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!

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10 Comments

Filed under Football, Rangers, SPL, UEFA

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

  1. Odear

    Interestung stuff. The exceptions in paragraph 6 seem very loose (eg not clear if are exceptions more or less likely for 6a for a larger territory, for a bigger population etc.) Seems to give a lit of leeway for UEFA to make whatever call they fancy.

    Should it get to the stage where the SFA/SPL put a newco quotation marks “Rangers” forward there would be no certainty of outcome. Would UEFA be likely to rubberstamp any country recommendation or do they tend to investigate independently?

    (PS I am off to register the company names Quotation Mark Rangers, Zombie Gers, Prepack Paddywhack.)

    • Owen,

      The factors in para 6 are to consider in all requestes for exceptions, nit just new/restructured teams. Thus some of them, if not all, might be irrelevant. In effcet thgerefore the decision maker is free to amke up their own mind. That is why betting on such a decision would likley be folly, and timings mean that, probably, it would be hard to get the pre-emptive decision made as in the conditional planning application.

      As the SFA/SPL decide different things from UEFA, the former’s decision might not have any effect on the latter. But we need to wait and see, should that come to pass.

      Good luck with the company names!

      I have no doubt Mr Whyte and his advisers are aware of these issues. It would not be credible that a successful businessman like him would have gone ahead with his plan (if the assumptions are corrcet) whilst ignoring such an important issue.

  2. Odear

    Oh, one further question. Do you think this is/was news to the Motherwell Born Billionaire and any backers he may have?

  3. Pat McVey

    One of the purposes of writing to UEFA about the award of a licence this season when the small tax bill remained unpaid* was

    1. To draw their attention to how the rules concerning overdues payable in respect of the small bill had been applied in circumstances that were questionionable.
    2. Alert them to a possible repetition next year should the EBT one be confirmed,
    3. Draw wider attention to this particular part of UEFA rules so that both the SFA and UEFA know that we know what the rules are as well as alerting UEFA that a highly unusal situation prevails in Scottish football.

    * see end of aricle at.
    http://celticunderground.net/index.php?option=com_content&view=article&id=787:did-the-sfa-deny-celtic-a-place-in-the-champions-league&catid=47:season-2011-2012&Itemid=83

    This further analysis of other UEFA rules is more than welcome coming as it does with legal expertise behind it.

    There are further UEFA rules covering clubs entering administration receiving a UEFA licence where the club has to be able to convince the licensing body that it will be around as a going concern to meet its obligations in season 2012/13 UEFA competition.

    All these rules are a minefield to be negotiated and as things stand in respect of trying to shoehorn Rangers into a state of eligibility, with evey rule that is by passed, the integrity of the governance of football, already shaky at best in Scotland, becomes further undermined at UEFA level.

    I just cannot see that being allowed to happen, unless blogs like this and rtc stop shining the light on the rules (as is being done here),

    There will be parties who (naturally) put their survival at their existing level before anything else but the price the integrity of the game will pay if they are successful has to be understood and some judgement made on that long term basis..

    • Thanks for that Pat.

      I would like to think that the fact that the rules UEFA have refer to sporting integrity means that this would not simply be a rubber stampoing exercise. There seems to be a feeling generally ie on neutral, Celtic and Rangers sites that the SPL/SFA will not put any obstacles in the way of a “new RAngers”. Clearly the reaction to that assumption varies widely!

      I deliberately left the various financial and reporting rules, both of UEFA on one hand and the SFA and SPL on the other out for now, as I wanted to avoid a 10,000 word post!

      You are right – unless people both in the general public and the media have an idea as to these technicalities, how can the paying audience be happy rules are being applied fairly across the board, with neither fear nor favour? A good example is the Spartans being thrown out of the Scottish Cup yesterday for fielding an ineligible player.

      One would hope that decent journalists, of whom there are many, would address these issues, especially as Mr Whyte is publicly discussing the prospect of “insolvency” and “administration”.

  4. Michael

    Paul, can I respectfully request that you stop giving free legal advice to The Gers?

    I know you like to keep yourself occupied but please chuck it 😉

  5. Pingback: Could HMRC Block the Sale of Rangers FC in a Pre-Pack Administration? | Random Thoughts Re Scots (and Other) Law

  6. Brogan Rogan Trevino and Hogan

    Paul,

    This is one of a number of excellent pieces on the legalities or otherwise surrounding the predicament that Rangers PLC presents to both Scottish and European Football– and believe me a real legal predicament it is.

    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 ( Eufa and Fifa ) , To represent its constituent clubs where appropriate, to licence in terms of the regulations of both the SFA and Eufa, 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 EUFA 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 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 wrecklessly broken and flaunted the footballing financial guidelines and have deliberately and wrecklessly ran up a debt with interalia 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 sthe 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 effect 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 thyan 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 than is being suggested in the newspapers and of course if an advance discussions are taking place then all of the member clubs should be notified immediately.

    Whatsmore, 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!

  7. The Battered Bunnet

    Never trust a fella in Snakeskin boots, unless you need sound Licensing advice….

    Stonking stuff from BRTH

    Stonking.

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