Monthly Archives: September 2011

David Goodwillie Sued by his Agent! Rangers Agree to Surrender Documents to Bain’s Lawyers – Me at Scotzine

The court lists sometimes contain interesting details.

Today we can see that David Goodwillie has been sued by his agent, and separately confirmation of the court date for the next round of Bain v Rangers. As discussed in the full piece over at Scotzine.com, Rangers have avoided the hearing taking place!

Read all about it over at Scotzine.com! Click the logo to go to the article.

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Now The Daily Mail Gets Its Arithmetic Wrong

I have written before about the apparent challenges the Daily Mail has with geography and with the law of Scotland.

Now we can add arithmetic to its list of “fails”.

 

Today’s story about the awful X-Factor shrieks the headline “Is this the most brutal X Factor bootcamp ever? Nearly half of contestants axed by judges before even singing”. (All emphases added)

Leaving aside for now the use of the word “brutal”, which is hyperbole beyond any ever in the world (you see what I did there?) the article goes further in the second paragraph, before disproving the headline and that statement in the very next paragraph!

Para 2 states:-

“But now, as the ITV talent show enters the latest stage of the competition, it seems this year’s bootcamp could be the most brutal ever – with half of the contestants axed before even singing for the judges again.”

Got it, it’s actually half of the acts, not just nearly half, sent home – goodness me, that is brutal!

Para 3:-

“The night before the 186 acts were due to take to the stage to perform for judges Gary Barlow, Tulisa Contostavlos, Kelly Rowland and Louis Walsh, the panel once again looked over tapes of the contestants’ first auditions and made the decision to send nearly 40 of the hopeful acts home.”

Wait a minute – nearly 40 out of 186…I can work this one out…that’s not even a quarter!

We don't really need a calculator for this one, do we?

Now I know this should not annoy me, but as the Mail claims to be the second most visited news site in the world, can they at least have the decency to have their stories be accurate?

One can imagine the Daily Mail attacking the BBC for a similar meaningless mistake. Of course here it is an over-egged story to get page views – one wonders if Sarah Bull, the writer of the article felt that saying that a quarter of the acts had been eliminated was not brutal?

At least some of the commenters on the story have made the same point, but no-one at the Mail has seen fit to correct the article at all.

Sigh…

 

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Bain v Rangers – Back In Court Friday 30th September

It has been confirmed that the case of Martin Bain v Rangers is due to have a further airing in the Court of Session next week.

It is intended to call at 2pm on 30th September and this is understood to be for the hearing of a motion lodged by Mr Bain’s Edinburgh solicitors, Balfour & Manson. This relates to a procedure known as “Specification of Documents.”

When a party to a court action wishes to get their hands on documents which are held either by the other side, or by a third party, then a “Specification” is lodged listing all the kinds of paperwork required.

If the other side in the cases agrees to produce them, then there might be no need for an order, but if this is opposed there will be  a hearing at court to determine what, if anything, the person lodging the “Specification” will be entitled to.

As this is due to call next week, the implication is that the application has been opposed by Rangers’ new solicitors, Anderson Strathern. Such opposition might simply be because they need to get up to speed on the case, having replaced Warners, who formerly acted, or, more likely, that their clients, Rangers, do not wish to hand over the paperwork.

In open court counsel for Mr Bain, Nick St John Ellis QC, will explain to the Judge why the particular documents are necessary for the case and how they are legally relevant to it. A party cannot go on a “fishing expedition” in the hope that something will turn up, but requires to identify specifically what they are looking for.

Clearly Mr Bain will have been able to discuss with his lawyers what details are needed to support his case, and what documentation exists to assist him.

It is understood that the Specification may be seeking papers in connection with the Independent Board Committee (IBC), set up by the former Board to safeguard, if possible, the interests of Rangers’ 26,000 minority shareholders. That Committee was tasked with assessing many factors regarding the takeover, including the ability of Mr Whyte and his companies to fulfill their promises.

As Mr Bain’s court papers state, the IBC had a difficult relationship with Mr Whyte. In addition the IBC, chaired by Alastair Johnston and including Mr Bain, issued a statement when the takeover concluded expressing doubt regarding certain of Mr Whyte’s plans

As it is understood that Rangers have made an issue of Mr Bain’s involvement on the IBC, this seems to have opened the way for the papers submitted to it to be relevant in the case. These may include details of opinions expressed to the IBC by people with past dealings with Mr Whyte.

If the information in question was helpful to Rangers, then Mr Bain’s legal team would not be looking for it.

If however it is unhelpful, either to Rangers or to Mr Whyte personally, then it would appear that somewhere in Rangers’ legal team, headed by their Company Secretary, London solicitor Gary Withey, there has been a further error, potentially opening a can of worms for Mr Whyte.

As Rangers’ new lawyers are recently instructed, they could seek a continuation of the hearing to allow them to consider matters. However, bearing in mind that Rangers seem to have been slow in progressing their defence and counter-claim, I would be very surprised if Mr Bain’s legal team did not push for a decision on Friday.

If the case drops off the court lists before then, that would suggest an agreement had been reached on what was to be handed over. On the previous form in this case, I would be surprised if the respective parties will agree on what day it is, never mind important matters like this!

It may well be worth a trip to Edinburgh on Friday to see the next chapter unfold.

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Some Thoughts Regarding Lord Hodge’s Bain v Rangers Decision – Not One Way Traffic!

Martin Bain v Rangers – Lord Hodge’s Decision Analysed

Today the written judgement of Lord Hodge was published following the hearing on 13th September.

The judgement can be found here

As it puts some meat on the bones of the verbal decision and the reporting of that hearing, I thought it was worth a detailed analysis.

It tells us far more than has been clear so far as regards the specific issues in dispute, and also publicly identifies time scales for further procedures.

Lord Hodge started by summarising what the case is about, stating that it arises from termination of Martin Bain’s contract with Rangers.

Mr Bain alleges that Rangers repudiated his contract of employment as its chief executive (i) by acts which amounted to a breach of a duty not to undermine the trust and confidence between employer and employee and (ii) by anticipatory breach of contract when Rangers’ new chairman, Mr Craig Whyte, stated to the press that “there was no way back” after Rangers had suspended him and that he would not be allowed to return to his duties. Mr Bain avers that he accepted those breaches of contract as a repudiation and rescinded the contract on 20 June 2011.

What Did Lord Hodge Need to Decide?

Lord Hodge detailed that “There are three tests which the court has to consider… when deciding whether to grant a warrant for diligence on the dependence. The burden of showing that those tests are met rests on the applicant for the warrant.” The tests are laid down in s15F of the Debtors (Scotland) Act.

These are (1) that the claimant has a prima facie case; (2) that there is a real and substantial risk that enforcement of any decree in this action would be defeated or prejudiced by reason of the defender being insolvent or verging on insolvency; and (3) whether it is reasonable in all the circumstances to grant a warrant, including the effect which that grant may have on any person having an interest.

Lord Hodge dealt with these points in turn.

The Merits of the Case

As regards the merits of the case, he noted an apparent difficulty for Mr Bain. In his case, Mr Bain states that his contract of employment, with effect from 29 September 2009, was for thirty nine months.  However “a long-term service contract of this length is prohibited under sections 188 and 189 of the Companies Act 2006 unless it is approved by a resolution of the members of the company. Mr Ellis QC, who appeared for Mr Bain, asserted that Mr Bain did not know whether the members of Rangers had approved the contract. I found that surprising as I would have expected the chief executive of a public company to be aware whether or not his employment contract had the needed shareholder approval.

One – nil to Rangers, perhaps? It is interesting that there was no comment about this, at least that I saw, in the press coverage on 13th September, although this might be one of the factors the judge did not mention in open court. It dents Mr Bain’s position if he was not aware if his contract had been legally approved.

However Mr Ellis, Mr Bain’s excellent QC, had a fall back position. “Mr Ellis pointed out that if the contract was in breach of sections 188 and 189, the statute replaced the offending provision of the contract setting out the term of the contract with a deemed provision that the company could terminate the contract at any time on giving reasonable notice. Mr Bain avers that reasonable notice in the circumstances of his position and employment history is twelve months. Accordingly, Mr Ellis submitted that Mr Bain had a prima facie case that he was entitled to damages on the basis that he had been deprived of the benefits which would have accrued to him in a twelve-month notice period.

The argument put forward in the “fall back” position was accepted as being a valid one by Rangers QC. This is an interesting example of the law denying an apparent agreement legal effect, but allowing something else to be substituted for it, rather than simply tearing it up.

One positive for Rangers though is that the fall back position would reduce the sum claimed to approximately £964,000, from the £1.3 million craved.

Mr Napier for Rangers said that they had a substantial counterclaim against Mr Bain for alleged breaches of fiduciary duty, but that this had not yet been developed, so he could not ask the judge to refuse the arrestment on that ground.

Lord Hodge decided that, as matters stand, there is a prima facie case.

How prepared are Rangers in this case? It is three months since Mr Bain left, and four since he was suspended. One would have hoped that, by this stage, at least a reasonable skeleton argument could have been put forward as regards the claim against him. But no.

The Possibility of Insolvency

As regards the second test, he noted that the law was clear.”First, in addressing this test the court has to look into the future to the time when a pursuer is likely to obtain a judicial determination of his case… Secondly …the notion of risk is crucial; it looks to the possibility of insolvency, not actual insolvency.

Mr Ellis laid out a number of grounds for there to be concern regarding Rangers’ solvency.

These were as follows:-

1                    that the “healthy balance sheet depended on the valuation of the company’s stadium and training facilities;

2                    that the accounts did not provide for the potential tax liability of £49 million in respect of the “big” tax case;

3                    that Mr Ellis relied on the terms upon which Wavetower Limited, controlled by Mr Whyte, had purchased the holding of 85 per cent of Rangers’ shares (further referred to below);

4                    that there was the “small” tax case, where HMRC had arrested £2.3 million in a bank account of Rangers and where Rangers had accepted its liability to pay £2.8 million and that it disputed only amount of the interest and penalties;

5                    that Rangers had paid a debt of about £35,000 to its former solicitors, Levy & McRae, only after they had sued when faced with delaying tactics; and

6                    that Mr Whyte had given an interview reported in an article in the Daily Record on the day of the hearing (13 September 2011) in which the reporter recorded Mr Whyte as stating that Rangers faced cuts in expenditure because it faced a £10 million black hole in its annual running costs.

On the basis of these details Mr Ellis asked the court to conclude that Rangers was already in a state of practical insolvency. In any event, if the “big” tax case was lost, Rangers would be practically insolvent unless it received sufficient outside support.

In reply, Mr Napier argued that Mr Bain had not shown that there was a real and substantial risk of insolvency as (a) there was no basis for challenging Rangers’ statutory accounts, which Mr Bain himself had signed, which showed a solvent company, (b) the outcome of the tax case was unknown and it was far from clear that Rangers would lose the case in the spectacular fashion which Mr Ellis suggested, and (c) the determination of the tax case was in any event a long way off.

He argued that the risk of insolvency must be reasonably proximate and it could not be said that it was so in this case. The court should not assume an adverse outcome to the tax case.

Lord Hodge stated that he was not persuaded that Rangers were presently insolvent. There are two types of insolvency – practical insolvency where a company cannot pay its debts as they fall due and absolute insolvency where a company’s total dent exceeds its total assets.

Lord Hodge then referred to Mr Whyte’s sworn statement lodged at court which, one assumes, asserted Rangers’ solvency.

He said, “In relation to the HMRC claim for £2.8 million and penalties, Mr Whyte’s affidavit suggests that HMRC have been able to arrest £2.3 million in Rangers’ bank account. Discussions are continuing between HMRC and Rangers in relation to the level of penalties imposed. In any event, the purchaser of Rangers has undertaken to pay the debt to HMRC. Thus, while the debt affects Rangers’ balance sheet, it does not of itself contribute towards any practical insolvency. The delayed response by Rangers in settling the claim for fees by Levy & McRae may have been coloured by a sense of grievance toward the solicitors that they should not be acting for Mr Bain when they had acted for the club. Accordingly I attach little weight to either claim as demonstrative of actual or impending insolvency.” (Emphases added)

It’s not made clear what form the undertaking to pay the HMRC bill takes. Have formal declarations been made to this effect? As most the money to do so has already been arrested, this is perhaps not as generous an offer as at first sight.

Another win for Rangers then?

No – as Lord Hodge goes on to discuss the arrangements by which Mr Whyte carried out the takeover.

What is more significant to my mind as an indicator of a potential difficulty in the medium term is the structure of the takeover deal which is recorded in the circular sent to shareholders of Rangers on 3 June 2011. That document disclosed that The Rangers FC Group Limited (formerly Wavetower Limited) (“Group”) had purchased 85.3 per cent of the shares of Rangers for the cash sum of £1 and had given certain undertakings. As part of the deal, Group took over Rangers’ indebtedness to the Lloyds Banking Group, which Mr Ellis informed me stood at about £18 million, and obtained an assignation of the Bank’s securities over Rangers’ assets. The summary of material terms of the acquisition disclosed that Group would waive this debt “if the Club has not suffered an insolvency event within 90 days of the Club’s appeal in relation to the tax claim brought against the Club by HM Revenue & Customs….”Group has undertaken to provide or secure the investment of substantial sums in Rangers but, until it waives the acquired bank debt, such further investment is to be treated as increasing Rangers’ debt to Group. Thus those funds will not improve Rangers’ balance sheet until the expiry of ninety days after the determination of the tax appeal.” (Emphases added)

Here we come to one of the keys of the whole deal. Mr Whyte’s “Group” will only invest, unconditionally, in Rangers once 90 days passes after the “big” tax case is decided. Till then, all investment is actually to be treated as a loan, thus, if Rangers did have an Insolvency Event, Mr Whyte’s “Group” would have an increased share of the debt, thus giving it greater power to resolve an administration type situation in its interests.

Lord Hodge goes on to say “In my view, this carefully structured deal, by which Group has (a) secured its existing investment, by which the bank was repaid, and its commitment to make or procure further investment in Rangers against the assets of Rangers by the assignation of the bank’s securities and (b) made the waiver of its loan to Rangers conditional upon the non-occurrence of an insolvency event in the ninety days after the determination of the appeal in relation to HMRC’s £49 million claim, shows an appreciation by Group of a risk of insolvency resulting from that claim.

In addition, when Lord Hodge asked Mr Napier to clarify Rangers’ position in relation to the HMRC claim for £49 million, “He was not able to assist as he had no instructions in relation to that matter. I must therefore treat Mr Bain’s assertions as to the extent of HMRC’s claim as uncontradicted, although I acknowledge that the claim itself is the subject of an appeal by Rangers.

We come again to the question of preparedness. Reasonably assiduous internet users can talk at great length regarding the tax issue. So why was Rangers’ QC not able to comment at all? Was this neglect on someone’s part, or a deliberate effort to keep as much as possible of the dirty linen out of court?

Lord Hodge noted that the HMRC appeal might still take some time to resolve and that Mr Bain’s case itself would probably not get to a full hearing before next summer, but he viewed the potential tax debt as more definite that a future trading event and as such,”I am not persuaded that the outcome of the HMRC claim is too remote in time for the court to form a view as to the existence of a risk. I am satisfied that there is a real and substantial risk of insolvency if the tax appeal were to be decided against Rangers in the sums which have been discussed. In reaching this view I emphasise that I am concerned with the statutory test which addresses the degree of possibility. I am not speaking of the actuality or even probability of insolvency.

Was It Reasonable to Grant the Order?

Turning to the third test, His Lordship noted Mr Ellis as arguing that Mr Bain had lost substantial benefits from his contract and an arrestment, if effected more than sixty days before insolvency, might confer a preference. Rangers’ tangible assets were subject to securities which had been assigned by its bank to Group, and Mr Bain could expect no benefit from those assets.

Mr Napier responded by alleging that the processes leading to the large HMRC claim had been in place when Mr Bain was an executive director of Rangers and the alleged liabilities incurred on his watch. He accused Mr Bain, by seeking to use the HMRC claim for tax and penalties to secure a warrant to arrest on the dependence, of taking benefit from his own irregularities and that was not reasonable.

However the particular scheme which gave rise to the “big” case was put in place and contributions into it started in season 200-2001 (according to the relevant Rangers Annual Report) but Mr Bain only became a Director in September 2001.

Lord Hodge commented “In reaching a view on this third test of reasonableness I take account of the assertion that the tax claim which has given rise to the possibility of insolvency is something which had occurred at least in part under Mr Bain’s stewardship. But that of itself does not make it unreasonable to give him some security for his claim. I am satisfied that Mr Bain has discharged the burden of showing that it is reasonable to grant warrant for arrestment on the dependence.

The Amount of the Arrestment and Court Costs

However he restricted the sum to be arrested to reflect “the fact that Rangers’ claim against Mr Bain exists and is likely to be developed over time. It would not be appropriate in my view to ignore Rangers’ allegation that Mr Bain has been in part responsible for its predicament.

He found Mr Bain successful as regards costs, but only for one half, to reflect his partial success.

Conclusion

Interestingly, following the verbal judgement there were commentators and commenters quick to say that Mr Bain had proved nothing, as the merits of the case are some way from being heard. I have already heard it said today that Lord Hodge’s last comments above in some way vindicate Rangers and establish that Mr Bain has a case to answer.

That is not the case. All that was offered to the court were imprecise assertions of Mr Bain’s potential liability, together with the very serious allegation of breach of fiduciary duty. Detailed allegations will need to be made, and Mr Bain will have the chance to answer.

The case still has a good distance to run, although both parties will be doing their best to put their cases together as quickly as possible. Mr Bain clearly has a substantial head start, and Rangers have a lot of catching up to do.

If the plan is for Rangers to suffer an Insolvency Event before next summer however, the arrestment will at least get Mr Bain some of his money!

We await the next exciting instalment!

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Martin Bain v Rangers Football Club [2011] CSOH 158 – Lord Hodge’s Decision re Arrestment

Below is a copy of the judgement of Lord Hodge issued today which expands upon his verbal decision pronounced on 13th September in open court.

Commentary will follow later today.

 

OUTER HOUSE, COURT OF SESSION

 

[2011] CSOH 158

 

CA87/11

 

 

 

 

 

 

 

 

 

 

 

OPINION OF LORD HODGE

in the cause

 

MARTIN BAIN

Pursuer;

against

THE RANGERS FOOTBALL CLUB PLC

Defender:

 

 

­­­­­­­­­­­­­­­­­________________

 

 

Pursuer: Ellis QC; Balfour & Manson LLP

Defender: Napier QC, MacColl; Warners, Solicitors

 

 

23 September 2011

 

[1]        This is an application under section 15F of the Debtors (Scotland) Act 1987 for a warrant for arrestment on the dependence.  The action by the pursuer (“Mr Bain”) arises out of the termination of his contract of employment in the context of the sale by Sir David Murray and companies in his control of an 85 per cent shareholding in the defenders (“Rangers”).  Mr Bain alleges that Rangers repudiated his contract of employment as its chief executive (i) by acts which amounted to a breach of a duty not to undermine the trust and confidence between employer and employee and (ii) by anticipatory breach of contract when Rangers’ new chairman, Mr Craig Whyte, stated to the press that “there was no way back” after Rangers had suspended him and that he would not be allowed to return to his duties.  Mr Bain avers that he accepted those breaches of contract as a repudiation and rescinded the contract on 20 June 2011.  He now sues for damages for those alleged breaches.

[2]        I delivered an ex tempore decision on the afternoon of the hearing on 13 September 2011.  This opinion is an expanded version of my decision which sets out my reasoning in slightly more detail but does not depart in any way from the grounds on which I reached my decision.

[3]        There are three tests which the court has to consider under section 15F when deciding whether to grant a warrant for diligence on the dependence.  The burden of showing that those tests are met rests on the applicant for the warrant:  section 15F(4).

[4]        The first test is whether Mr Bain has averred a prima facie case on the merits of the action: section 15F(3)(a).  Mr Bain’s principal claim was for payment of £1,308,853.50 in respect of future entitlements which he averred he had lost because of the repudiation of his contract.  A major difficulty facing that claim, as Mr Napier QC for Rangers pointed out, was that his contract of employment, which he averred was agreed with effect from 29 September 2009, was for thirty nine months.  A long-term service contract of this length is prohibited under sections 188 and 189 of the Companies Act 2006 unless it is approved by a resolution of the members of the company.  Mr Ellis QC, who appeared for Mr Bain, asserted that Mr Bain did not know whether the members of Rangers had approved the contract.  I found that surprising as I would have expected the chief executive of a public company to be aware whether or not his employment contract had the needed shareholder approval.

 

[5]        But Mr Bain has a fallback position;  Mr Ellis pointed out that if the contract was in breach of sections 188 and 189, the statute replaced the offending provision of the contract setting out the term of the contract with a deemed provision that the company could terminate the contract at any time on giving reasonable notice.  Mr Bain avers that reasonable notice in the circumstances of his position and employment history is twelve months.  Accordingly, Mr Ellis submitted that Mr Bain had a prima facie case that he was entitled to damages on the basis that he had been deprived of the benefits which would have accrued to him in a twelve-month notice period.  Mr Bain averred that he was entitled to £59,811.67 in respect of rights which had accrued at the date when the contract was ended and to a further £905,500 in respect of rights which would have accrued during the period of notice.

[6]        Mr Napier for Rangers accepted that Mr Bain had a prima facie case on the merits based on this fallback position.  Rangers had a substantial counterclaim against Mr Bain for damages for alleged breaches of fiduciary duty.  But Mr Napier readily conceded that that case had not yet been developed and he did not found on it at this stage as a ground for opposing the warrant for arrestment on the dependence.

[7]        In the circumstances I am satisfied that Mr Bain has a prima facie case on the merits of his action.

[8]        The second test, so far as relevant in this case, is that there is a real and substantial risk that enforcement of any decree which Mr Bain obtains in this action would be defeated or prejudiced by reason of Rangers being insolvent or verging on insolvency, if the court did not grant warrant for diligence on the dependence:  section 15F(3)(b).  Counsel agreed, and I accept, that the law on the interpretation of this provision is clear.  First, in addressing this test the court has to look into the future to the time when a pursuer is likely to obtain a judicial determination of his case:  Barry D Trentham Limited v Lawfield Investments Limited 2002 SC 401, Lord Drummond Young at paragraph [13], McCormack v Hamilton Academical Football Club Limited 2009 SC 313, Lord Carloway, giving the opinion of the Extra Division, at paragraph [10].  Secondly, as Lord Drummond Young stated in Barry D Trentham Limited in the paragraph cited above,

“[t]he notion of risk is crucial;  it looks to the possibility of insolvency, not actual insolvency.”

[9]        In arguing that this second test was met, Mr Ellis referred me to Rangers’ annual accounts to 30 June 2010 which the directors of the company and its auditors had approved in September 2010.  He submitted that while the accounts showed an apparently healthy financial picture, that picture depended on the valuation of the company’s heritable property, namely its stadium and training facilities.  Further, the accounts did not provide for the substantial potential tax liability of £49 million which was now the subject of an appeal to the First Tier Tribunal from a determination by HM Revenue and Customs (“HMRC”).  Secondly, Mr Ellis founded on the terms upon which Wavetower Limited, a company in the control of Mr Craig Whyte, had purchased the holding of 85 per cent of Rangers’ shares from a company owned by Sir David Murray and companies within his control.  I discuss this in more detail below.  Thirdly, Rangers faced a claim for about £4 million from HMRC comprising an assessment of about £2.8 million and the balance of interest and penalties.  After serving a charge, HMRC had arrested £2.3 million in a bank account of Rangers.  Mr Ellis stated that he understood that Rangers had accepted its liability to pay £2.8 million and that it disputed only amount of the interest and penalties.  Thirdly, Rangers had paid a debt of about £35,000 to its former solicitors, Levy & McRae, only after they had sued when faced with delaying tactics.  Fourthly, Mr Ellis referred me to an interview with Mr Craig Whyte which was reported in an article in the Daily Record on the day of this hearing (13 September 2011).  In that article the reporter recorded Mr Whyte as stating that Rangers faced cuts in expenditure because it faced a £10 million black hole in its annual running costs.  On the basis of this information Mr Ellis invited me to conclude that Rangers was already in a state of practical insolvency.  He submitted that, in any event, if the tax tribunal were to uphold HMRC’s claim for £49 million in the current appeal which was to be determined in November 2011, Rangers would be practically insolvent unless it received sufficient outside support.

[10]      Mr Napier submitted that Mr Bain had not shown that there was a real and substantial risk of insolvency as (a) there was no basis for challenging Rangers’ statutory accounts, which Mr Bain himself had signed, which showed a solvent company, (b) the outcome of the tax case was unknown and it was far from clear that Rangers would lose the case in the spectacular fashion which Mr Ellis suggested, and (c) the determination of the tax case was in any event a long way off.  He submitted that, to warrant diligence, the risk of insolvency must be reasonably proximate; it could not be said that it was so in this case.  The court should not assume an adverse outcome to the tax case.  Thus Mr Bain had not made out one of the essential preconditions of the grant of a warrant for diligence on the dependence.

[11]      I am not persuaded on the material placed before me that Rangers is presently insolvent on either of the tests of practical insolvency or absolute insolvency.  In relation to the HMRC claim for £2.8 million and penalties, Mr Whyte’s affidavit suggests that HMRC have been able to arrest £2.3 million in Rangers’ bank account.  Discussions are continuing between HMRC and Rangers in relation to the level of penalties imposed.  In any event, the purchaser of Rangers has undertaken to pay the debt to HMRC.  Thus, while the debt affects Rangers’ balance sheet, it does not of itself contribute towards any practical insolvency.  The delayed response by Rangers in settling the claim for fees by Levy & McRae may have been coloured by a sense of grievance toward the solicitors that they should not be acting for Mr Bain when they had acted for the club.  Accordingly I attach little weight to either claim as demonstrative of actual or impending insolvency.

[12]      What is more significant to my mind as an indicator of a potential difficulty in the medium term is the structure of the takeover deal which is recorded in the circular sent to shareholders of Rangers on 3 June 2011.  That document disclosed that The Rangers FC Group Limited (formerly Wavetower Limited) (“Group”) had purchased 85.3 per cent of the shares of Rangers for the cash sum of £1 and had given certain undertakings.  As part of the deal, Group took over Rangers’ indebtedness to the Lloyds Banking Group, which Mr Ellis informed me stood at about £18 million, and obtained an assignation of the Bank’s securities over Rangers’ assets.  The summary of material terms of the acquisition disclosed that Group would waive this debt

“if the Club has not suffered an insolvency event within 90 days of the Club’s appeal in relation to the tax claim brought against the Club by HM Revenue & Customs….”

Group has undertaken to provide or secure the investment of substantial sums in Rangers but, until it waives the acquired bank debt, such further investment is to be treated as increasing Rangers’ debt to Group.  Thus those funds will not improve Rangers’ balance sheet until the expiry of ninety days after the determination of the tax appeal.

[13]      In my view, this carefully structured deal, by which Group has (a) secured its existing investment, by which the bank was repaid, and its commitment to make or procure further investment in Rangers against the assets of Rangers by the assignation of the bank’s securities and (b) made the waiver of its loan to Rangers conditional upon the non-occurrence of an insolvency event in the ninety days after the determination of the appeal in relation to HMRC’s £49 million claim, shows an appreciation by Group of a risk of insolvency resulting from that claim.  When I asked Mr Napier if he could clarify Rangers’ position in relation to the HMRC claim for £49 million, which Mr Bain averred comprised a claim for £35 million of tax and £14 million in interest and penalties, he was not able to assist as he had no instructions in relation to that matter.  I must therefore treat Mr Bain’s assertions as to the extent of HMRC’s claim as uncontradicted, although I acknowledge that the claim itself is the subject of an appeal by Rangers.

[14]      I accept that the appeal against the HMRC determination is at an early stage and that there is scope for appeals by either party from the First tier Tribunal to the Upper Tribunal and thereafter the courts.  I also recognise that a proof in this action is unlikely to occur before the summer of 2012.  But the appeal is in respect of an existing HMRC determination relating to events which have occurred.  While the outcome of the appeal is not known, the HMRC claim is not to be equated with a future trading debt which has not been incurred and which would involve speculation as to the future.  It is also likely that the decision of the First tier Tribunal will be issued before this action is decided at first instance.  As I have said, the court has to look to the future to when this case will be decided.  I am not persuaded that the outcome of the HMRC claim is too remote in time for the court to form a view as to the existence of a risk.

[15]      I am satisfied that there is a real and substantial risk of insolvency if the tax appeal were to be decided against Rangers in the sums which have been discussed.  In reaching this view I emphasise that I am concerned with the statutory test which addresses the degree of possibility.  I am not speaking of the actuality or even probability of insolvency.

[16]      The third test is whether it is reasonable in all the circumstances to grant a warrant, including the effect which that grant may have on any person having an interest: section 15F(3)(c).  Mr Ellis submitted that it was reasonable to grant the warrant as Mr Bain had lost substantial benefits from his contract and an arrestment, if effected more than sixty days before insolvency, might confer a preference.  Rangers’ tangible assets were subject to securities which had been assigned by its bank to Group, and Mr Bain could expect no benefit from those assets.  Mr Napier in reply submitted that the tax arrangements which had given rise to the large HMRC claim had been in place when Mr Bain was an executive director of Rangers and the alleged liabilities incurred on his watch.  By seeking to use the HMRC claim for tax and penalties to secure a warrant to arrest on the dependence, Mr Bain was taking benefit from his own irregularities.  That was not reasonable.

[17]      In reaching a view on this third test of reasonableness I take account of the assertion that the tax claim which has given rise to the possibility of insolvency is something which had occurred at least in part under Mr Bain’s stewardship.  But that of itself does not make it unreasonable to give him some security for his claim.  I am satisfied that Mr Bain has discharged the burden of showing that it is reasonable to grant warrant for arrestment on the dependence.

[18]      As Mr Bain has satisfied me as to the three statutory tests, it becomes a matter of discretion whether to grant the warrant which he requests.  I am satisfied that I should grant the warrant which he seeks but I propose to limit the warrant to reflect the fact that Rangers’ claim against him exists and is likely to be developed over time.  It would not be appropriate in my view to ignore Rangers’ allegation that Mr Bain has been in part responsible for its predicament.  I therefore take a broad approach to his application at this stage.  The total of his claim on the basis of his fallback case is about £960,000.  Allowing for existence and likely development of the counterclaim, I consider it appropriate to limit the warrant for arrestment to one-half of that sum, namely £480,000.

[19]      On Mr Ellis’s application for the expenses of the motion, which Mr Napier opposed arguing for expenses in the cause, I award Mr Bain one half of his expenses to reflect the fact that I have not granted a warrant to arrest over £1.3 million.

 

 

 

 

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