Rangers and the Incubator – Part 1 – Can the Players “Walk Away” For Nothing?

The Bill Miller takeover of Rangers is intended to take place this week (by 11 May). That does not leave much time. My plan is to write a few posts looking at the hurdles Duff & Phelps and Mr Miller will need to cross to achieve the goal of having Rangers play its last game of the season next Sunday under the ownership of the American trucking tycoon.

The first area I will look at is that of the players. Here straight away is a gamble. Any players who do not want to join newco can, as far as I can see, leave with no payment due to either newco or oldco Rangers. One suspects this might not have been not D&P’s plan.

Let’s remind ourselves of what Mr Miller said pre his preferred bidder status.

Bill Miller –

“My proposal on the table now is to pay £11.2M for the club which includes the £500,000 deposit required by Duff & Phelps.

“In order to preserve the club’s history, records, championships and assets, I will put the “heart” of the club into an “incubator” company while Duff & Phelps works to make the “sick patient” healthy through a CVA process that effectively works to “radiate” the toxicity of past administrations’ sins out of the patient while the “healthy heart” is preserved and moves forward. Once the CVA process has been completed and the patient is on the mend, the administrators will return Rangers Football Club plc to me for a nominal sum. The healthy heart and the healthy patient (The Rangers Football Club plc) will then be reunited through merger.

“In this scenario, the club can continue with all of its business assets, including its history, protected from the present illness. Thus a new corporate entity will own the club’s assets during the incubation period including all of its history.”

And what did D&P say when Mr Miller was chosen as preferred bidder.

Paul Clark of Duff & Phelps –

“We are delighted to announce that today we have received an unconditional bid for the business and assets of Rangers Football Club plc from Mr Bill Miller which has been accepted and he is now the preferred bidder. Mr Miller now proposes to complete his transaction by the end of the season.

“Mr Miller’s proposal involves the use of a specially created newco in addition to the retention of the Rangers Football Club plc. The business and assets he proposes to purchase will be sheltered in a newco and returned to the plc once the plc has been ‘cleaned up’.

How does this work as regards employees?

The Transfer of Undertakings (Protection of Employment) Regulations 2006 apply.

These regulations are designed to protect the rights of employees when a business is transferred. There is no doubt that what is outlined above by Messrs Miller and Clark would amount to a relevant transfer. Therefore, in law, the employment contracts of the employees transfer over to the new employer, and the contracts cannot be terminated by the new employer without this constituting an unfair dismissal and breach of contract.

However, in Rangers’ situation, the most relevant issues arise from the perspective of the employee looking to leave.

Whilst the worker automatically becomes an employee of the new company, he is not forced to do so. The employee has the right to object to this. If the employee objects to the transfer, then his employment does not continue with the new employer. It is treated as a resignation, and therefore the employee has no right to compensation from the new employer for redundancy or dismissal.

However, the new employer has no right of action for damages against the employee for terminating the contract.

It is illegal and unenforceable to purport to contract out of these rights.

ACCORDINGLY, ANY RANGERS PLAYER WHO DOES NOT WISH TO JOIN A NEWCO CAN “OBJECT” AND WILL NO LONGER BE A RANGERS (either oldco or incubator) EMPLOYEE.

If a player walks out on an existing contract with his team, then in contract law his employer could seek damages from him, and sporting sanctions would likely be applied to the player, whether by way of suspension or a fine.

However, if a contract terminates under the circumstances above, the player would be a free agent. The only thing the player would need to do would be to send the SPL written notice that the contract was terminated and 14 days later the registration of the player is terminated.

Under Mr Miller’s plan, the SPL share passes from oldco to newco. Accordingly oldco would not be a football club capable of seeking compensation for the player leaving from any new team. As the player would never have had a contract with the newco, then that entity also could not seek compensation from any team signing the player.

Effectively therefore, unless D&P are very careful, they could lose the entire playing staff, or at least those who would be of interest as free agents, for nothing.

Duff & Phelps, as representing the employer, need to consult with and inform the employees about what is happening. This should have included the above information. Now, if one is a member of the office staff, for example, or a groundsman, or even a youth team player, continuity of employment is a good thing. If not, and one is a highly paid and marketable player, of whom there are still a number at Ibrox, then why not take the chance to leave as a free agent, and cash in? After all, a football career is short, and can be ended by an injury at any time. From all that Mr Miller has said about cloth cutting, one would not expect Rangers to be able to pay similar wages for a while, if ever again.

Might the prospect of some top players leaving persuade Mr Miller to offer less than he has put forward so far?

If he has told the SFA and SPL that he wanted written guarantees of no penalties, then he would presumably want something similar from the valued players. Their agents would not be doing their jobs if they did not try to obtain compensation for their clients for giving up the right, effectively, to get an early “Bosman”.

TUPE rules protect the employee by limiting the ways in which the new employer can vary the contract. TUPE rules do not prevent the employee negotiating a better deal, or a new contract with the new boss!

Therefore we have one week to see how this issue is going to be dealt with.

Bearing in mind how much needs to be done to effect the transaction, I suspect that the D&P bill for this week will be rather higher than the average £200,000 so far!

PART 2 – to follow – could Craig Whyte, Ticketus or HMRC stop the Miller deal?

Posted by Paul McConville