In which I look at what Duff and Phelps have cost the creditors of Rangers, and what they have been spending time on since they sold off all the assets in June.
I also take a very “broad axe” approach to the value of the administration process, which seems to suggest that the creditors would have been several million pounds better off if the liquidators had come in on 14th February!
The figures are mind-boggling.
That applies to each of the total costs, the weekly bills, the hourly rates charged, and the amount of time spent on this job.
Duff & Phelps were appointed as administrators of Rangers Football Club PLC on 14th February 2012. They remain in place, but expect shortly to be replaced when BDO step up as liquidators.
D&P consider that they have succeeded in achieving the second goal of administration, namely a better outcome for creditors via administration that if the company had gone straight to liquidation.
2012 Administrator for Rangers in the largest football club insolvency in UK history
What about the costs charged by them for this arduous and onerous work?
As I mentioned in my last post, the total sum, excluding VAT, paid to and owing to lawyers, valuers and PR firms by D&P in connection with the administration, and all money coming from the creditors’ pot amounts to £2,319,894.
The fees of D&P are separate and distinct from that figure.
In full, for the period from 14th February 2012 to 10th August 2012, the total fees charged by D&P to the creditors (which is what in effect the position is) total £3,335,053.25.
There is also a trading shortfall, in other words a loss, during the period to 13th August of £3,983,594. That figure takes account of a payment made by Mr Green’s newco to assist with trading costs of £280,924.
Therefore, on a very simplistic view, the administration process, up to almost three weeks ago, has cost the creditors as follows:-
Expenses and outlays to third parties - £2,319,984
D&P Fees - £3,335,053
Trading Shortfall - £3,983,594
TOTAL COST TO CREDITORS - £9,638,631
Of course this does not include costs of the last three weeks, and of the period until D&P finish as administrators.
It does not include the ongoing costs of the English High Court case against Collyer Bristow, either for Counsel or solicitors.
It does not include the costs incurred by the liquidators when they are appointed.
It does not include the cost of the liquidators litigating against either the purchaser of the assets or the allegedly negligent directors.
Bearing in mind that what the administrators realised was £5.5 million as the sale price of all the assets, then it is clear, with hindsight, that the process of Duff & Phelps trying to run Rangers in administration has been one which has not turned out to be in the interests of the creditors.
The question that the administrators may have to face is whether their plan was ever realistic, or in fact it was the case that this outcome could have been foreseen from the earliest stage. If that is the case, then Duff and Phelps could potentially be looking out their Indemnity Insurance policy in the face of a claim by the creditors.
In this post, I want to look at the costs incurred by D&P since the sale of the business and assets of Rangers, on 14th June.
As the August Report stated:-
6.2 The sale of the business and certain assets included the sale of the Company’s right, title and interest in its SPL share and SFA membership. Following the sale of these assets, the sale of Ibrox and Murray Park and the transfer of the Playing Staff to Newco the Company was no longer in a position to meet the criteria for membership of any of the Football Authorities and therefore no longer operates a Football club.
That means that, as far as I can see, there was comparatively less for D&P to do following the sale on 14th June.
Up to 29th June the total D&P fees charged amounted to £2,973,403.50. Spreading this evenly over the 19 ½ weeks to that point brings out an average weekly fee charge, ultimately to the creditors, of £152,482.
That of course includes the costs of running a football team, dealing with the regulatory issues arising and attempting to put together a CVA and then a sale.
After the sale, it is fair to say that the costs would have decreased significantly. They did.
In the six weeks from 30th June to 10th August D&P charged fees of £361,649.25 – a weekly average of £60,275.
What could D&P have found to do to incur costs at that level, having sold off all the assets and business?
The five largest elements of the post 30 June fees are as follows:-
Strategy Planning and Control
In the six-week period Partners carried out 170 hours of work under this heading. Managers contributed 68 hours. Seniors worked 10 hours, Assistants 3 hours and Support staff 15 hours. Therefore, D&P contributed 267 hours to this heading over six weeks. The average hourly rate charged for this work over the whole period since February 14th amounts to £483.53 per hour.
The total cost of this activity over the six weeks was £128,000.
After the assets had been sold, what “planning” and what “control” was required? Enough for almost 30 hours of Partners’ time being spent on this topic alone in the six weeks covered by the last report? Is this the heading for the hours that do not really fit elsewhere?
Statutory Matters (Meetings, Reports & Notices)
In the six-week period Partners carried out 13 hours of work under this heading. Managers contributed 106 hours. Seniors worked 13 hours, Assistants 3 hours and Support staff 0 hours. So D&P contributed 135 hours to this heading over six weeks. The average hourly rate charged for this work over the whole period since February 14th amounts to £390.28 per hour.
The total cost of this activity over the six weeks was £55,000.
Is this the heading under which the work changing the company’s name was put under?
Financial Reviews and Investigations under s238, s239 etc
In the six-week period Partners carried out 52 hours of work under this heading. Managers contributed 94 hours. Seniors worked 3 hours, Assistants and Support staff 0 hours. So D&P contributed 149 hours to this heading over six weeks. The average hourly rate charged for this work over the whole period since February 14th amounts to £419.10 per hour.
The total cost of this activity over the six weeks was £63,000.
What, one might ask, are s238, s239 etc? The Insolvency Act 1986 Part VI includes sections 238 to 246. This part of the Act is headed “Adjustment of prior transactions (Administration and liquidation)”.
In total, from the start of administration up till 10th August, the total sum charged for this category of work is £163,618. Partners have spent 163 hours on this area of work, and Managers 196 hours.
Ironically sections 238 and 239 are relevant to England. As the Rangers Football Club PLC, which is now called RFC 2012 PLC, is registered in Scotland, it is in fact sections 242 and 243 which apply. I presume that the time and fees charged list is a D&P pro-forma, applicable to both Scotland and England. I am not suggesting that D&P have got wrong which country they are dealing with the administration in!
Bearing in mind however the speculation about the issue of gratuitous alienations in respect of the sale of the business and assets of Rangers, it seems noteworthy that, in the spell after all the assets have been sold, D&P seem to have spent a lot of high powered, and high priced hours considering the issues.
If the liquidators raise this as an issue, then we can expect D&P to provide a full, prompt and detailed answer to any questions asked of them.
Sale of the Business
In the six-week period Partners carried out 9 hours of work under this heading. Managers contributed 27 hours. Seniors worked 15 hours, Assistants and Support staff 0 hours. So D&P contributed 52 hours to this heading over six weeks. The average hourly rate charged for this work over the whole period since February 14th amounts to £411.80 per hour.
The total cost of this activity over the six weeks was £20,000.
As the sale took place on 14th June, and these figures given above run from 30th June, one wonders what they found to spend almost 52 hours dealing with in connection to the sale?
Trading : Accounting
In the six-week period Partners carried out 0 hours of work under this heading. Managers contributed 21 hours. Seniors worked 54 hours, Assistants 25 hours and Support staff 59 hours. So D&P contributed 159 hours to this heading over six weeks. The average hourly rate charged for this work over the whole period since February 14th amounts to £246.28 per hour.
The total cost of this activity over the six weeks was £35,000.
By comparison with the matters above, this one seems almost economical! However, it is nearly £6,000 per week spent on doing the books for a business which is no longer trading, and whose only asset is the purchase price paid for the assets!
Working like Trojans
The figures disclose also that in the period from the start of administration up to 10th August, a period of 25 ½ weeks, the Partners spent 2,865.50 hours attending to work chargeable to the administration.
That averages out at a total of 112 hours per week of Partners’ time, each and every week.
It also ignores the time spent on matters which D&P cannot charge the creditors for. That includes the application to the court in March to “fix” their appointment as they had failed to carry out all relevant notifications properly in February. It also does not include any time spent by the partners dealing with Lord Hodge’s requirement that a report into conflict of interest allegations be prepared. It is arguable if time spent by D&P taking advice about suing the BBC, as was promised following the last Inside Story documentary regarding Rangers, would be a charge in the administration. In any event, the court action does not appear to have arisen.
How many D&P partners were involved? There must have been more than Mr Clark and Mr Whitehouse, one assumes.
I wonder if their definition of chargeable time matches an accountant of my acquaintance some years ago. The accountant was based in the south of England, but had a client living in Scotland. The accountant and the client got on well together personally and, after a meeting in Scotland, the accountant took the client out for dinner. I have no doubt that the discussion was entirely about the client’s case.
When the client received the bill from the accountant, they were astonished to see that the firm had charged for every minute of the accountant’s time from the minute of leaving the English office until returning there the following day, including the cost of the dinner as a disbursement! As the accountant was engaged on nothing other than the client’s business at all times, one assumes that the charge of 24 hours at £600 per hour was entirely justified and appropriate. It is fair to say that the client took a contrary and rather jaundiced view of the accountant’s “generosity” with time!
I am not suggesting that Messrs Clark and Whitehouse necessarily charged the administration for travelling up and down from Glasgow, although travelling time would be a legitimate charge, one imagines. I am sure all charges are legitimate.
The administrators attended various football matches. As they were responsible for running the business, then this would have been work, rather than play, and, as they sat in the Directors’ Box, the meter was spinning wildly and the bill increasing.
It shows how huge the fees are when the reaction on seeing that the weekly charge is now “only” £60,275, the immediate reaction is how much of a reduction there has been!
A commenter said on here last week that the concern might not be that this administration was out of the ordinary in terms of the amount of the assets eaten up by the administrators, but that in fact it was the norm, and it was only the public scrutiny which brought this into the light.
Anyone who deals with Insolvency Practitioners knows how high the charges can go, as a result of the onerous and vital job they have to do. It does seem somehow to indicate that three should be a better system though, when so much of the money nominally for creditors goes to the administrator or liquidator.
That, however, is an issue for another post!
Posted by Paul McConville