The Problems Facing the SFA If Rangers Fall Into Insolvency – A Guest Post by Brogan Rogan Trevino and Hogan

My favourite commenter named after two Celtic full backs, and two fantastic golfers, was good enough to put a lengthy comment on my last post.

To ensure that it gets the wider audience it deserves, I have copied it below.

Take it away BRTH!

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While there has naturally been a focus on the possible exit/survival routes that may be countenanced by the Rangers PLC and/or a Rangers new co– and now some concentration on the actual details of the Whyte/Murray deal– any which way you look at it other than one there is a legal nightmare ahead for Stuart Regan and the newly transparent SFA. I suspect that things are far from clear at Hampden and there is a real danger that there are aspects to any application for admission by a new co that have not been considered– as yet– and which may well tilt the whole thing in another direction.

Stop and consider this? What is the role of the Scottish Football Association? Yes it is there to regulate the laws of football in Scotland, to make rules and apply them, to consider and create new football legislation when appropriate, to ensure compliance with the regulation of its own parent bodies ( UEFA and FIFA) , To represent its constituent clubs where appropriate, to licence in terms of the regulations of both the SFA and UEFA, and at times to be a judicial body applying sanctions where breaches of the rules have been established.

Oh Dear– what a lot of functions and responsibilities– and what a lot of conflicts of interest!

As I have said elsewhere, The SFA does not just represent the SPL clubs– but all of Scottish Football! Some of the smaller clubs may well have a very different point of view to those clubs in the SPL. Many would welcome a giant of the Scottish game having to visit their stadiums twice a year as it would create a substantial financial bonus and enhance the public interest in their leagues– attracting sponsorship, advertising possibilities and so on that otherwise would not exist!

However let’s concentrate on two of the SFA’s clear functions. As a licensing body and as a judicial body which imposes sanctions, The SFA is and must be subject to an obligation to the law that overrides any competing interest or claim by its constituent members. As a licensing body, it’s decisions are certainly open to Judicial review in the Scottish courts and I would suspect that a judicial review would be open to any of it’s members who disagreed strongly enough with any of it’s decisions.

In the past, I have been involved with many judicial reviews concerning Licensing bodies over the years. Two grounds of review are that a) The decision reached is contrary to natural justice and b) that in reaching any decision the body concerned has unreasonably exercised its discretion– where a discretion has been exercised!!

Pausing there, it is very much open to question whether an argument such as that outlined in the Daily Record recently could ever be formally argued before the SFA which is why I suspect that we are about to get a trial by newspaper!

Any argument presented before a judicial body or a licensing body which contains the semblance of an argument which runs along the lines ” It is in your own financial interests to allow our application!” should immediately be dismissed in law as it creates a clear conflict of interest and makes a mockery of the alleged independent and impartial judicial or licensing function.

Any such argument being considered would surely leave the SFA in a very uncomfortable legal place– not to mention UEFA or FIFA — where independence and freedom from personal and collective financial self-interest are under heavy scrutiny and criticism. Take note of the very platform that Platini was elected on!!

So back to judicial review in Scotland.

The current rules in an insolvency position are clear. On Administration ten points at least will be deducted. The ten points I believe is a minimum penalty and it may be that aggravating factors may attract a heavier penalty.

If the Administration is not successfully concluded and liquidation follows the rules state that the licence is lost and surrendered– end of story. An application can then be made by a phoenix company for a new licence and in ordinary circumstances any such company granted that licence would start at the bottom of the league structure and the European regulations regarding the three-year embargo would apply.

Any departure from that set of scenarios on the part of the SFA requires an exercise of their discretion, and in exercising any such discretion the SFA must act according to natural justice and must not exercise that discretion unreasonably.

In that light, look at the footballing and legal facts– as opposed to the “If we are doomed, you are all doomed argument” which has no place in law.

Rangers PLC have deliberately and recklessly broken and flaunted the footballing financial guidelines and have deliberately and recklessly ran up a debt with inter alia HMRC.

Remember that this entire scenario comes about as a result of an attempt to avoid paying due revenues to a relevant tax authority as a result of a connived scheme to avoid paying the taxes that every other club is subject to. Further, I suspect that an examination of the relevant documents surrounding the creation of the EBT and the advice given to Rangers PLC about operating such a scheme will make it clear that no such advice can ultimately be relied upon fully and that there is a clearly stated risk that the entire scheme may well be one which the revenue can have declared illegal with the result that revenues will be due together with accumulating interest and taxes– and that therefore the Directors of Rangers PLC enter into such an agreement fully warned and at their own risk!

Remember too that some of those Directors were paid under that very same scheme!

So this is not a simple case of a business failing and falling into insolvency. This is a case of the Directors deliberately seeking a financial advantage over all competitors which they have been warned in advance may well be unlawful and have sanctions and penalties.

That is a very different scenario to the insolvency of Dundee or Gretna and so on. It is a very different footballing scenario as well, as the entire scheme was designed to ensure that the club concerned could attract the very best players in the country and could win the premier tournaments of the licensing body!

But there is worse to come. On two occasions Rangers have “poached” the national team coach in order to achieve the best possible management of their team. That may be fair enough in a commercial world. However, both of those managers will have wanted to know what the budget will have been to strengthen the squad prior to taking on the job. Let us consider the last such appointment when Walter Smith left Hampden to take up the hot seat at Ibrox.

I will wager ( or at the very least wonder if ) that by that time the Directors of Rangers knew that there was a problem with the tax authorities and the famous or infamous EBT contracts? If so then we have a compounding of the Rangers situation.

If the club had received notice of enquiries being made at that time by HMRC, then going by the advice previously given, they would also know that there was a possibility of a large repayment being due together with penalties and interest.

The prudent director at that point may want to make provision for paying any such liability. Did Rangers? No!!!

Instead, following upon the defeat by Kaunas they went on an unprecedented spending spree to ensure success– all at the cost of paying HMRC and at the cost of complying with the intention of the fair play financial legislation.

Money that could have been used for debt repayment was spent on Mendes, Davis, Lafferty, Whittaker, Naismith ans so on– eventually that extended to the signings of Miller, Jelavic and everyone who followed. Absolutely no attempt at repayment of revenue debt, or the setting aside of money to meet revenue debt, was made.

So this is not accidental insolvency as a result of poor trading– it is a direct result of financial irregularity and it should not be allowed to result in a benefit to the perpetrators of that financial irregularity. Does that argument sound familiar? Yes I thought it would– it is taken from the formal legal pleadings of Rangers PLC lodged in the Court of Session in answer to the claim lodged by one of the architects of this misfortune– namely Martin Bain Esq!

So that is the stance on the financial irregularity of the current Rangers Board! That board of course went through a months long and very public due diligence exercise before acquiring a controlling stake in Rangers PLC. They knew and will have received full legal and accounting advice on the legal status of all revenue claims, how those claims came about and how those claims if successful could affect future trading and licensing of the football club and the PLC.

In such circumstances, Craig Whyte and his cohorts have taken on the previously accepted risk. They are in an even worse position than the former board because they could have simply decided not to invest. They could have waited with any bid for Rangers PLC or its assets until after the First tier Tribunal had reached a decision and the full effect of any legal consequence was known. Yet they didn’t. Instead, in full knowledge and with the benefit of full advice they took on that risk!

We can only speculate as to why that might be. It has been suggested that it as insisted upon by the bank. What would have happened if that had not happened? Perhaps the bank would have pulled the plug and………..? Well the legal consequences are spelt out above. The rules are clear.

So under the current daily Record scenario, in the event of an Administration or even prior to it, the SFA will be approached by someone presumably on behalf of Craig Whyte to exercise an extraordinary discretion ( thus departing from the normal rules ) which it will be argued should apply to some new entity that wants to call itself Rangers because…….?

And it is there that I hit a brick wall! Why should this extraordinary discretion be applied in these circumstances?

If their stadium had been closed because of Fire or Catastrophe or some other physical reason that leads to financial ruin then that may be an argument!

If all their players went on strike or broke contracts or something than that may be another.

In fact any argument that these circumstances were not brought about by the club itself may gain some sympathy in law– but a deliberate and calculated act, the risk of which was accepted and taken on by the controller of the new applicant? Not sure about that!!!

Whyte also has questions of his own to answer with regard to a business track record, source of funding, compliance with companies Act legislation, the ability to trade presuming no European Football ( and that must be legally presumed ) and in general answer the fit and proper fitness test. This is a test which he seems to have spectacularly failed in the eyes of the takeover panel at Rangers PLC as the Directors sitting on that panel refused their blessing and sanction.

Those Directors have since resigned and some have entered the legal courts as a result of what they see as Whyte’s conduct. Whats more, in a few short months, Whyte has threatened to sue various journalists and other media outlets following their apparent criticism or questioning of the legal or business circumstances surrounding Rangers Football Club and Rangers PLC.

So on what basis and under what grounds can the SFA reasonably exercise a discretion to a new applicant under the control of Craig Whyte in these circumstances? What would be the legal position of anyone who objects to any such discretion being exercised?

I again stress that I don’t think that potential financial doomsday is a reasonable argument in law to put before a licensing body or a judicial committee– who of course must call for a report and seek to investigate all of the facts. Thus is far harder than is being suggested in the newspapers and of course if in advance discussions are taking place then all of the member clubs should be notified immediately.

What’s more, any such procedure must surely take a proper legal course and a reasonable amount of time. Any Administration would have to occur before there is an application– indeed it may be that an actual liquidation has to occur before any new application because even in an Administration event all licence places are full. Further the SFA cannot agree to the favourable determination of any licensing application before it is made as that is clearly unlawful!

No, for the SFA, the scenario outlined is a legal nightmare even if all the clubs wanted to agree to such a course. I am aware that there is a voting procedure of 11-1 which Rangers might want to invoke but you see even that very rule may well just be challenge-able on the basis of the voters having their own financial interests in mind as opposed to serving another function– an no licensing body can work legally on such a principle. If there is a conflict of interest any such party should take no part in the proceedings and so if anyone thinks that they will go bust in the event of Rangers going bust and going into liquidation should excuse themselves from any decision-making process.

Two last points:

Watch out for the detail of the FC Sion ruling as there may well be an impact on all of this in the detail of that decision.

Lastly, Celtic Football Club are represented by Messrs Harper McLeod Solicitors who have a number of Licensing and sports law experts who will be only too familiar with all of the above. They are also familiar to the SFA and their judicial bodies, their legal representatives and so on. I have a great deal of respect for Rod McKenzie and his team and they will no doubt steer their clients in the proper legal direction if consulted on any licensing or regulatory manner– as the SFA well know!

My apologies for the length of this post which I will now leave with the intention of returning to my day job!

 

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Many thanks BRTH! Amongst many interesting points I can confirm from personal knowledge that Harper MacLeod is an absolutely top-notch legal firm, and in particular Rod McKenzie is a man who is, and has been for many years, at the absolute top of his game. I suspect that many lawyers would instruct Rod if they had to choose a professional colleague to rely on. Celtic undoubtedly have great talent off the filed, even if on the field that proposition might seem rather more dubious!

Could HMRC Block the Sale of Rangers FC in a Pre-Pack Administration?

I make no apology for returning again to the joys of Insolvency law and Rangers FC. Lots of people, including most importantly Craig Whyte, are talking about restructuring, including administration.

As I commented here, there might be effects for Rangers depending on the exact nature of the Insolvency Event which they undergo (if indeed they do).

What is known, or reasonably assumed to be true, is as follows:-

1                    Rangers FC Group Ltd (“Group”) owns 85% of Rangers FC PLC (“Club”);

2                    Craig Whyte (“CW”) controls Group;

3                    Group paid off the Lloyds TSB debt owed by Club, totalling £18 million, and in return for that received from Lloyds an assignation of the Floating Charge granted by Club in favour of Lloyds pre 2003; and

4                    The debt owed by Club to Group consists of the sums paid by Group to settle the bank debt, together with any of the investment promised by Group into Club, and assorted charges, fees and interest incurred by Club in respect of the work of CW and his team, and the funds owed by Club to Group.

What is reasonably suspected as regards the future is as follows:-

1        There are concerns about Club’s cash flow and solvency, and either as a result of the First Tier Tribunal rejecting their appeal, or the money drying up earlier than that, it is assumed that administration will result;

2        If the Club undergoes an Insolvency Event, then Group’s Floating Charge will crystallise, and Group could appoint a Receiver, whose job it is to realise assets to settle the debt due to the secured creditor, which in this case is Group;

3        The Floating Charge will be security for “all sums due” by Club to Group, so it will not be restricted to the £18 million owed to the Bank when assigned to Group;

4        There will be an administrator appointed to carry out a “pre-pack” administration whereby the assets of the Club are sold off to another party (likely to be Group or another branch of CW’s business empire);

5        The funds generated by the “pre-pack” sale will provide a small dividend to the unsecured creditors, including HMRC;

6        This would leave “Group” or a new company (“newco”) to apply to the SPL for the “new” Rangers to remain in the SPL, even retaining its points this season, and also keeping the Club’s history, and to apply to UEFA for an “exception” to allow it to compete in European competition straight away; and

7        HMRC would object to any Company Voluntary Arrangement (“CVA”) proposed by Club.

The effect of all this is that, if that came to pass, CW would have acquired via his company, Rangers FC, in return for him probably off-setting Group’s claim against the value of assets transferred to Group or to a newco, and additionally for a payment of a few million pounds into the pot for unsecured creditors. The husk of Rangers would be left loaded with

A “Pre-pack” sale out of administration does not require the approval of creditors.

What are the Limits on an Administrator’s Powers in relation to a “pre-pack” sale?

An instructive case is DKLL Solicitors v Revenue and Customs [2007] EWHC 2067 (Ch) (06 March 2007).

Although this is an English case, the law on corporate insolvency is very similar in Scotland and England.

In this case a “hopelessly insolvent” limited liability solicitors’ partnership was to be sold in a “pre-pack” to another firm. HMRC objected to this, and had applied for a winding up order (appointment of a liquidator).

The case came before the judge who had to decide if he should approve the administrators’ proposed “pre-pack”.

Whilst the precise terms of statue dealing with the administration of a limited liability partnership are not identical to those relating to a company, as a result of the slightly differing legal natures, these differences have no practical effect.

Mr Simmonds, QC, sitting as the judge, noted, quoting the relevant provisions:-

Paragraph 11 of Schedule B (1) to the Insolvency Act 1986, as modified by the provisions of Article 6 of and Schedule 2 to the Insolvent Partnerships Order 1994 states, “The court may make an administration order in relation to a partnership only if satisfied that (a), the partnership is unable to pay its debts and (b), that the administration order is reasonably likely to achieve the purpose of administration. “

Paragraph 3 of Schedule B (1) provides, “The administrator of a company must perform his functions with the objective of (a), rescuing the company as a going concern or (b), achieving a better result for the company’s creditors as a whole than would be likely if the company were wound up without first being in administration or (c), realising property in order to make a distribution to one or more secure or preferential creditors.”

Paragraph 3(2) requires “Subject to sub-paragraph 4, the administrator of a company must perform its functions in the interests of the company’s creditors as a whole.”

An expert had placed a valuation on the firm’s assets, if a forced sale took place on liquidation, of £105,000. The proposed “pre-pack” was for a price of £400,000. Liquidation itself would create an additional £44,000 worth of preferential claims by employees for arrears of pay and holiday pay.

HMRC contended that “the estimated realisations in compulsory liquidation are substantially lower than they would expect. Furthermore, no explanation has been given to justify such a substantial variation from what is listed, at approximately £1.7m worth of assets, to a realisable sum of only marginally over £100,000. The Revenue does not accept the valuations or contentions put forward on the, for sale scenarios, and the whole financial position is very short on detail.”

So we have a position where, on paper, there are assets worth considerably more than it is suggested they would realise in a liquidation sale, and a pre-pack is proposed which will realise more than the expert assumes a forced sale will generate, but still far less than the book value of the assets.

After narrating the specific reasons what the expert reached the values he did, the judge commented, “In applications of this nature the court places great reliance on the expertise and experience of impartial insolvency practitioners, even though, of course, it is ultimately for the court to decide if the threshold conditions are satisfied. Moreover, there is no evidence to support Mr Sudds’ assertion that the firm’s assets could be realised for a sum more in line with the purchase price. It is also perhaps significant that there is no suggestion that those assets could be realised for more than the purchase price. I therefore see no reason not to proceed on the basis that the estimated statement of affairs produced by the applicants is reasonably likely to prove accurate.” (Emphases added)

He later addresses the main issue in the case, described as follows:-

“I come now to what appeared to me to be the principal ground of opposition advanced by the Revenue. Miss Williamson pointed out that the Revenue was, by some way, the majority creditor of the partnership by value, and accordingly, if a meeting of creditors were held … to consider the administrator’s proposal to sell to the proposed purchaser, the Revenue would be in a position to defeat those proposals. In the present case there will be no creditors’ meeting to consider the proposed sale, because it is what is described in the jargon as a pre-pack. In other words, the sale has been arranged to complete immediately after the appointment of the administrators, in circumstances where the administrators could not carry on the partnership’s business in administration without further funding, which is not available.”

Counsel for the Revenue conceded that an administrator could arrange and conclude a “pre-pack” without the consent of the creditors, but she argued that approval of such an arrangement where the main creditor was opposed was disenfranchising them.

The judge went on to say:-

“Even a majority creditor does not have a veto on the implementation of the administrator’s proposals. The court could, exercising its powers under paragraph 55.2 of Schedule B (1), authorise the implementation of those proposals, notwithstanding the opposition of the majority creditor. Accordingly, if the present case were not concerned with a pre-pack sale, and a creditors’ meeting prior to the implementation of proposals were envisaged, I would not accept that the Revenue’s opposition meant that it was not “reasonably likely” that the statutory objective would be achieved. In this regard it is to be noted that reasonably likely, means that the court considers there is a real prospect that the objective will be achieved. A real prospect does not equate to more than a 50 per cent probability”.

He determined that the statutory responsibility (b) referred to above was fulfilled as a cogent case had been made out for how it was likely that the proposed scheme would likely be better than the alternatives.

He concluded by saying:-

“Clearly, the Revenue’s opposition ought to be taken into account at this stage of the process also. I was told that the views of the other creditors are not currently known. However, I accept Mr Boardman’s submission that in exercising its discretion, the court can take into account the interests of what he described as other stakeholders, not merely those of the partnership’s creditors. I am particularly influenced by the fact that the proposed sale appears to be the only way of saving the jobs of the 50 odd employees of the partnership. The proposed sale is also likely to result in the affairs of the partnership’s clients being dealt with, with the minimum of disruption.”

How Does This Relate to Rangers?

Part (c) of the statutory responsibility of an administrator requires attention be given to settling secured creditors, prior to achieving the best outcome for the remaining creditors.

Accordingly, it might be seen that selling Ibrox Stadium to someone who wants to use it as a football ground is the best, and perhaps only, way to generate substantial sums for the creditors. As we have seen Group is first in line.

If the administrator has credible asset valuations, taking heed of the exigencies of a forced sale, and able to show that am orderly sale in a pre-pack is likely to be better for creditors than waiting for a liquidation, then the court could authorise such an arrangement.

As in the DKLL case, one would expect HMRC to challenge such a pre-pack. Whether this would succeed would depend on the various factors as mentioned by the judge in the above case.

If this scenario comes to pass, it all comes down to the valuations of the assets, and how credible they are. Effectively the book values in the accounts are irrelevant. It is the present day pre-pack v forced sale comparison which is most important.

 

Addendum regarding Breaking News, and also a point I forgot to mention

Tonight it is front page news in the Daily Record that medals owned by Rangers have been “attached”. This is what used to be known as poinding, and is a process whereby goods are allocated towards settling a debt due, or in respect of an ongoing case. As long as the Daily Record front page shown is genuine, it seems to relate to the action brought by the former Finance Director, Donald McIntyre, who was granted an order allowing arrestment of the full amount of his claim against Rangers.

As Sheriff Officers don’t execute diligence on a weekend, this must have happened, at the latest, on Friday. It strikes me that it is a sign (a) that so far Mr McIntyre’s lawyers have not been successful in catching the full sums under the order, so alternative methods are being used and (b) it is intended to embarrass Rangers further, and would appear to have succeeded in that aim.

In practical terms, unless the attachment is in place for over 60 days before an Insolvency, then the goods go back into the pot for all creditors. But having this on a front page cannot be in accord with CW’s plans, can it?

 

The point I forgot was about Farsley Celtic, which has been mentioned recently. When this English non-league team folded, HMRC prevented it using the name “Celtic” in its new title.

The rules about Phoenix companies are detailed and complex. However they are primarily directed towards liquidations not administration, and therefore it would appear unlikely that, in a sale of assets in a pre-pack, HMRC would have any locus to object to the new team being called Rangers.

Would A Restructured Rangers Football Club Be Eligible to Play In European Competition?

To follow on from my portmanteau post of a couple of days ago, I wanted to look at a point mentioned by one of my commenters, Steve.

As I say, I am always happy to be educated! Steve said:-

“Something not mentioned that I’ve seen over the last few weeks – could another possible problem for a Newco be that they’d have to exist for 3 years before they can compete in Europe?”

Steve is referring to Article 12.2 (Page 12) of the UEFA Club Licensing and Financial Fair Play Regulations Edition 2010.

Article 12 states in full:-

“Article 12 – Definition of licence applicant

1 A licence applicant may only be a football club, i.e. a legal entity fully responsible

for a football team participating in national and international competitions which

either:

a) is a registered member of a UEFA member association and/or its affiliated

league (hereinafter: registered member); or

b) has a contractual relationship with a registered member (hereinafter: football

company).

 

2 The membership and the contractual relationship (if any) must have lasted – at

the start of the licence season – for at least three consecutive years. Any

alteration to the club’s legal form or company structure (including, for example,

changing its headquarters, name or club colours, or transferring stakeholdings

between different clubs) during this period in order to facilitate its qualification on

sporting merit and/or its receipt of a licence to the detriment of the integrity of a

competition is deemed as an interruption of membership or contractual

relationship (if any) within the meaning of this provision.”

Possible Outcomes

Let’s get clear, quickly, the possible outcomes for Rangers and how this might affect them. I am not looking for now at the requirements to obtain the licence from the national association, in this case the SFA, simply UEFA’s Article 12. For the purpose of this illustration, I am ignoring the Club entering receivership, as that is solely designed to deal with the secured creditor, and after receivership, liquidation or administration appear inevitable.

A          Rangers survive without suffering any Insolvency Event (as defined in the SPL Rules Section I on page 79). No problem here – the Club remains and Article 12 has no bearing on them.

B          Rangers enter administration and come back out of it by way of a Company Voluntary Arrangement (CVA). In this case, the company owning Rangers directly would be the same, although ownership might have changed hands. Here too, and subject of course to other issues regarding finances which are not part of this post, Rangers would be unaffected by Article 12. Interestingly the Daily Record splashed yesterday with a story about likely penalties for Rangers in the event of administration, and as Craig Whyte replied to a question from Tom English in the Scotsman last week “It’s hard to say at the moment because there are different ways to restructure a business. People talk about administration as one option and that might well be one of them.”

C          The assets of Rangers Football Club are bought over be a new company (hereafter referred to as “newco”) out of administration or liquidation, whether by a sale during the insolvency process or by way of a “Pre-pack Administration”. This option, and the next, are the ones upon which Article 12 has a bearing.

D          A newco buys another Scottish team, and, having acquired Ibrox Stadium from a liquidator, seeks to move the team there and to change its name and colours to those of the erstwhile Rangers.

The “licence” referred to is that which permits a club to take part in European competition. The licence application itself is dealt with, for Scottish teams, by the SFA. However, teams must satisfy the UEFA requirements.

Let us assume, for this purpose, that a newco has taken over Rangers’ assets as per outcome C (I offer no prediction as to how likely any of the four outcomes suggested above might be). Let’s also assume that the newco has satisfied any requirements placed upon it by the SFA/SPL/SFL and therefore is entitled, under Article 12.1 to seek a place in European competition.

The newco would need to fulfil the requirement I emphasised in Article 12.2 above, namely to have had a contractual relationship with the team for at least three years. Even therefore if the newco was a company formed over three years previously, unless there was a connection to the football club for that period, it would not be eligible to have the club it owned play in Europe.

In outcome D, at first sight matters look simpler. Let’s say that, for example, newco took over a hypothetical SPL team, the East Kilbride Taxmen (EKT) and moved them from their home to Ibrox, changing their pinstripe strips to “Rangers Blue”. If EKT had existed for over three years, and newco had acquired the company owning the club, in the same way as Craig Whyte’s company acquired Rangers, there would not be any problem, except for the move of the club and change of colours.

Such steps would be seen as an interruption of the club’s membership, so, ignoring all the other issues which such a scenario would mean a three year bar from European competition as well.

Is There a Way Round This?

Rangers’ fans need not despair however. It is not inevitable that, in the event of outcomes C or D, that a three year ban would apply.

Annex 1 to the UEFA rules provides details of the areas where UEFA may permit what are known as “exceptions” to their rules. It was, for example, by way of an “exception” that Liverpool qualified for the Champions’ League in 2005-2006.

The relevant part of Annex 1 reads as follows:-

“A.1 The UEFA administration may, in accordance with Article 4, grant exceptions on the flowing matters:-

…

(d) Non-applicability of the three year rule as defined in Article 12(2) in case of change of legal form or company structure of the licence applicant on a case-by-case basis.”

Article 4 reads:-

“The UEFA administration may grant an exception to the provisions set out in part II

within the limits set out in Annex I.”

Annex 1 continues :-

“Exceptions related to item d) are granted to the individual club that

applies for a licence” and “An exception is granted for a period of one season. Under specific

circumstances this period may be extended…”

Annex 1.B deals with the process. The relevant parts are noted below.

“1. The UEFA administration acts as the first instance decision-making body on exception requests.

2. An exception request must be in writing, clear and well founded…

4. Exceptions related to the item defined under A(1)(d) can be submitted at any time. A licensor notified of the reorganisation or restructuring of an affiliated club (e.g. change of legal form, merger of clubs, split of club, liquidation or bankruptcy) is responsible for notifying the UEFA administration accordingly as soon as it becomes aware of it.

5. The UEFA administration uses the necessary discretion to grant any exception

within the limits of these regulations.

6. The status and situation of football within the territory of the UEFA member

association will be taken into account when granting an exception. This

encompasses, for example:

a) size of the territory, population, geography, economic background;

b) size of the UEFA member association (number of clubs, number of registered

players and teams, size and quality of the administration of the association,

etc.);

c) the level of football (professional, semi-professional or amateur clubs);

d) status of football as a sport within the territory and its market potential

(average attendance, TV market, sponsorship, revenue potential, etc.);

e) UEFA coefficient (association and its clubs) and FIFA ranking;

f) stadium ownership situation (club, city/community, etc.) within the

association;

g) support (financial and other) from the national, regional and local authorities,

including the national sports ministry.

7. The decision will be communicated to the UEFA member association. The

decision must be in writing and state the reasoning. The UEFA member

association must then communicate it to all licence applicants concerned.

8. Appeals can be lodged against decisions made by the UEFA administration or, if

applicable, the UEFA Executive Committee in writing before the Court of

Arbitration for Sport (CAS) in accordance with the relevant provisions laid down

in the UEFA Statutes.”

So, in the event that an event I have described as outcome C or D takes place, then Rangers, or indeed any other team looking to play in Europe which experiences a similar insolvency event, will have to do the following.

1                    Apply clearly and in writing to UEFA. The application must also be “well founded”.

2                    The SFA, as licensor, has a duty, as soon as it is aware of the “reorganisation or restructuring of an affiliated club”, to notify UEFA.

3                    The decision is entirely one at the discretion of UEFA, taking account, where relevant, the factors in paragraph 6.

4                    The decision is communicated in writing to the SFA who then pass it on to the club.

5                    A right of appeal exists to the Court of Arbitration for Sport (CAS).

The newco would require, in the event of outcomes C and D, to benefit from a waiver of the rules to allow them to stay in the SPL, which needs a vote of at least 10-1 in their favour even before getting to the stage of a UEFA application.

The newco would then need to benefit from a favourable decision from UEFA. If refused, then an appeal could be taken to CAS, but that would take time, and could knock out one season, at least, of eligibility for European competition by the date it concludes.

Conclusion

If Rangers suffer an Insolvency Event, then whoever “rescues” them, especially from outcomes C and D, would want, I assume, to have the chance of bringing income from European competition. It appears to me that a pre-emptive application could be made – “Exceptions related to the item defined under A(1)(d) can be submitted at any time”.

This would potentially leave the position of the newco purchasing the assets akin to a developer looking to buy land, but conditional upon receiving planning consent. If planning permission is not granted, the deal does not go through. In the same way, especially if a “pre-pack” arrangement is planned, one would suggest that newco make the necessary application as soon as possible.

UEFA is notoriously Byzantine in its structures and processes. How likely would it be that the relevant administration would decide to find in favour of a newco seeking to keep alive a lengthy, historic and proud tradition? Might any decision be influenced by Rangers’ recent troubles with UEFA regarding the behaviour of a minority of its fans?

It would be ironic if, as a result of UEFA’s decisions about Rangers’ supporters, the required permission was not granted.

The bottom line is that, in the event of an Insolvency Event leading to outcomes C or D, whoever funds the newco would be taking a huge gamble if they proceeded with the purchase of assets, either of oldco or a new team, without this exception already in place.

We have seen, with Rangers, Celtic and notoriously Leeds, what can happen where an expected stream of Euro income is suddenly shut off. Is Mr Whyte, or anyone else for that matter, prepared to take what seems a monumental gamble? I find it hard to imagine that, especially of successful in having a newco admitted directly to the SPL, the new owner would be prepared to budget for three years without Euro income.

As I say, all this is hypothetical, and may not occur, but when Mr Whyte himself has discussed administration and insolvency as real possibilities, then I think a look at the issues can do observers no harm.

Finally, as always, I am happy to be told that my understanding is wrong. I never object to additional education!

What Can Footballers Do If They Don’t Get Paid – Not FAO Hearts! Me at Scotzine

Ove at Scotzine, and inspired by the latest reports of Hearts being late again with paying players’ wages, I thought I’d have think about what players could do.

I should make it clear that the example used in the article is Not meant be be Hearts, and that the fictitious owner of the East Kilbride Taxmen is Not Vladimir Romanov.

Click here, or on the logo below, to head over to the article.

Click here to go to the full article!

 

What is the Present Legal Position regarding Rangers FC and Craig Whyte – A Brief 6,000 Word Summary

I have been, as readers of my blog will know, looking at several of the legal issues regarding Rangers present financial circumstances, as more fully reported in the press, by the BBC and on blogs such as www.RangersTaxCase.com .

For my information, and so I can be corrected about any misunderstandings I have, I thought I’d jot down some propositions about where matters are just now, and briefly where they may lead. I am more than happy to be corrected and educated further. I am also more than happy to leave the number crunching to RTC, Adam and others more arithmetically inclined who comment on the RTC blog.

Initial Propositions

I think it is agreed by all, on whichever side of the argument they might be:-

(a) that football is an expensive business to run: (Remember the old joke – how do you make a small fortune out of owning a football team? Start with a large fortune!)

(b) that Rangers (and Celtic) will budget for and depend upon some income from European competition; good runs in either or both the League Cup and Scottish Cup; a top two finish in the SPL as regards prize money; and, latterly, some net income from players sales every year;

(c) that all businesses to some extent are speculative in their budgets and projections, and the “aggression” of the business owners will determine how much of a safety net they have in their forecasts (after all, as we have seen with the News of the World, there is no such thing as guaranteed sales);

(d) that having a lot of the projections fail at once can cause havoc for a business’ finances;

(e) that Rangers were in a parlous position financially (as shown by the fact that the 85% shareholder was willing to sell out for £1 + the debt being taken over);

(f) that as Mr Whyte has himself acknowledged, the wage bill at Ibrox needs to come down substantially, notwithstanding legally binding undertakings to make certain investments in the Club (which may or may not have been put in yet); and therefore

(g) that based upon all that has been made public, and for example ignoring RTC’s spreadsheet, it is still clear that Rangers require extra finance from some source to maintain its trading position.

How much and when are questions to which only those running Rangers and its owners will know. As there appears to be no bank giving Rangers credit just now, there may not even be a financial institution with that knowledge.

Depending on (a) the present cash position of the business (b) Mr Whyte’s investment and (c) funding that might come from other people or institutions by way of loans, Rangers could be poised (Tax cases excepted) to run out of money tomorrow, or next year, or on Christmas Day 2100.

Until details are published with the present position (as even the annual accounts will be historical) all is speculation as regards the cash flow of Rangers.

The Tax Cases – The Small Case

As far as the tax issues are concerned, there has been an arrestment of funds regarding the “small” case. The arrestment will be 60 days old any day now. That would give HMRC some priority in respect of the arrested funds in the event of administration or liquidation. The position regarding receivership is less clear (which is a polite way of saying that I have not fully got my head round the present legal position, though to be fair to me, it does seem confused).

In any event, the arrested sums will automatically be paid over to HMRC once the arrestment has been in place for 14 weeks, and as long as no “Insolvency Event” takes place in between. The money arrested is not paid over after 60 days.

In the event of receivership happening between now and the 14 week period expiring I can imagine there might be extended and complex litigation on the issue. The sum of over £2 million which has been arrested is well worth fighting for.

The fact that the sum mentioned has been arrested but not yet, as far as is understood, paid to HMRC, is worthy of note. Rangers could authorise release of those funds to HMRC now. They are not obliged to wait till the 14 weeks passes. Taxpayers might not rush to sign over the sums in a case like this, but further interest on the unpaid bill will be accruing on a daily basis, and this has led to speculation about Mr Whyte’s intentions. Is he expecting some event between now and the 14 week expiration, which will give him priority, though the Floating Charge in the name of “Group” over HMRC? As Mr Whyte has not stated this publicly, nor indeed said why he has not agreed to that payment despite his undertaking in the takeover to invest funds to meet this bill, we are left in the dark.

It has been stated that Rangers are disputing the matter of penalties as regards the “small” tax case. I am unaware as to whether this is continuing through informal means just now, of if, an appeal having been lodged against the notice of penalty, a date for a hearing before the First Tier Tribunal (FTT) is awaited. One assumes that, if liability is not accepted, then the case will end up at the FTT, insolvency permitting.

The Tax Cases – The Big Case

As regards the “big” tax case, this has been running for some time now and it is understood that the third session of the FTT hearing is to take place next month (November). I do not know the exact date fixed for it, nor how long it is left to run, but the understanding seems to be that the appeal will conclude during this episode. The FTT will not issue a decision ”on the hoof” as clearly there are substantial arguments to be considered on each side and, one assumes, significant amounts of evidence from either party. Normally a decision would be forthcoming perhaps one or two months after the case closes, so a decision is unlikely prior to 2012.

In any event, either party, if dis-satisfied with the result, can appeal on a point of law, to the Upper Tribunal. Thereafter there is a further appeal to the Inner House of the Court of Session, and a final appeal to the UK Supreme Court. If the full appeal route was followed (and in a case of this magnitude that would not normally be a surprise) it would take some years before the case resolved.

If the FTT upholds the HMRC assessment, and Rangers did appeal, it would normally be expected that the disputed sums by way of tax be paid in any event (to stop a party appealing simply to delay payment). However, the taxpayer can ask the Tribunal to postpone or limit the tax paid on that basis, and this would be determined by the Tribunal, looking at the issues involved in the appeal, the apparent strength of the appeal, the sums involved, and the taxpayer’s record as regards dealings with HMRC. If, in this example, Rangers failed in the Appeal at the FTT, and had to pay the full sum due to proceed further, then, as Mr Whyte himself has said, insolvency is inevitable. If not, the position remains open.

The press has recently reported Mr Whyte as having said that he may not appeal the decision of the FTT, if it goes against Rangers as the matter hanging over the head of the Club causes ling term uncertainty. If the appeal to the FTT fails, and Rangers had what their counsel viewed as reasonable appeal chances, and a reasonable chance of postponing any payment meantime, then why would such action not be taken? If it is Mr Whyte’s intention, as he has said, to run Rangers for the long-term, what will a refusal to appeal an unfavourable FTT decision mean?

Could it indeed open up a challenge by minority shareholders? If the directors of a company have a duty to act in the best interest of the shareholders, in a group structure like this where the subsidiary is 85% controlled by the parent company, can the directors of the subsidiary actually proceed down a road (receivership) which ensures that the parent company is paid in full in respect of the debt it is owed, but the shareholders are left with nothing? On the basis that the parent company’s shares too would be worthless, I suppose the answer is yes, but it would always be possible for a minority shareholder to seek to challenge these actions of the directors in court.

If There Is an Insolvency Event, What Will It Be – Receivership?

It seems hard to see, from all that has been said, and based upon the financial disaster caused by the arrestments and the failure to qualify for European football past the preliminary round stage, that Rangers, especially with the tax cases moving towards conclusions (though, as I have said, the appeal process could delay the “big” case for many years), can survive without an insolvency event.

“Group” being the parent company holds a floating charge over the assets of the subsidiary “Club” which crystallises when the charge is called up. At that point the charge no longer floats but secures the Club’ assets. The receiver, appointed under the Floating Charge, has the job of getting the creditor paid. The receiver, subject to acting fairly, has no role in realising funds for any other creditor. Clearly the receiver could not, for example, agree to sell an asset worth £50 million to the creditor for £18 million, purely to extinguish the debt due under the charge (if in this example, the debt was £18 million). However valuations of assets can vary according to the valuer and as long as a receiver acts on credible valuations, then the chance to challenge that might be limited.

So, if Group appoints a receiver, Mr Whyte would aim to recoup his full investment in Rangers as stated in the circular at the time of the takeover, to include what he paid to Lloyds TSB to clear the Club’s £18 million debt with the bank, and the various interest, management and other charges Group is entitled to levy on the Club.

If There Is an Insolvency Event, What Will It Be – Administration?

An administrator’s job is to see if the company can be kept running and disposed of as a going concern, generating enough from a sale of the business, or assets therein, to satisfy the creditors. Once secured creditors are paid (such as creditors under a crystallised floating charge and lenders with a Standard Security over land and buildings) the administrator, whose fees make him also a preferential creditor, seeks to realise funds for the unsecured creditors.

If a company is in a state where an administrator is appointed, then it is unlikely that there will be sufficient to clear all creditors in full. In those circumstances, the administrator can seek the agreement of the creditors to a CVA (Company Voluntary Arrangement). By this means the administrator would propose that all unsecured creditors receive the same proportion of the debt due by them, thus writing off the balance. Often these CVA’s propose only a few pence in the pound, as either the administrator can realise few assets, or else the secured creditors take the lion’s share.

Each creditor has a vote in proportion to the size of the debt owed. If creditors owed at least 75% of the debt agree to the CVA it becomes binding and a creditor in the minority cannot stop it going through. It seems to be the case that HMRC would block any CVA where the “owner” of the business got all his money back leaving HMRC (and the other creditors) with little or nothing. This took place at Portsmouth FC and HMRC lost a High Court battle to stop their CVA going through.

If a company comes out of administration under a CVA it is still the same company, even though it might now be owned by different people. This has a bearing on what would happen to Rangers, should they go into administration.

In addition, there exists what is known as a “pre-pack”. This most commonly occurs in an administration but can also arise in liquidation. In simple terms, in a “Pre Pack” a buyer is lined up for a struggling business before it goes into administration or liquidation. A common situation is where a business is carrying historical debt which it can no longer afford to service. The core business may well be still viable however.

In many cases the owners of the existing business form a new company which in turn buys the assets of the old company from the Liquidator or Administrator, but leaves behind the debts. There are those who feel this is morally wrong but there are always differing viewpoints. The procedure is perfectly legal but has to be arranged within strict guidelines. Administrators are appointed to act by the Court.

As with many things in life there are winners and losers. Take the designer clothing chain USC which went into Administration recently. It had 58 outlets and under a “pre pack” sold 43 of those stores back to a new company owned by the original owners. Understandably, such situations can provoke anger among suppliers and landlords, many of whom can be left with unpaid bills. However, out of 1427 staff, 1127 kept their jobs. Tax-payers may question why they should foot the bill for unpaid tax bills often written-off in such arrangements but that too can be countered with the savings of not paying unemployment benefits. Generally, by the time of administration or liquidation, the business owners themselves will have already lost significant amounts, though as we have seen that does not appear to be the case for Group, as per its Floating Charge.

One criticism often raised is that the assets are sold at below market value (which reduces the amount available to pay creditors) but there is often a limited market for the assets. In Rangers’ case, what is a football stadium worth? What are the players’ registrations worth, in a fire-sale? What value is there in Murray Park?

Under a “pre-pack” the company running the business is a new company. The existing one is left to wither and die burdened by the unpaid debt.

If There Is an Insolvency Event, What Will It Be – Liquidation?

If a company is insolvent, either unable to pay its debts as they fall due, or with an excess of total liabilities over total assets, then the directors, or a creditor, can appoint a liquidator. Whilst an administrator’s job is to protect the company whilst generating funds to pay something to creditors, the liquidator’s is to break it up to pay off the creditors.

Liquidation can follow either receivership or administration, either where a creditor decides to take action to protect their own position in a receivership, or if it becomes clear in either example that there is not sufficient to pay the creditors.

In a liquidation, because there is even more of a “fire sale” atmosphere, the assets will generally sell for even less than in a receivership or administration.

A company in administration may find the administrator threatening the creditors that, if a CVA is rejected, there will be a liquidation and creditors will get little or nothing. That proves always reminds me of Cleavon Little, as the Sheriff in Blazing Saddles, holding himself hostage to escape the angry townspeople of Rock Ridge.

Liquidation brings the company to an end.

What About Rangers’ Other Legal Cases?

As matters stand, Rangers are presently being sued by two former executives, Martin Bain, the former CEO and Donald McIntyre, the former Finance Director. Each has been successful in court in having the court order that substantial sums be arrested so that, if they ultimately succeed in their claims, there will be some funds to pay them.

However, as Mr Bain’s case will only go to proof next July, and after that appeals could be lodged, and as Mr McIntyre’s case in only at its earliest stages, it seems likely that any Insolvency Event involving Rangers will have taken effect long before any judicial determination in their cases.

In that event, should Rangers enter administration prior to the cases concluding, then the gentlemen would lodge claims in the administration for the amounts they are seeking and it would be up to the administrator (or ultimately the court) to decide what the correct level of claim would be.

It has been stated by Mr Whyte that Alastair Johnston, the former Chairman, has threatened court action for £30,000 of unpaid expenses. Similar considerations as regards time apply to such a claim too, although there are methods, for example by suing in Glasgow Sheriff Court under the commercial procedure, whereby a full hearing could be set quicker than in the Court of Session. One would imagine the issues in such a case would be a lot more clear cut than, for example, in Mr Bain’s case.

In addition, John McClelland, the Chairman before Mr Johnston, is rumoured to be ready and willing to engage Mr Whyte, or one assumes his Group, in litigation. As far as I am aware however, there has been no indication as to whether or not this threat actually came from him, or if so, what the basis of any such case would be.

Mr Whyte has also threatened legal action against the BBC for its Inside Story documentary last week. It has been said that Carter-Ruck have been instructed. As yet there is no confirmation of proceedings having been issued to the BBC. The instruction of Carter-Ruck would indicate an intent to pursue the case at the High Court in London. Whilst the laws of defamation in Scotland and libel in England are similar, there are differences. Perhaps, when at a loose end, I can offer some more detailed thoughts regarding the apparent issues, but that is for another day.

Rangers’ Entry to European Competition

There has been, over the last few days, a lot of discussion regarding this point. In terms of UEFA’s rules, a team entering the Champions’ League or Europa League, needs to have the appropriate licence issued by the national football association. Without the licence, the team cannot compete.

One issue which is stated as possibly preventing the issue of a licence is indebtedness of the team at a particular point in the year in respect of tax liabilities. Some have suggested that the two tax bills facing Rangers ought to have prevented them being issued with a licence to compete in Europe in season 2011-2012. Whilst UEFA and the SFA will surely be unwilling to discuss the specifics of Rangers’ case (or indeed of any other team), unless there is sufficient evidence of a fraud or deception (within the criminal meaning of the word) I see no way in which either the SFA or UEFA would be in position to take the action some commenters have been calling for as regards Rangers.

As regards the big tax case, this is under appeal. Therefore nothing is due, until the appeal is resolved. If the FTT goes against Rangers and they appeal further, then the big tax case’s existence would not affect Rangers’ eligibility for European competition in 2012-2013 either.

In connection with the little tax case, whilst Rangers had a provision in its accounts prior to the relevant 31^st March 2011 deadline, this does not mean that the bill was at that stage overdue within the meaning of the UEFA regulations. Depending on precisely when the bill was accepted by Rangers and what discussions were taking place with HMRC, I suspect that Rangers would have submitted their required application to the SFA having had legal advice that what they were putting forward was appropriate. Sometimes matters of legal interpretation can be very finely nuanced (remember President Clinton saying “It all depends what the meaning of the word ‘is’ is). Whether something is “overdue” within the regulations might be a matter of interpretation where more than one definition could be used.

Of course people remember the SFA machinations under Jim Farry which delayed Jorge Cadete playing for Celtic, but if anyone is to suggest that the SFA, for example, connived with Rangers to issue a licence they were not entitled to, there would need to be evidence of that. As far as I am aware, there is none in the public arena just now. Presumably a team affected by this issue could seek to obtain information, perhaps by a court order, from the SFA, but without any specific information, and only with general suspicions, a court would not permit a “fishing expedition” in the hope something turns up to support any such allegation.

Craig Whyte’s Disqualification as a Company Director

The BBC programme referred to included what, to me anyway, was new information that Mr Whyte had been disqualified from acting as a company director in 2000 for seven years. Whilst I have seen comments to the effect that this information was known in the takeover process, I have not seen mention of it in checking back through reports. I am not saying that it was not known – simply that, for an important piece of information, it seemed to have very little publicity.

I have earlier written about this issue and speculated as to what might have caused a seven year ban – reaching the conclusion that this must have been more than the claimed “technicality”. Such a disqualification, now served, does not affect his ability to be a director now, although Private Eye has suggested that failing to disclose this may have broken the rules of the Stock Exchange on which the company’s shares are listed.

More pertinently, some have suggested that, under SPL rules, Mr Whyte cannot be a director of an SPL team as he has been disqualified from being a company director within the last five years. Here is a point of interpretation which might seem confusing. As his suspension lasted until 2007, he was clearly “suspended” within the last five years. But the normal rules of interpretation would suggest that it is the time when the disqualification was imposed (in this case 2000) which is important, not when it continued to. A plain reading makes either possible. If the SPL now sought to suspend him taking the first literal interpretation to be accurate, I would suggest that his appeal would take about two minutes to succeed (if his representative spoke slowly!)

Even if there are no legal consequences of any alleged failure to disclose this matter, I suspect it might have affected the views of some of the parties to the takeover, both directly involved and as media commentators. However, “he has served his time” and is undoubtedly entitled to be a director now.

The BBC programme made certain allegations too about his conduct whilst disqualified. These were made in the context of the winding up of a company where, according to the Government’s Insolvency Service, Mr Whyte was a shadow director. Mr Whyte denies such allegations.

Questions have been raised about this allegation, and the fact that he was not prosecuted. As I have said before, this might be because the Crown Prosecution Service viewed him as innocent, or that there was not sufficient evidence to give reasonable prospects of a conviction, or that there was enough evidence to prosecute, but the fact he was at the time resident in Monaco made it not in the public interest to do so. Bottom line? He was not, and cannot now, be prosecuted for alleged breaches of corporate or insolvency law dating back to 2003.

Might Rangers Be Stripped of Their Titles or be Liable to Pay Damages to Other Teams?

Some have said that, if Rangers are found to have underpaid their taxes, they should be stripped of their titles won whilst the “illegal” Employee Benefit Trusts were in operation, and that they should be held liable for damages to be paid to teams who lost out because of what is seen as Rangers cheating.

Whilst there are moral arguments about benefiting from wrongdoing (even if only the civil wrong of not paying taxes) they do not help here.

If, as RTC believes, there is clear evidence of criminal activity by persons involved in the running of Rangers and administration of these schemes which will result in criminal prosecutions, then this allows a slightly stronger argument, but even then, I do not see any way in which previously won titles will be forfeited. If, as happened with Marseilles and Juventus, there was evidence of the teams conspiring directly to fix matches or results, or to suborn referees, as these can be shown to be directly affecting the outcome of games and are clearly against football’s rules, then such draconian action is justified. However, unless there is some rule in the rulebooks of the SPL, as regards the League, SFA as regards the Scottish Cup or Scottish League, as regards the League Cup, then the titles will not be forfeited.

Equally too, any club taking action against Rangers directly, or against the SFA/SPL for permitting Rangers, to operate these unlawful (in tax terms) schemes would be doomed to fail, as it would be impossible to link the wrongful act with the loss. Whilst it might be shown that Rangers, operating legally, might have had less money, or not been able to sign specific players, a court is not going to determine that this definitely altered the course of a season. The loss is too remote from the wrong. If the loss is not seen to flow from the wrong, then there can be no liability.

If certain individuals were found to have been guilty of criminal offences as regards these schemes (and such a determination, if one is ever made, is far away) then I understand that the SPL could take action against such persons on the basis that they were not fit and proper persons to be involved in running a football club. Such an allegation in connection with these matters cannot of course be put against those involved with running the club with Mr Whyte, as his new broom has swept clean.

So, What Will Happen To Rangers? – They Might Survive Financially

First of all, Rangers might be able, as a result of funding from Mr Whyte or elsewhere, and regardless of the HMRC result, be able to survive financially. That seems unlikely in view of the figures being discussed and spoken about, even by Mr Whyte and particularly so if the tax case is lost. But his business acumen might render such an outcome possible.

So, What Will Happen To Rangers? – Craig Whyte Could Sell Up

Secondly, Mr Whyte might sell the team. It is hard to see anyone buying it when the tax case is looming. That case ending in Rangers favour might make that more plausible, but would Mr Whyte be able to sell the club in a way to recoup his investment and make a profit? Hard to see that in the short or medium term.

So, What Will Happen To Rangers? – Rangers Might Enter Administration

Thirdly, Rangers might suffer an “Insolvency Event”. What are the consequences of this?

There would be an immediate loss of ten points in the SPL, and that ten point deduction would apply in each season where the “Insolvency Event” was ongoing. Therefore if the Club is to come out of administration by way of a CVA, this must be concluded prior to the start of season 2012-2013 to avoid a second 10 point penalty. As mentioned, HMRC would appear likely to object to a CVA which left them getting only a small return on the huge sums they are claiming. This suggests that the existence of “new” Rangers needs to be examined.

In addition, the occurrence of an “Insolvency Event” would likely prevent the SFA issuing Rangers a licence for European football next season, if the administration process was not resolved by the relevant date. That would clearly be important for Rangers going forward, as the lack of any significant UEFA money this season seems to have quickened the pace as regards such an event taking place.

Then comes the question of Rangers’ registration. Others have written in forensic detail about this, so I will skim over the top of the issues. If Rangers go into and come out of administration, by way of a CVA, then it is the same corporate entity and as such it would retain its history – it would remain, legally, the same club.

So, What Will Happen To Rangers? – They Might Be Bought Over in a Pre-Pack or Liquidation

If however there is a pre-pack, where the assets are bought by a new company (referred to as “newco”) or there is a liquidation and a “newco” buys up the assets and, for example, buys another team with the intention of moving them to Ibrox, whilst changing the name, this would be a new corporate entity. In the former case, legally, the team would have no connection with the “old” Rangers. Indeed if the newco attempted to pass itself off as the oldco, there would be a risk of HMRC and other creditors looking to pursue it on the basis it was a phoenix company and effectively a continuation of the oldco. Any purchaser, whether Mr Whyte or someone else, would not want to make the connection so obvious that that would happen. Would that affect the claimed history of the team, the name of the team, the colour of the strips, or the ground where they played? All of these might be relevant.

The rules of the SPL seem to prevent a newco being admitted directly to the SPL without having come up the ladder from the Third Division. However, the SPL is a company, owned by its shareholders, the teams in it. An Insolvency Event allows the SPL to reclaim the share held by an insolvent member. The SPL, by a 10-1 vote, could agree to allow a newco immediate entry to the SPL by changing its own rules. Thus a newco Rangers, in theory, and as long as no more than one other SPL team opposes them, get straight back into the SPL. Indeed, if the change to a newco happened mid season, there is nothing in law which would preclude the SPL from allowing the newco to take over the oldco’s points.

Would fans of other SPL teams agree to their directors effectively resurrecting Rangers? Would, for example, Celtic fans approve Peter Lawwell voting in favour of Rangers’ immediate re-admission? Would Vladimir Romanov vote in favour of one of the detested Old Firm? I suspect from what I have read that a Celtic Park following such a decision would either be full of protesting fans, or three quarters empty, with tumble weed blowing around!

UEFA too might have issues, but when it comes to these matters, in the spirit of subsidiarity, it prefers to leave the local associations to resolve these knotty issues. The problem would then be one for the SFA, and I suspect that, if the SPL allow a newco Rangers back into the SPL, then the SFA would go along with that.

Might a decision to allow newco Rangers to inherit oldco’s points be challenged? I suppose it is possible that the team who end up facing relegation might argue that this was unfair, but the counter argument would be (a) that the SPL had voted in favour by the required margin and (b) that the points won were effectively part of the assets acquired by the newco.

If the worst happened from a newco point of view, and direct admission to the SPL was not allowed, then they would need to seek admission to the Third Division and work their way up. In the same way that Juventus, relegated to Serie B for corruption, kept most of its players and motored back to Serie A in one season, banging in goals and packing grounds left, right and centre, one could imagine a newco Rangers doing the same as it travelled from Arbroath to Annan, from Peterhead to Berwick.

The Cleveland Browns Analogy

The matter of sports teams’ histories can be very emotional, not just in Scotland. The Cleveland Browns were a team playing in the NFL. They had a history dating back to their founding by Paul Brown (hence the name) in 1946. In 1995 however, the franchise owner Art Modell, decided to move the team, lock, stock and barrel, to Baltimore for the 1996 season. The loyal Clevelanders went mad. Court actions, threats, vandalism etc occurred, but the move was not stopped, and the re-branded Baltimore Ravens kicked off in 1996, with the players, staff, and history, of the Cleveland Browns.

Then what happened showed how flexible these matters can be.

The NFL decided that the fairest solution it could come up with was as follows.

The “new” Baltimore Ravens were treated as having come into being in 1996, even though the ownership was that of the previous Browns and most of the players and staff were too. A new franchise would be created to commence playing in Cleveland, as the Browns, in 1999, and the relevance for our discussion was that the league agreed that the history of the Browns from 1941 to 1995 was the history of the “new” Browns – they had had a “hiatus”. From a football perspective, it is of note that Al Lerner was the owner of the new franchise in Cleveland, and on his death his son, Randy, took over. That is the same Randy Lerner who owns Aston Villa!

What about the Players’ Registrations?

As far as the players’ registrations go, there are varying views about this. As I understand it, administration does not affect their contracts (though the administrator can elect not to keep them on) unless they are not paid, which would be a breach of contract entitling a player to terminate the contract and become a free agent. Whether or not a player did so would depend on whether he, or his agent, thought he could get a better and more secure deal signing elsewhere. Any player who was out injured long term or whose performance level had dropped off might be happier, administrator permitting, to hang on at the Club as the cash would not be forthcoming elsewhere.

Liquidation however is different. As I understand it, the appointment of a liquidator would effectively turn the players’ registrations over to the governing body. In that case, newco Rangers would not be burdened by the old contracts but would have none of their players either, unless they individually agreed a new deal with newco.

If there is a newco following a liquidation, then the absence of debt, and the likelihood that, even without the legal connection, many fans would see newco Rangers as a continuation, there would be far more money available than in any other Division 3 team and we would see a repeat of what Gretna did in shooting up the divisions, except with more money being spent and in a 50,000 seat stadium.

What Does Craig Whyte Stand to Gain?

Mr Whyte is a businessman, and by all accounts a successful one. He seems, from all publicity, to be a man who gets involved in failing or troubled businesses, and either seeks to turn them round, selling them on as profitable and this making his own profit, or breaking them up and realising the assets to make his profit that way.

His dealings with Rangers suggest a similar approach. He is believed to have cleared the full debt to Lloyds TSB by paying them £18 million. In return he took over their rights under the Floating Charge. This is security, if in standard terms, for all sums due by the debtor, “Club” to the creditor “Group”. Accordingly, this charge assists Group to recover all the money paid to Club or on its behalf and fees and interest. Mr Whyte could have discharged the Bank’s security and taken a new one of his own, bur Floating Charges granted pre-2003 are better for the creditor, for reasons discussed elsewhere.

Group also undertook to write off the debt owed to it by the Club 90 days after the end of the “big” tax case. Why would a successful businessman agree to write off a debt of in excess of £20 million, at least, owed by a subsidiary to its parent company, especially as Mr Whyte has either had to raise from his own funds, or from a third party, the £18 million paid to Lloyds TSB? This is not a paper debt he has said will be written off.

It may simply be that Mr Whyte is a loyal Rangers fan, able because of his vast personal wealth to take over his lifelong football team and who will not baulk at paying whatever is needed to keep that team going and do so successfully.

However it may also be that he is a very canny businessman who perceived that, with an average European season, there would be enough funds to keep going till January at which time players could be sold, this being in anticipation of the FTT decision, but sadly it would have become apparent that there was simply too much dent to survive as oldco. In that event, Group appoints a receiver – it gets all its money back, including fees, charges and interest (levied at 3% per month). It might even be that he uses the funds he has realised, to pay the administrator or liquidator to take over the assets of the oldco, and he is then full owner of Rangers, unencumbered by any debt, and able, if he can persuade his fellow SPL directors, to keep going, minus only a ten point penalty.

The early losses in Europe and the League Cup have damaged the plan. He may well have had to put in more than he wanted now to keep the team going. However none of that necessarily renders void the original plan mentioned above.

Questions are still to be answered. For example, he has pledged, even in insolvency “to protect the small shareholders”. How does he plan to do so? What would happen to season ticket holders in an administration or liquidation>? The administrator or liquidator can refuse to honour their contracts and seek admission on a game by game basis, whilst leaving the season ticket holders as unsecured creditors.

Would Mr Whyte be able to persuade a large number of fans to pay twice for their seats, probably so!

What would happen with supporters who purchased season tickets through a finance company? They would still be liable to pay the company, even whilst no longer having rights to a seat.

Conclusion

There are many matters listed here, and I know many more I have not addressed. However, I think these are the main points as we sit on 27^th October at 3.30 pm.

I will be very happy if any readers have comments on what I have said about the legal and factual issues. As I said at the top of the page, I am interested in the legal issues, and thought that a portmanteau piece, pulling them all together, might be of value, if only to me.

I suspect there is still more to be written here, and, to re-assure any readers who follow Rangers, rest assured I will be happy to write about legal issues concerning Celtic, Hearts, Albion Rovers or Inverurie Locos, as long as something of sufficient legal interest arises.