The Problems Facing the SFA If Rangers Fall Into Insolvency – A Guest Post by Brogan Rogan Trevino and Hogan

My favourite commenter named after two Celtic full backs, and two fantastic golfers, was good enough to put a lengthy comment on my last post.

To ensure that it gets the wider audience it deserves, I have copied it below.

Take it away BRTH!

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While there has naturally been a focus on the possible exit/survival routes that may be countenanced by the Rangers PLC and/or a Rangers new co– and now some concentration on the actual details of the Whyte/Murray deal– any which way you look at it other than one there is a legal nightmare ahead for Stuart Regan and the newly transparent SFA. I suspect that things are far from clear at Hampden and there is a real danger that there are aspects to any application for admission by a new co that have not been considered– as yet– and which may well tilt the whole thing in another direction.

Stop and consider this? What is the role of the Scottish Football Association? Yes it is there to regulate the laws of football in Scotland, to make rules and apply them, to consider and create new football legislation when appropriate, to ensure compliance with the regulation of its own parent bodies ( UEFA and FIFA) , To represent its constituent clubs where appropriate, to licence in terms of the regulations of both the SFA and UEFA, and at times to be a judicial body applying sanctions where breaches of the rules have been established.

Oh Dear– what a lot of functions and responsibilities– and what a lot of conflicts of interest!

As I have said elsewhere, The SFA does not just represent the SPL clubs– but all of Scottish Football! Some of the smaller clubs may well have a very different point of view to those clubs in the SPL. Many would welcome a giant of the Scottish game having to visit their stadiums twice a year as it would create a substantial financial bonus and enhance the public interest in their leagues– attracting sponsorship, advertising possibilities and so on that otherwise would not exist!

However let’s concentrate on two of the SFA’s clear functions. As a licensing body and as a judicial body which imposes sanctions, The SFA is and must be subject to an obligation to the law that overrides any competing interest or claim by its constituent members. As a licensing body, it’s decisions are certainly open to Judicial review in the Scottish courts and I would suspect that a judicial review would be open to any of it’s members who disagreed strongly enough with any of it’s decisions.

In the past, I have been involved with many judicial reviews concerning Licensing bodies over the years. Two grounds of review are that a) The decision reached is contrary to natural justice and b) that in reaching any decision the body concerned has unreasonably exercised its discretion– where a discretion has been exercised!!

Pausing there, it is very much open to question whether an argument such as that outlined in the Daily Record recently could ever be formally argued before the SFA which is why I suspect that we are about to get a trial by newspaper!

Any argument presented before a judicial body or a licensing body which contains the semblance of an argument which runs along the lines ” It is in your own financial interests to allow our application!” should immediately be dismissed in law as it creates a clear conflict of interest and makes a mockery of the alleged independent and impartial judicial or licensing function.

Any such argument being considered would surely leave the SFA in a very uncomfortable legal place– not to mention UEFA or FIFA — where independence and freedom from personal and collective financial self-interest are under heavy scrutiny and criticism. Take note of the very platform that Platini was elected on!!

So back to judicial review in Scotland.

The current rules in an insolvency position are clear. On Administration ten points at least will be deducted. The ten points I believe is a minimum penalty and it may be that aggravating factors may attract a heavier penalty.

If the Administration is not successfully concluded and liquidation follows the rules state that the licence is lost and surrendered– end of story. An application can then be made by a phoenix company for a new licence and in ordinary circumstances any such company granted that licence would start at the bottom of the league structure and the European regulations regarding the three-year embargo would apply.

Any departure from that set of scenarios on the part of the SFA requires an exercise of their discretion, and in exercising any such discretion the SFA must act according to natural justice and must not exercise that discretion unreasonably.

In that light, look at the footballing and legal facts– as opposed to the “If we are doomed, you are all doomed argument” which has no place in law.

Rangers PLC have deliberately and recklessly broken and flaunted the footballing financial guidelines and have deliberately and recklessly ran up a debt with inter alia HMRC.

Remember that this entire scenario comes about as a result of an attempt to avoid paying due revenues to a relevant tax authority as a result of a connived scheme to avoid paying the taxes that every other club is subject to. Further, I suspect that an examination of the relevant documents surrounding the creation of the EBT and the advice given to Rangers PLC about operating such a scheme will make it clear that no such advice can ultimately be relied upon fully and that there is a clearly stated risk that the entire scheme may well be one which the revenue can have declared illegal with the result that revenues will be due together with accumulating interest and taxes– and that therefore the Directors of Rangers PLC enter into such an agreement fully warned and at their own risk!

Remember too that some of those Directors were paid under that very same scheme!

So this is not a simple case of a business failing and falling into insolvency. This is a case of the Directors deliberately seeking a financial advantage over all competitors which they have been warned in advance may well be unlawful and have sanctions and penalties.

That is a very different scenario to the insolvency of Dundee or Gretna and so on. It is a very different footballing scenario as well, as the entire scheme was designed to ensure that the club concerned could attract the very best players in the country and could win the premier tournaments of the licensing body!

But there is worse to come. On two occasions Rangers have “poached” the national team coach in order to achieve the best possible management of their team. That may be fair enough in a commercial world. However, both of those managers will have wanted to know what the budget will have been to strengthen the squad prior to taking on the job. Let us consider the last such appointment when Walter Smith left Hampden to take up the hot seat at Ibrox.

I will wager ( or at the very least wonder if ) that by that time the Directors of Rangers knew that there was a problem with the tax authorities and the famous or infamous EBT contracts? If so then we have a compounding of the Rangers situation.

If the club had received notice of enquiries being made at that time by HMRC, then going by the advice previously given, they would also know that there was a possibility of a large repayment being due together with penalties and interest.

The prudent director at that point may want to make provision for paying any such liability. Did Rangers? No!!!

Instead, following upon the defeat by Kaunas they went on an unprecedented spending spree to ensure success– all at the cost of paying HMRC and at the cost of complying with the intention of the fair play financial legislation.

Money that could have been used for debt repayment was spent on Mendes, Davis, Lafferty, Whittaker, Naismith ans so on– eventually that extended to the signings of Miller, Jelavic and everyone who followed. Absolutely no attempt at repayment of revenue debt, or the setting aside of money to meet revenue debt, was made.

So this is not accidental insolvency as a result of poor trading– it is a direct result of financial irregularity and it should not be allowed to result in a benefit to the perpetrators of that financial irregularity. Does that argument sound familiar? Yes I thought it would– it is taken from the formal legal pleadings of Rangers PLC lodged in the Court of Session in answer to the claim lodged by one of the architects of this misfortune– namely Martin Bain Esq!

So that is the stance on the financial irregularity of the current Rangers Board! That board of course went through a months long and very public due diligence exercise before acquiring a controlling stake in Rangers PLC. They knew and will have received full legal and accounting advice on the legal status of all revenue claims, how those claims came about and how those claims if successful could affect future trading and licensing of the football club and the PLC.

In such circumstances, Craig Whyte and his cohorts have taken on the previously accepted risk. They are in an even worse position than the former board because they could have simply decided not to invest. They could have waited with any bid for Rangers PLC or its assets until after the First tier Tribunal had reached a decision and the full effect of any legal consequence was known. Yet they didn’t. Instead, in full knowledge and with the benefit of full advice they took on that risk!

We can only speculate as to why that might be. It has been suggested that it as insisted upon by the bank. What would have happened if that had not happened? Perhaps the bank would have pulled the plug and………..? Well the legal consequences are spelt out above. The rules are clear.

So under the current daily Record scenario, in the event of an Administration or even prior to it, the SFA will be approached by someone presumably on behalf of Craig Whyte to exercise an extraordinary discretion ( thus departing from the normal rules ) which it will be argued should apply to some new entity that wants to call itself Rangers because…….?

And it is there that I hit a brick wall! Why should this extraordinary discretion be applied in these circumstances?

If their stadium had been closed because of Fire or Catastrophe or some other physical reason that leads to financial ruin then that may be an argument!

If all their players went on strike or broke contracts or something than that may be another.

In fact any argument that these circumstances were not brought about by the club itself may gain some sympathy in law– but a deliberate and calculated act, the risk of which was accepted and taken on by the controller of the new applicant? Not sure about that!!!

Whyte also has questions of his own to answer with regard to a business track record, source of funding, compliance with companies Act legislation, the ability to trade presuming no European Football ( and that must be legally presumed ) and in general answer the fit and proper fitness test. This is a test which he seems to have spectacularly failed in the eyes of the takeover panel at Rangers PLC as the Directors sitting on that panel refused their blessing and sanction.

Those Directors have since resigned and some have entered the legal courts as a result of what they see as Whyte’s conduct. Whats more, in a few short months, Whyte has threatened to sue various journalists and other media outlets following their apparent criticism or questioning of the legal or business circumstances surrounding Rangers Football Club and Rangers PLC.

So on what basis and under what grounds can the SFA reasonably exercise a discretion to a new applicant under the control of Craig Whyte in these circumstances? What would be the legal position of anyone who objects to any such discretion being exercised?

I again stress that I don’t think that potential financial doomsday is a reasonable argument in law to put before a licensing body or a judicial committee– who of course must call for a report and seek to investigate all of the facts. Thus is far harder than is being suggested in the newspapers and of course if in advance discussions are taking place then all of the member clubs should be notified immediately.

What’s more, any such procedure must surely take a proper legal course and a reasonable amount of time. Any Administration would have to occur before there is an application– indeed it may be that an actual liquidation has to occur before any new application because even in an Administration event all licence places are full. Further the SFA cannot agree to the favourable determination of any licensing application before it is made as that is clearly unlawful!

No, for the SFA, the scenario outlined is a legal nightmare even if all the clubs wanted to agree to such a course. I am aware that there is a voting procedure of 11-1 which Rangers might want to invoke but you see even that very rule may well just be challenge-able on the basis of the voters having their own financial interests in mind as opposed to serving another function– an no licensing body can work legally on such a principle. If there is a conflict of interest any such party should take no part in the proceedings and so if anyone thinks that they will go bust in the event of Rangers going bust and going into liquidation should excuse themselves from any decision-making process.

Two last points:

Watch out for the detail of the FC Sion ruling as there may well be an impact on all of this in the detail of that decision.

Lastly, Celtic Football Club are represented by Messrs Harper McLeod Solicitors who have a number of Licensing and sports law experts who will be only too familiar with all of the above. They are also familiar to the SFA and their judicial bodies, their legal representatives and so on. I have a great deal of respect for Rod McKenzie and his team and they will no doubt steer their clients in the proper legal direction if consulted on any licensing or regulatory manner– as the SFA well know!

My apologies for the length of this post which I will now leave with the intention of returning to my day job!

 

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Many thanks BRTH! Amongst many interesting points I can confirm from personal knowledge that Harper MacLeod is an absolutely top-notch legal firm, and in particular Rod McKenzie is a man who is, and has been for many years, at the absolute top of his game. I suspect that many lawyers would instruct Rod if they had to choose a professional colleague to rely on. Celtic undoubtedly have great talent off the filed, even if on the field that proposition might seem rather more dubious!