Tag Archives: Duff&Phelps

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


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?