Duff & Phelps Finally Release the Results of the Creditors Meeting on 20 April!

Today, Duff & Phelps released the results of the 20^th April creditors’ meeting. You can see it here – Result of Rangers’ Creditors’ Meeting It is clear that the resolutions, as they stand, are now as modified by HMRC, rather than as originally framed by Duff & Phelps. As is not surprising in this saga, matters are not clear yet.

There is some discussion about whether or not the resolutions allow a sale of the assets of Rangers to Charles Green without further creditor approval. I frankly do not see the point of the tightening up of the Resolutions, unless it gives HMRC power to “interfere”. Why would they have revised the Resolutions to put in place their own liquidator, if only to allow a sale of assets at an alleged knockdown price? I think there is enough ambiguity, as I mention below, to meet the requirement of HMRC which is that a CVA needs to be approved by creditors; an asset sale needs to approved by creditors; and if those options are gone, because Mr Green walks away, then BDO come in as liquidators.

—————————————-

I wrote in detail on 22^nd April about the Virtual Creditors’ Meeting which took place on 20^th April.

In light of the outcome of that meeting being reported now by Duff & Phelps, coincidentally I am sure, following upon the delay in producing the report having been raised with the Registrar of Companies, I thought I would revisit the resolutions.

My commentary follows at the end of the resolutions.

RESOLUTION (1) APPROVED WITHOUT MODIFICATION

17.1.1 That the Joint Administrators continue the Administration to deal with such outstanding matters in relation to the Company as the Joint Administrators consider necessary until such time as the Administration ceases to have effect.

17.1.2 That the Joint Administrators do all such other things and generally exercise all of their powers as contained in Schedule 1 of the Act, as they, in their sole and absolute discretion consider desirable or expedient in order to achieve the purpose of the Administration.

17.1.3 That the Joint Administrators can investigate and, if appropriate, pursue any claims the Company may have.

17.1.4 That the Joint Administrators can explore any and all options available to realise the assets of the Company without recourse to creditors. The Joint Administrators be authorised to conclude a sale of the whole, or part of the business, property and assets of the Company without having to obtain the sanction of the Company’s  creditors at further creditors meetings, upon such terms as the Joint Administrators deem fit and they be authorised to liaise with all relevant parties, bodies or organisations which they deem relevant for achieving that purpose.

17.1.5 That the Joint Administrators seek to establish a creditors committee, and they be authorised to so establish a committee in such terms and on such basis as they deem fit without having to obtain any further sanction from the Company’s creditors at a further creditors meeting.

 

RESOLUTION (2) MODIFIED WITH ADDITION OF NEW PARAS 17.1.9 and 17.1.10 as noted

17.1.6 That the Joint Administrators may propose such CVA(s) or Scheme(s) of Arrangement as they deem appropriate and see fit, subject to the outcome of offers.

17.1.7 Upon approval of a CVA or Scheme of Arrangement to exit the Administration at such time as the Joint Administrators deem appropriate by making an application to the Court pursuant to Paragraph 79 of Schedule B1 of the Act.

17.1.8 That the Joint Administrators are authorised, subject to implementation of a CVA, to conclude a sale of the whole, or part of the business, property and assets of the Company, without having to obtain the sanction of the Company’s  creditors at further creditors’ meetings, upon such terms as the Joint Administrators deem fit and they be authorised to liaise with all relevant parties, bodies or organisations which they deem relevant for achieving that purpose.

17.1.9 Any proposed Voluntary Arrangement or Scheme of Arrangement will be considered on its merits by HMRC Voluntary Arrangement Service. Acceptance of the Joint Administrator’s (sic) proposals by HMRC does not therefore imply acceptance of any Voluntary Arrangement proposals that may be put forward as a consequence.

17.1.10 That The Joint Administrators shall report to creditors no later than 3 months from the date of the meeting of creditors on the feasibility of a CVA or Scheme of Arrangement.

 

RESOLUTION (3) MODIFIED AS PER ALTERATIONS BELOW

17.1.911 That the Joint Administrators, when it is anticipated that no better realisations will be made in the Administration than would be available in a winding up, take the necessary steps to put the Company into either CVL or into compulsory liquidation as deemed appropriate by the Joint Administrators. It is proposed that the Joint Administrators, currently Paul John Clark and David John Whitehouse of Duff & Phelps would act as Joint Liquidators or such other parties as creditors may resolve should the Company be placed into CVL. In accordance with Paragraph 83(7) of Schedule B1 to the Act and Rule 2.47 of the Rules creditors may nominate a different person as the proposed liquidator, provided the nomination is received at this office prior to the approval of these proposals. In the absence of such nomination, the Joint Administrators will be appointed Joint Liquidators and in accordance with Section 231 of the Act any act required or authorised under any enactment to be done by the Joint Liquidators is to be done by all or any one or more of them. In accordance with paragraph 83 (7) of Schedule B1 to the Act and Rule 24.7 of the Rules, HMRC nominate Malcolm Cohen and James Bernard Stephen of BDO as joint liquidators of the Company and pursuant to Section 231 of the Act any act required or authorised under any enactment to done (sic) by the joint liquidators may be done by all or any one or more persons holding office as joint liquidators.

As an aside, I have copied below what I wrote on 22^nd April regarding this Resolution.

“There were extensive rumours on Friday that BDO, a worldwide business accountant with Glasgow offices, had been approached regarding Rangers. Was this an effort to nominate them, prior to Friday at noon, to be liquidators if winding up takes place?

“The position of HMRC on this resolution will be very telling. If they let it pass that will be a sign that D&P are in it till the end. If not, then it would be clear evidence that HMRC’s patience had come to an end.”

 

RESOLUTION (4) MODIFIED AS SHOWN

17.1.1012  That, without prejudice to or effect upon the creditors’ rights to bring any challenge to the level of that remuneration shall they consider it appropriate to do so, the Joint Administrators’ remuneration be fixed by reference to the time properly incurred by them and their staff in attending matters during the Administration.

17.1.11 13 That the Joint Administrators’  statement of pre-Administration costs under Rule 2.25 of the Rules, where no Creditors’ Committee is established, be approved for payment in accordance with Rule 2.39C of the Rules.

17.1.12 14 That the Joint Administrators be authorised to draw their reasonably and properly incurred Category 2 Disbursements.

 

RESOLUTION (5) REJECTED

17.1.13 That the Joint Administrators’ Proposals be approved without modification.

 

So what does all this mean?

Clearly HMRC objected to Resolutions 2, 3, 4 and 5. The free hand that D&P wanted to have was not given to them.

Looking at the three options D&P laid out in its proposal to creditors, we see the following.

 

CVA – This is D&P’s preferred option. Whilst D&P are free to propose any CVA they think fit, the decision on it lies with the creditors, and the fact that creditors to the value of 25% or more of the debt owed can block it. If a CVA is approved by creditors, then D&P are in charge of precisely when Rangers comes out of administration.

In terms of 17.1.8, if a CVA is agreed, then D&P can sell off the assets and business of Rangers without further recourse to creditors for approval.

It is now made clear that the CVA is to be considered on its merits by HMRC, and that consent to the administrators making a proposal is NOT consent to the CVA itself. One wonders if HMRC foresaw an effort to argue that acceptance of the administrators’ proposals would be an acceptance of a CVA. In any event, this has been headed off.

A helpful link to the HMRC Voluntary Arrangement Service, and the reasons why it might reject an arrangement, can be found here.

Reasons for rejection are listed as follows:-

“Rejection is appropriate when

• debtors do not resolve VAS genuine concerns about their proposals
• debtors do not expect to meet all statutory liabilities as they fall due.

Occasionally exceptional or compliance reasons will cause VAS to decline proposals.

Examples are

• deliberate default or evasion of statutory liabilities
• past association with contrived insolvency
• operating a policy of withholding payment of Crown money
• any proposal that requires sale of HMRC debt or does not provide cash
• failure to meet any obligations under a prior VA
• exclusion of creditors who are entitled to receive the same treatment as all others within their class
• a purchaser assuming responsibility for payment of some of the debtor’s debts in consideration for the purchase of the debtor’s assets
• any proposal by any member of any organisation that requires debts owed to its members to be paid in full, whether inside or outside the arrangement or before or after completion of the arrangement when all other unsecured creditors will become bound to accept a compromise of their debt. Here ‘members’ includes any prescribed associate(s) or other creditor(s) specified by the organisation.”

At the foot of the page it says, “Collect all you can by being cost-effective and commercial.”

Finally as regards the CVA HMRC do not want this to be open-ended, D&P now being required to report on the feasibility of a CVA or Scheme of Arrangement within three months of the 20^th April creditors’ meeting.

To recap, D&P are authorised to put forward a CVA proposal. HMRC will look at it commercially and taking account of the factors mentioned above. D&P know that they have to make progress with the CVA, or else will have to report to the creditors, and especially to HMRC, by 20^th July.

 

Asset Sale to Newco – This is believed by many to be the actual preferred route, if not of D&P, then of Mr Green. For one, it is cheaper and gives more of a chance to dump the penalties liable to be imposed on oldco.

This though is where it gets tricky. On one view Resolutions 17.1.4 and 17.1.8 are inconsistent.

Taking the latter first, I think 17.1.8 only applies to give D&P authority to sell the assets without further consultation, if a CVA has been agreed successfully. If not, then there is no authority under 17.1.8 to sell the assets and business without creditor consent.

What about 17.1.4 though? It states, read with the preamble attached:-

“The Joint Administrators propose the following – that the Joint Administrators can explore any and all options available to realise the assets of the Company without recourse to creditors. The Joint Administrators be authorised to conclude a sale of the whole, or part of the business, property and assets of the Company without having to obtain the sanction of the Company’s  creditors at further creditors meetings, upon such terms as the Joint Administrators deem fit and they be authorised to liaise with all relevant parties, bodies or organisations which they deem relevant for achieving that purpose.”

Does this make sense? The second sentence in the paragraph is key. On one reading, which involves running that sentence on from the preamble, it does authorise the Joint Administrators to conclude a sale. However, the plain reading of the paragraph suggests that something has been missed out, or that the clause has been framed very badly. There are typographical errors elsewhere in the document. There could be one here.

In addition, if D&P are authorised to sell assets etc if a CVA has been approved, as per 17.1.8, why would that clause be needed if they had the power to sell anyway?

I think that HMRC has taken the view that clause 17.1.4 is uncertain and therefore void. If D&P attempt to carry through a sale to Mr Green, who is now the only show in town, under that clause, I suspect that HMRC will be at court to stop it in a flash.

Therefore, without further approval by creditors, I submit that D&P have lost the power to conclude a sale to Mr Green.

I have seen a discussion ongoing on Twitter re this issue. I think I can clarify matters. (I hope).

The plan of Craig Whyte, as revealed by me, involved an asset sale AND A CVA OF THE EXISTING COMPANY. That was Bill Miller’s plan. It is perfectly possible that Mr Green wants to pursue some version of this, in the event that the “original” CVA fails. I believe that a pure asset sale to a newco does require creditor approval.

  

Liquidation – This is most straightforward. As soon as it becomes clear that the administrators cannot fulfil the aims of administration, then it is game over for Rangers and liquidators will be appointed.

D&P wanted to be in position to be liquidators if the administration failed. HMRC was not prepared to stand for that, and BDO have been lined up in their stead. BDO is one of the main insolvency firms in the UK, and there would have been no surprise if they had been appointed initially. However, we have had the saga of Duff & Phelps instead.

BDO is sitting there, figuratively revving engines ready for takeoff. All they are waiting for is the word to go.

And when they do, D&P will depart the scene, ingloriously.

 

Costs – The final change makes it clear that fees and costs need to be properly incurred and justified, and specifically recognise the rights of creditors to object to D&P’s costs. It may be reading too much into that to say that this is a precursor to HMRC challenging fees and outlays, but £1.8 million in legal costs and £3.3 million in administrators’ fees are worth looking at, if you stand to benefit from those amounts being reduced.

 

Conclusion – Why has it taken so long to reach this point of publishing the outcome of the creditors meeting? Who knows? Perhaps long negotiation between HMRC and D&P? However, as modifications are meant to be approved at the creditors meeting, this suggests that any support for the D&P position was insufficient to overcome the massed votes of HMRC. Therefore we are seeing what HMRC wanted the Resolutions to say, and for that reason, I cannot see them as having left open the door, for example, for a belated “pre-pack” or “hive down” or whatever the technical term is.

I think it is quite apparent that D&P know that HMRC is watching every move they make. I would be very surprised if they did anything to activate further concerns on the part of Hector.  

 

Posted by Paul McConville