with Independent directors who are people who do not own shares in the company. NEDs can also hold shares in the company.

After several high profile business collapses in the late 1990’s the British government commissioned the Higgs Report which was published in 2003. The recommended obligations placed on people who serve as a NON-EXECUTIVE DIRECTOR is as follows:

  • Strategy: Non-executive directors should constructively challenge and contribute to the development of strategy.
  • Performance: Non-executive directors should scrutinise the performance of management in meeting agreed goals and objectives and monitoring, and where necessary removing, senior management and in succession planning.
  • Risk: Non-executive directors should satisfy themselves that financial information is accurate and that financial controls and systems of risk management are robust and defensible.
  • People: Non-executive directors are responsible for determining appropriate levels of remuneration of executive directors and have a prime role in appointing, and where necessary removing, senior management and in succession planning.

It is not enough to give Mr Greig the title of “greatest ever Ranger” and call his appointment symbolic. At the moment he takes the legal title of non-executive director he loses the defence that he doesn’t know anything about corporate governance. When Mr Greig and Mr McLelland take the title of Non-Executive Director, they are considered the legal custodians of the governance process.  Anyone known as an NED at Rangers was under a legal obligation to provide an independent view on Rangers resources, appointments, and standards of conduct.

The failure to oblige to these legal obligations also put Mr Dave King, Mr Alastair Johnson, Mr Paul Murray, and Mr Martin Bain, who all have served as non-executive directors in one capacity or another during the Murray/Whyte reign, on notice.

As you can see, the Disciplinary Panel and the Judicial Appeal Board all were correct to hold Rangers and Craig Whyte together. Therefore, it is a fallacy to argue that Craig Whyte operated as a “rogue” when so many other people in the company failed to live up to their legal obligations to proper corporate governance.

Point 2:

The rules are quite clear. The SFA is not making them up as they go along.

The tribunal’s published determination makes reference to articles 94.1 and 95 of the Scottish FA’s Articles of Association, which relate to the permitted penalties for any infringement of the rules:

Rule 94.1 refers to the powers of the judicial panel, stating it “shall be the sole judge” when a club “in any way brings the game into disrepute or any other grounds it considers sufficient”.

And then they add:

Rule 95 then provides a mechanism for an independent tribunal to impose any sanction it wishes out-with the guidelines set down by the Judicial Panel Protocol, leading to the decision to hit Rangers with a registration embargo.

The Judicial Panel shall have the jurisdiction, subject to the terms of the Judicial Panel Protocol, to deal with any alleged infringement of any provision of these articles.

A… club… if found to have infringed the articles shall be liable to censure or to a fine or to a suspension or to an expulsion from the Challenge Cup [Scottish Cup] Competition, to any combination of these penalties or such other penalty, condition or sanction as the Judicial Panel considers appropriate, including such other sanctions as are contained within the Judicial Panel Protocol, in order to deal justly with the case in question.”

This should answer the first two questions.


Hopefully this will clarify some of the finer legal points that the mainstream media are struggling to get their heads around. In turn, I hope they help me answer the following questions that need answering…

  • Was the Ticketus deal a double whammy poison pill? I’ll address this in a future blog post, but Ill pose the following question – what if Ticketus deal was done to ensure the club doesn’t have a buyer and does go into liquidation? This is why it is important to make public the people buying into the Green consortium.
  • Did Craig Whyte give up his floating charge over the fixed assets of the club? Giving up his shares doesn’t really mean anything if he still owns a floating charge. I have it on good authority that an examination of the Rangers books will shows how Whyte was operating his floating charge to the tune of a charge of 2%-3% a month in interest. That is likely a premium RFC are paying to Rangers FC Group for the £18M loan facility allowing Whyte as a secured creditor to get cash out of RFC with impunity. Is he still doing this?
  • Thirdly, Dunfermline Athletic, Dundee, Hearts and Rapid Vienna are all due funds. They must be paid in their entirety in order for Rangers to satisfy the football authorities. However in a CVA, one cannot discriminate between creditors. If DAFC, Dundee, Hearts, and Rapid Vienna are to be paid in full, then so are Craig Whyte, Ticketus, and HMRC. How does Rangers (IA) satisfy their football debts without compromising the rules around non-discrimination of unsecured creditors?

Please let us know, MSM…

Where does this leave RFC (IA)? Here is what I see as the potential outcomes in no particular order…

Option 1 – Sell assets, namely players raising cash for a CVA pot. Ticketus and HMRC will have to agree.. Right now, either of them could block a CVA on the 75% Creditors rule. Ticketus has about a £26M claim as an unsecured creditor. HMRC has a claim of approximately £42M claim. (25M +9M PAYE +4M VAT on Ticketus deal, and 4M “wee tax case”). As the judgement from the ‘big tax case’ is not in yet, I’ll leave that out.  I still see HMRC and Ticketus having to agree to any CVA and the only way they will agree is for a fire sale of all Rangers assets to raise the value of the CVA pot.

Rangers stay in the SPL, and with the transfer embargo in place, have to field a team of youngsters for a season.

Option 2: Rangers sell Ibrox and all the other fixed assets to keep the players. I know this is an unlikely outcome. While Ally’s rallying cry “we don’t do walking away” made for good fodder for rallying the troops, when a players livelihood is on the line, he will be hard pressed not to walk away to the bank to collect a pay check from a club on much stronger foundations. Without any working capital and no legal right to buy players, the only way RFC can stay competitive is to sell their fixed assets – Ibrox, Murray Park, and the two car parks.  Take the proceeds from the asset sale and stick it in the CVA pot and hope all the unsecured creditors agree.

Rent Ibrox back from its new owners. Or play in Hampden and rent it from the SFA. Ouch. That would be a sore one. All the big name players go, with the exception of people like Lee McCulloch and one or two of the rising stars like Andy Little.  This gives the club some working capital. They can’t rely on Ticket sales to raise funds anymore because of the Ticketus deal and the season ticket deals.

Option 3: The big tax case comes back against Rangers and holds up the levy already placed on Rangers. HMRC moves for liquidation. All hell breaks loose and all the assets are sold off – players and fixed and creditors repaid pennies on the pound.  Rangers are killed off by two decades of financial mismanagement. The blame lies at Sir David Murray’s door as much as it is Craig Whyte’s.

Option 4: This is the ‘NewCo’ option and would involve literally start all over again by applying to get back into the SFA. Sell all players and sell all fixed assets. A possibility would be to rent Ibrox and Murray Park back from its new owners. The transfer embargo has ensured those 40 players on RFC rosters have a place to play. It just means that they can’t buy anyone for 12 months over the age of 18.

The competence of the panel and the reasoning behind the decision has now been explained. Let’s say we see, either an oldco RFC in the SPL next season, or a “NewCo” RFC next year.

Under the ‘oldco’ outcome, we will see a club with no stadium, no players, under an effective transfer embargo, and either playing at Ibrox rented from its new owners or Hampden, if Ibrox is sold off to developers. It will likely have been punished a further points reduction for still being in administration. It will likely be a shell club, well shy of its former glory.  It will be Rangers though, and that will be what a lot of the fans will want to see.

Under the ‘newco’ option, it will not be Rangers and that will be a sore pill to take for a lot of supporters.

All of this gets settled and then the double contract announcement comes home to roost. The former RFC as a “newco” can’t be punished anymore, because it is, well new. The “oldco” can be.  I think it will be appropriate  that the football community start to think of the totality of Craig Whyte’s actions as misdemeanours. There will be a wholesalfe shift in how the football community starts to view Sir David Murray. If the double contract judgement comes back against Rangers, it will likely be referred to as a series of felonies – systematic long-term cheating and we will have to have a serious of conversations about how to deal with this.  Do we invalidate all of the results over a year when EBTs and double contracts were in use? If that’s the case, I think we need to look at how much money clubs lost out on after amending  all of the tainted results. Should compensatory damages be paid to all of those clubs that lost out on a second, 3rd or 4th place finish because of a financially doped team? How much did clubs lose out on from not being able to play in Europe? What would be the difference in the amount each club would have received from the commercial fund?  What would attendance have been if the playing field had been levelled?

There will be a lot of questions to be answered. Hopefully, you and I will get there together.



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….

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…

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.