Neil Doncaster – CVA and Newco – What’s The Difference (As Long as Newco Accepts Oldco’s Punishment?)

 

In which I discuss Neil Doncaster’s views as expressed in the Scotsman today regarding a newco and a CVA for Rangers. He maintains the line, with which I disagree, that CVA and newco are basically the same. His position on that seems designed to make non-Rangers fans fear the worst about some cosy accommodation being reached.

However, for those concerned with sporting integrity, he includes a killer line, which, if followed through, will leave a newco Rangers with a very hard decision. Accept penalties for past rule breaches by oldco, or accept that newco is a new entity, without the history and titles of oldco.

It would be helpful if the SPL and SFA could disclose what they are talking to Mr Green about, in the same way as it would have been helpful to find out, in the spirit of “transparency and clarity” what Mr Miller discussed with them.

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Neil Doncaster is the Chief Executive of the SPL. Yesterday he invited a group of journalists along to Hampden to explain why he believes a “newco” Rangers should be in the SPL.

I have extracted the quotes below from the Scotsman piece which can be read here. The article itself, though not by-lined, seems to be sceptical of Mr Doncaster’s views. It is worth a read.

Mr Doncaster discussed these issues at length in a BBC Sportsound interview. I transcribed it in full, and it can be found here. However, I have still not had the chance to comment on it in full. This will operate then as a précis.

However, to deal with Mr Doncaster’s quotes, I have noted them below and commented in bold beneath.

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Doncaster admits to being “baffled” that in this country such a distinction is drawn between Rangers exiting administration through a company voluntary arrangement [CVA], as prospective new owner Charles Green will attempt in the coming weeks, and doing so by moving the assets to a new company [newco] as the old one sinks because of debt, as he probably will be forced to do to effect a successful purchase.

Mr Doncaster is a former solicitor. He moved from the law into running sporting organisations, including a stint as Chief Executive at Norwich City (where he also predicted doom and disaster, earning the nickname, I am told, of “Doomcaster” from the Canaries’ fans). You can read about that here.

 He therefore will be well aware of the law on these matters and his football experience will have informed him as to the strength of opinions amongst football supporters. If he finds himself baffled by the distinction between a CVA and a newco, then it would appear that he is either being disingenuous or has forgotten what he learned in Insolvency Law for Beginners.

I will try to put it simply.

In a CVA, creditors of a company receive payment, by agreement of a sufficient majority, to satisfy their debts, even though these are not paid in full. The primary purpose of administration is to rescue a company as a going concern, in the interests of the creditors. If that cannot be achieved, the second purpose of administration is to get a better result for creditors by administration than by liquidation.

The second purpose is what a “newco” idea seeks to fulfil. The assets of the company are transferred to a new entity, or at least an entity which did not own the assets previously.

In the case of a successful CVA, the company continues. Therefore the “Rangers” formerly owned by Mr Marlborough’s companies passed on to Murray International and thence to Wavetower (Mr Whyte’s company) and would, in turn, go to Mr Green’s consortium. The existing football team continues, and would retain its history, whilst having to answer fore the alleged misdeeds of the former owners.

There will not be a successful CVA. Mr Green’s colleague, Mr McDonald, committed a PR own goal by talking about the warchest stuffed with money which would be given to the manager to buy new players once a CVA takes place. Whilst that might have gone down well with the fans, as I am sure it was meant to, it can only have hardened the view of HMRC to reject any CVA.

I won’t analyse why in detail just now but will simply say that the funds talked about would mean that HMRC would only receive a fraction of the £13 million unpaid by Mr Whyte since he took over and this being money Rangers has since spent on things other than tax. HMRC would get nothing from the Big Tax Case, nor indeed from the Wee Tax Case. Whilst a Green Rangers would not be a phoenix in strict legal terms, the insistence that this is in fact the same old ‘Gers would render it disastrous for HMRC to be seen to accede to a CVA at the levels of funding being talked about.

Maybe Mr Green would like to do a CVA but, as with Bill Miller’s plan, the only one that makes business sense is to buy the assets and leave the debt behind.

Therefore we come to a newco. The clue is in the title. This is not just a change of ownership, as in Marlborough to Murray to Whyte. This is a new entity. The SPL Rules require a Club to own its own ground, or have it owned by a related company, or otherwise have a binding legal right to play there.

At present, we think, Rangers Football Club PLC (in administration) owns Ibrox. That therefore by SPL Rules, is the Football Club. If the assets of that Club are sold to an unrelated company “Green Rangers Ltd” then that company will become the owner of “the team”. The SPL Rules make clear that the Company = the Football Club. Ergo newco is not “Rangers” as presently existing. It could be a new “Rangers” but would not, either in law or in the SPL Rules, be a continuation of the present club.

Mr Doncaster, at the foot of the article tries to cover his bases with a clever argument, which might just work, and I will come to it when he does.

To recap, a distinction is being drawn because there is in fact a huge difference between a CVA and a newco. In any event, once a newco acquires the assets, the oldco will be wound up or liquidated. It will cease to be.

 

A newco, he says, could raise more money for creditors than a CVA. He could give no examples where this had ever occurred in football. However, the SPL chief executive did provide examples from England, with the cases of Luton, Bournemouth and Rotherham, where clubs have failed to obtain a CVA, set up a newco, and retained their same league status, but with a points penalty – as will be one of the new financial fair play proposals clubs will have a third go at voting on come 30 May.

“A newco could raise more money for creditors than a CVA”. I could win the 100 metres at the Olympics. I don’t think that even Duff & Phelps have tried to argue that (the newco/CVA issue, not my sprinting prowess). What that has to do with the question of continuation of the Club, I do not know.

 

Rules governing insolvency events at football clubs should not be determined by the “attitude of creditors”, argues the SPL chief executive, who balks at the notion of “admitting” a new Rangers. “The football club will continue to be there [in the SPL]; it’s only the corporate entity that changes. The matter for debate is on which basis the club’s football share is transferred to that new entity,” he said.

Let’s imagine for a minute that oldco Rangers had managed to complete and lodge accounts and a UEFA Licence application prior to 31^st March this year. Would “Rangers” be entitled to play in Europe in season 2012-2013? If the newco is still a continuation of the Club, then of course it should (and if the newco had actually been in existence for three years, even if only making widgets, there would be no reason to stop it playing in Europe, if Mr Doncaster’s analysis is correct).

That cannot be right, nor would UEFA countenance it. It would make a travesty of Financial Fair Play rules. However UEFA rules require the club to have been a member for three years. It seems to be accepted that newco Rangers will have three years outwith European competition. Therefore newco does not equal Rangers. QED.

Indeed, if Mr Doncaster’s view was correct, a newco could take legal action to force the SFA to permit it to play in European competition. At the same time, legally, the newco could refuse to acknowledge any penalties which were the fault of oldco.

Rules governing insolvency at football clubs should be determined by football authorities. Mr Doncaster has talked about Financial Fair Play and the gaining of unfair advantages. He seems to think, on his analysis, that a 10-point penalty for writing off £100 million of debt is acceptable and proportionate.

 

Doncaster said: “All I can say is that we will continue to deal with clubs equally under the rules. Our job is to apply those rules, equally, without fear or favour to every single one of the 12 member clubs. It’s our job to explain that what we are doing is treating people equally. If everyone understands that then, what will be the reason to be aggrieved about the outcome? Every club will be treated exactly the same. I can’t get into ‘special cases’.

If this is so, why did the SPL clubs agree to D&P’s request for a postponement of the last rule change meeting? Why did he say he wanted clarification of the position from Rangers before the vote? Surely the individual circumstances of one member should not impact on a decision treating everyone equally. The suspicion that the new rules will not come in till Rangers are dealt with under the old ones is a reasonable one to have, even if that is not the SPL intention.

 

“Whenever I speak to people about the distinction between a CVA and a newco what I keep being told is that it’s simply wrong that any club should be able to create a newco and shed debt. As if a CVA doesn’t lead to the shedding of debt. Administration is the protection the court gives you when you can’t pay your debts. There are two ways out of that; one is a newco, one is a CVA. Of the six administrations which have happened down south in recent years two went with a CVA and a newco, Palace and Plymouth, and there were four where there was no CVA and a newco.

Actually administration in Rangers case was initiated by Mr Whyte and the court only appointed D&P because they had failed to inform the FSA thus rendering their appointment arguably void.

There are more than two ways out of administration. A company can be “rescued” and by investment or trading pay off its debts in full. Alternatively a company can fail to achieve the purposes of administration and end up wound up or liquidated.

The various English cases cited by Mr Doncaster all have their own individual circumstances, and my plan is to go through them in depth in the future, when time permits.

 

“The distinction between the two is relatively fine. To draw such a huge distinction is just wrong. When Livingston were relegated to Division Three did they cease to exist and start again? Of course they didn’t. Leeds are the same. Every single club which has had an insolvency event has either continued as a football club or has ceased to exist. I’m not aware of any club which sort of started again. Of course it’s not okay to waive £90 million of debt, of course it’s not. But it happens. In football as in business.”

It is huge distinction, as described above. Livingston were penalised by relegation to the lowest division, and exited administration via a CVA.

Mr Doncaster says that waiving £90 million of debt (such an airy dismissal) happens in football, as in business. But football is not business, or at least that is what the fans think. No one amongst club owners apart from Fergus McCann has made a significant profit from Scottish football for years. There is a spirit of mutuality in sport which does not exist in business. In business, the sole goal is to make profit, and eliminating competition on the way is part of that. In sport, putting your competitors out of business means you have no one left to play against!

Mr Doncaster knows that football is in a precarious financial position just now. How much more so if the biggest debtor club in the land walks away from its debt?

Will Lloyds, which is the banker, I understand, for all of the SPL apart from Celtic, Hearts and Rangers, insist on getting its money back now? Will it demand that any money from player sales go to pay off bank debt? Will it fear other SPL clubs “escaping” by the CVA route?

Who in their right mind would be willing to provide debt funding to an SPL club, except at punitive interest rates, standing the risk of the club waiving the debt, with few sporting sanctions?

Or is the plan that, conveniently, the new and draconian punishments will come in following Rangers “escape”?

 

Any punishments arising from the SPL’s ongoing investigation into non-disclosure of payments to players at the Ibrox club between 1998 and 2010 would be imposed on a newco. “You would expect the football club to take with it responsibility for anything that emerged from that investigation,” Doncaster said. The SPL chief executive would not enter into discussion over … the manner in which (Rangers) administered an … Employee Benefits Trust scheme… Former owner David Murray admitted the club paid appearances and bonus money into EBTs to shield them from tax but didn’t divulge these transactions to the authorities because they were “discretionary”, despite the fact all payments are covered in the SPL rules.

At the end though we have what might be the most important part of the whole article, and that which may well redeem Mr Doncaster’s reputation.

I will repeat the line:-

“YOU WOULD EXPECT THE FOOTBALL CLUB TO TAKE WITH IT RESPONSIBILITY FOR ANYTHING THAT EMERGED FROM THAT INVESTIGATION,” DONCASTER SAID.

So for all the cosy chats with Bill Miller, and now with Charles Green, it seems to be the SPL position that the ongoing “payments” inquiry by the SPL will continue, and any penalties for this will be meted out to newco.

This would pose a huge problem for Mr Green and his colleagues. If newco wants to remain in the SPL as Rangers, then it must accept the penalties. Whilst the SPL cannot punish the newco for the sins of the oldco, it can set conditions for admission.

If newco challenged this on the basis that it was a penalty relating to mis-deeds by someone else entirely, then necessarily newco would have to disown any connection with oldco. Whilst the fans might claim a continuation of the club, the owners would have to deny it.

The penalties for such a long-standing breach of the rules, if established, would have to be at the top end of the scale. Expulsion would not be disproportionate.

This raises one final matter of concern. Mr Green is not going to spend millions of pounds buying a football club, only to see it expelled from the League for the dealings of his predecessors. He is either a gambler par excellence, or has reason to believe that (a) there will be no guilty verdict and thus no penalty (b) that the penalty will fall short of something which would cripple his investment or (c) he has no intention at all of accepting any oldco penalty on newco.

I am not, despite what people might think, a believer in overarching conspiracy theories. However, in the interests of clarity, could Mr Green or Mr Doncaster tell the public what they have been discussing?   

 

Posted by Paul McConville