A quick guide to redundancies, Season Tickets, and administrators
The rules regarding the duties and powers of an administrator are helpfully set out in Schedule B1 to the Insolvency Act 1986.
For just now I am writing on the basis of administration. I am not looking, in this post, at the prospect of Craig Whyte/Rangers FC Group Ltd/ Liberty Capital Ltd or Uncle Tom Cobley or whoever holds the Rangers Floating Charge appointing a receiver. With my recent record, one will be appointed by the time I hit “publish” but never mind!
What is the purpose of administration?
Paragraph 3 (1) of the Schedule spells it out.
The administrator of a company must perform his functions with the objective of—
(a) rescuing the company as a going concern, or
(b) achieving 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 administration), or
(c) realising property in order to make a distribution to one or more secured or preferential creditors.
How might this affect Rangers (and when I refer to Rangers I am referring to Rangers Football Club PLC (in administration))?
We should bear in mind that with the exception mentioned below, all this must be done in accordance with sub paragraph 2 which states:-
Subject to sub-paragraph (4), the administrator of a company must perform his functions in the interests of the company’s creditors as a whole.
Can the administrators rescue Rangers as a going concern?
I think that is impossible. We have not seen the latest accounts for Rangers, which were to be published by the end of 2011. Mr Whyte repeatedly promised them, indeed telling Rangers supporters that he was to meet with the auditors, Grant Thornton, on 6th February, to finalise them.
The speculation is that Grant Thornton could not agree with Rangers about whether or not the accounts should be qualified as regards the ability of Rangers to operate as a going concern, in light of the “Big Tax Case”. It is also possible, standing what HMRC told the Court of Session today about tax debts accrued since Mr Whyte took over in May, that there were issues about these too.
In any event, as Mr Whyte stated yesterday “As I have said before, Rangers costs approximately £45 million per year to operate and commands around £35 million in revenue”. In addition, there is a potential tax liability in total, according to Mr Whyte, of £75 million.
There is no way that that can be traded out of. Even if Cristiano Ronaldo, Lionel Messi and Carlos Tevez played for Rangers, and could be sold now, Rangers very public distressed circumstances would preclude them raising the funds to make enough of a difference. For all the quality Rangers undoubtedly have, it is not up there with the three gentlemen I mentioned.
Can the administrators achieve 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 administration)?
This is an interesting one. What will it cost to keep Rangers running until the end of the season, and the sale of, for example, new season tickets or of the remaining high value players?
If Rangers go into liquidation, then the players’ contracts are ended, and they become free agents, with no transfer fees payable to Rangers when they sign with new clubs.
This might suggest that it would be a good thing for the administrators to try to keep things going till the next transfer window, and seek to carry out a fire sale then. This poses a couple of problems. Firstly, I am sure that the players would want paid in the intervening period, and secondly, the players, and their agents, will realise that a player able to sign as a free agent will receive more money than one for whom a transfer fee has to be paid. In addition, as regards transfers, normally a player who has not sought a transfer receives a payment from his former club, as well as his signing on fee from his new team.
Should the administrators sell a player, I imagine that it would be difficult to justify taking a large sum, even if only a small percentage, to pay the player who is leaving. The creditors, and especially HMRC, would be watching such transactions like a hawk.
There are two problems as regards the season tickets. The first is that in excess of 25,000 have already been sold to Ticketus for season 2012-2013. Therefore, unless the administrator reneges on the deal, leaving Ticketus as a creditor, there will be little or no money coming in from the season ticket source. In addition, the administrator could give no guarantees that Rangers would be able to play a full season, and therefore fans would be taking a gamble.
Could the administrators organise a sale and leaseback of Ibrox or Murray Park, for example, or a sale of Rangers’ assets? Yes, although the liquidator could do this just as well, if not better.
Without definitive figures it is not easy to be clear about this, but it does seem that the costs of running the team till August, which is what would be required to get to the end of the transfer window, would be prohibitive.
This comes after the “going concern” possibility and sub-paragraph 3 states:-
“The administrator must perform his functions with the objective specified in sub-paragraph (1) (a) unless he thinks either—
(a) that it is not reasonably practicable to achieve that objective, or
(b) that the objective specified in sub-paragraph (1) (b) would achieve a better result for the company’s creditors as a whole.”
So, only if the company cannot be run as a going concern, or of this will be better for all the creditors, does this possibility kick in. Here the administrators must still act for all the creditors.
Will the administrators realise property in order to make a distribution to secured creditors?
As I have mentioned, there is a Floating Charge. This was originally in favour of the Bank of Scotland, and the rights under it were assigned to Rangers FC Group Ltd (hereafter “Group”) once Mr Whyte paid off the debt due to Lloyds Bank. There has been much speculation about who now has the Floating Charge.
I wrote about this recently, and the suspects seem to be (a) Liberty Capital Ltd (Mr Whyte’s BVI company) (b) “Group” (c) Ticketus, in connection with the season ticket deal or (d) AN Other.
Let us say that, for simplicity, “Group” remains the Floating Charge holder.
The administrators could devote their efforts to “realising property” to pay off “Group”. The liability to “Group” includes the £18 million paid to Lloyds, together with the various sums invested in Rangers by “Group” and interest charges and management fees.
The administrators could determine that the best option would be, in the scenario I have outlined, to transfer the stadium, subject to its valuation, to “Group” in settlement of the debt, then leaving the remaining creditors to fight over Murray Park and the players.
This is a similar process to that in receivership.
There has been concern that an administrator in these circumstances could decide that the value of the assets in Rangers matches the sums due to the secured creditor under the Floating Charge and hand them over at a significant under value.
This is foreseen by Sub-Paragraphs 2 and 4. Sub-Paragraph 2, as quoted above, enjoins the administrator to work in the interests of the creditors as a whole, except as detailed in sub-paragraph 4, which states:-
The administrator may perform his functions with the objective specified in sub-paragraph (1) (c) only if—
(a) he thinks that it is not reasonably practicable to achieve either of the objectives specified in sub-paragraph (1) (a) and (b), and
(b) he does not unnecessarily harm the interests of the creditors of the company as a whole.
Therefore, before the administrator can act, effectively, as a receiver, he must first be satisfied that it is not reasonably practicable to fulfil either of the first two goals and also he cannot act to the detriment of the totality of creditors. Therefore a “cosy” deal as outlined above would need to be justifiable based on proper asset valuations and debt figures which would stand up to scrutiny. For example if “Group” wanted to state that it was owed £100 million (by way of example) the administrators could not simply accept that without evidence.
Sub-Paragraph 4 requires the administrator to “perform his functions as quickly and efficiently as is reasonably practicable.”
What is the Effect of Administration?
Whilst an administration order is in effect there can neither be a resolution of the company to wind it self up, nor can the court grant a petition for winding up. (There are limited exceptions but these do not apply here.)
In addition, no steps can be taken to enforce security over the company’s property, or to institute or continue legal action against the company, without the consent of the administrator or the court.
These steps are intended to allow the company breathing space to clear its feet and pursue one of the purposes of administration, as detailed above.
Whilst the Schedule refers to “no legal process” being pursued, I wonder if non-legal methods might be permissible. For example, it appears that Rangers are indebted to certain other SPL teams. If the team chose to proceed via the SPL, as the Hearts players did when not paid their wages, rather than by court or tribunal, would that “Quasi legal” course amount to a “legal process”?
On one view, if the administrators intend to keep Rangers going, then, as payments to other teams fall due, the SPL could be called in to resolve matters. As was seen with Hearts, when an undertaking was made to the SPL and broken there was a charge of failing to act with the “utmost good faith”. Might this, rather than a court action, be the way to proceed for SPL teams owed by Rangers?
Presumably, if the SPL entertained the application, the administrators would need to go to court for an order to prevent the SPL continuing with action?
Under Paragraph 45, when a company is in administration, all business documents issued by the company and the company website must specify that the company is in administration and who the administrators are.
It is an offence by the administrators, officers of the company and the company not to do so. As at 11.35pm on 14th February, the Rangers.co.uk website is not displaying the required notice. I am sure that will be remedied very soon.
What Must the Administrator Do?
Paragraph 47 tells the administrator that he can demand a statement of affairs of the company from a “relevant person”. A “relevant person” is an employee or officer of the company, or someone who has been so within 12 months prior to the administration order.
Any person called upon to produce such a statement must do so within 11 days of being required to do so, and failure to do so constitutes a criminal offence.
The statement must contain: – particulars of the company’s property, debts and liabilities; the names and addresses of the company’s creditors; the security held by each creditor; and the date on which each security was granted.
Within 8 weeks of appointment the administrators must issue their proposals for achieving the purposes of administration. If the administrators decide that they cannot fulfil the first or second purposes, then they must explain why. The proposal may include a CVA. I calculate that the proposals must be forthcoming by 10th April 2012.
Within 10 weeks of the order there must be a meeting of creditors unless the administrator thinks (a) there is enough to pay all creditors in full (b) there is not enough to pay any unsecured creditor anything or (c) that they will proceed to satisfy only the secured creditor.
If at least 10% of the creditors by value of debt request a creditors’ meeting, one must be held.
Powers of the Administrators
The administrators can do anything necessary or expedient for the management of the affairs, business or property of the company, including the dismissal or appointment of directors.
The administrators are able to use assets of the company to fund their activities. If the administrators have no funds available in the company to do so, then normally they would seek a contribution from an “interested party”. Here Mr Whyte has already said that “Group” is willing to put up funds for this purpose.
A cynical friend suggested that would actually be the first money “Group” had put up since it bought Rangers.
Will what is paid over be enough (a) to fund the match on Saturday (b) pay the staff wages for February and (c) keep the club running till the proposal can be made and voted on?
The administrator has the power to terminate contracts of employment. When Bryan Jackson was appointed administrator of Motherwell in 2002, he made 19 players redundant immediately.
The salaries paid by Rangers to its players will be high, yet, as often happens in these cases, there are many of the “lesser” employees made redundant from ticket office, admin etc, whose wages would be covered by one or two players.
It is likely, on imagines, that the administrator will make redundant a number of players at Ibrox, together with members of the backroom staff and other employees.
Players who are injured, for example, or whose contracts are expiring in the summer, or who are not worth their place in the squad will be first to go.
The administrators may, subject to the amount of money they have available to them, keep a couple of the high earners, in the hope of selling them. However money will be very tight, and there will not be cup-ties to fill the coffers.
Anyone made redundant would have the right to a redundancy payment, but subject to the basic statutory rules, rather than to contractual ones. If Rangers cannot pay redundancy payments, then the employees can apply to the redundancy fund for a basic payment. This is of far more relevance for the non-playing and managing staff.
As well as some top names being let go, it would not be a surprise to see (a) some of Ally McCoist’s support team released and (b) perhaps even Ali Russell and/or Gordon Smith. It all depends on how much “Group” is willing to put in.
I suspect now might be a great time to be a youth player or lowly paid reserve, as the chances of a first team game have increased hugely! This could be the making of some youngsters, who could end up as part of a newco Rangers, or indeed who could be snapped up by other teams.
This is an interesting one. The administrators can effectively rip up existing contracts with suppliers etc. Season ticket holders have already paid for their seats and, for the unexpired portion of their ticket, are creditors of the club.
In smaller examples of football insolvency, and Motherwell count as a “smaller” example, the appointment of an administrator has resulted in cancellation of season tickets, and a mass rallying round by the fans, who were happy to dig into their pockets to pay at the gate, and who were willing to chuck a few pounds into the buckets and tins being used to gather up funds for the administrator.
The Administrators Therefore Have Some Choices
1 Do they want the game on Saturday to go ahead? There are substantial costs in holding a game, and will the administrators have the funds for that purpose?
2 How will the administrators deal with the season ticket holders? Will they think it worthwhile letting them in, effectively for free, as they will consume food and drink when at the ground (which ignores the assumption that the catering income has been mortgaged off too). Will the season ticket holders be happy to pay at the gate for a game they have already paid for? Will fans who have spent their hard-earned cash on their season tickets be happy to be turned away unless they pay again?
3 How many players will they need to get rid of to make the running of the time manageable financially, whilst retaining enough quality to put out a competitive team?
4 Will any players be willing to accept reductions in their wages or even giving their club a break from paying them for playing, till Rangers’ heath improves?
5 Will the fans be willing to pay to see a team shorn of its star players?
After Saturday’s home game with Kilmarnock, the next match which will generate funds is a home game with Heats on 3rd March. The next is the Celtic game on 25th March. There are two more payrolls to be paid, with only two matches to fund them.
In addition, the Hearts game comes just after the new Offensive Behaviour etc Act comes into force, and I would imagine the police will want an increased presence at all matches in the early days of the new rules, resulting in higher costs for policing and stewarding.
Based on Craig Whyte’s figures that it costs £45 million per year to run Rangers, a simplistic calculation shows that to run for the 8 weeks till proposals are made, without any cuts would take around £7.5 million.
Does anyone believe that “Group” will be forthcoming in that amount? I suspect not!
So the Rangers end game comes ever nearer to an end.
The administrators have urgent and difficult decisions to make.
So too do the players and staff who might be offered redundancy, or the chance to play for no money. Will loyalty to Rangers get in the way of the understandable desire to maximise income?
The advice we give to people with debt issues who attend at the Citizen’s Advice Bureau is that the first step it maximise income and reduce expenditure.
Rangers cannot increase the income side, at this time of year. The administrators might cut savagely, leaving the first team squad decimated (colloquial rather than literal).
There remains a lot still to be written about Mr Whyte, but that is enough for tonight.