A busy few days, so various issues to comment upon.
Capita Trustee Services Limited v Rangers
This case is back in court on Monday morning (14th November).
|12||Capita Trustee Services Ltd v The Rangers Football Club Plc||WRIGHT JOHNSTON AND MACKENZIE||CA234/11|
This suggests that the “agreement” to have the case continued was to allow a payment to be made. It will be interesting to see if the action is dropped because full payment has been made, or whether this is another case, similar to the Levy & McRae claim, and, allegedly, action by at least one player’s agent, where Rangers have simply decided to hold on to their cash for as long as possible.
One imagines that, if agreement has not been reached and settlement made, Capita will be looking for an order allowing them, as did Martin Bain and Donald McIntyre before them, to seek to freeze Rangers’ funds or assets as a protective measure pending resolution of the case. Surely Rangers cannot be prepared to allow another arrestment to come into effect!
HMRC – Small Tax Case
Talking of cases where it appears Club do not wish to pay, as has been commented before, it is understood that HMRC successfully arrested £2.3 million of the agreed liability in the “small tax case”. The passage of time since the arrestment means that, in the event of Rangers going into administration or liquidation, HMRC would be preferred creditors for that sum. If Rangers went into receivership though, the legal position is less clear. On one view, the funds would go to the receiver to satisfy the creditor under the floating charge (Rangers FC Group Ltd aka “Group” which is Mr Whyte’s vehicle for owning Rangers Football Club PLC or “Club”). There is an alternative view, which places me in the minority, that there is a preference for HMRC in that event too. I won’t give myself a migraine analysing that any more, unless and until such an event comes to pass!
If the arrestment lasts for 14 weeks without Rangers agreeing to hand the funds over to HMRC, and without an insolvency event taking place, then the funds are automatically paid over by the bank holding them to HMRC. It seems that the 14 weeks expires in early December. Mr Whyte indi9cated that, in the contract he had with the Murray Group to buy Rangers, that Group would pay this bill. There has still been no explanation I have seen as to why this agreed sum has not been paid.
HMRC – Big Tax Case
This case has been proceeding at a “secret location” this week and it is believed that there is one more day to go. The First Tier Tribunal (Tax) hearing the case is not expected to produce a judgement till into next year. Some have speculated that the length of the case, now in its third session, means that Rangers are doomed, whereas others believe this means that HMRC are taking heavy fire.
As the Rangers Tax Case Blog indicated many months ago, this Tribunal, hearing Rangers’ appeal against a huge HMRC assessment for unpaid tax due to the use by the Club of Employee Benefit Trusts, would have to deal with each individual payment made from the Trust to the players. It is not automatic that every payment made attracts Income Tax and National Insurance. Equally, it will not be the case that none of them do.
If the position was that there was a knock out blow available to Rangers to establish that, without going into the details, none of the EBT payments could attract tax, then the hearing would have been done long ago. However, even if HMRC landed a haymaker establishing that, in general, Rangers operated the EBTs in a ham-fisted way so as to attract tax, then the FTT (T) needs to go through everything to determine the exact sum due by Rangers. On that basis, and taking account of the numbers of payments that there are assumed to have been, it remains possible that the case still does not finish, and that it is further continued again for several months. How that would affect what some, including Mr Whyte, perceive as Rangers’ precarious cash flow is a question for more numerate folk than me.
Once the judgement comes out from the FTT (T), either party, or indeed both, would have the right to appeal to the Upper Tribunal on a question of law. The taxpayer is normally required to pay the sums assessed as due by the FTT (T) prior to being allowed to appeal, unless the Tribunal decides, in the interests of justice, to waive that requirement. I suspect HMRC would very vigorously oppose such a suggestion, relying on various matters including Mr Whyte’s public comments and the Club’s tardiness in settling the small bill.
Third Party Payments and Players’ Contracts
There is a discussion ongoing, prompted in part by an excellent post by Brogan, Rogan, Trevino and Hogan which he was kind enough to allow me to post here, which considers the implications for the SFA and SPL in dealing with the matter. Some of this has focussed on whether or not a “newco” would be admitted straight to the SPL, and even with the oldco’s points.
There has also been a focus on whether or not Rangers might have broken SPL rules by making payments from the Trust to their players or by failing to produce all required details to the SPL. To recap briefly (which as regular readers know does not come easily to me) it is alleged that “loans” were made to players and other Rangers’ employees by the EBT. These “loans” are in fact alleged to have been remuneration for work done, and it is alleged, paid to the players at any rate in terms of “back letters” or “side letters” which accompanied the players’ contracts and which specified how much the player could borrow from the Trust and also that these loans were non-recoverable by the EBT.
Put simply, if the FTT (T) decides that these payments were disguised pay, then it renders Rangers liable to pay an amount of tax thereon, and also would have caused them to underpay employer National Insurance contributions.
The relevant SPL rules regarding player registrations, payments and contracts run as follows.
D1.1 Subject to these Rules, to be eligible to Play for a Club a Player must first be Registered either as a Professional Player or as an Amateur Player.
D1.2 An application for a Player to be Registered or to change Status must be made, in the case of Professional Registration, by submitting to the Secretary a fully completed and executed Contract of Service for the Player concerned …
D1.13 A Club must, as a condition of Registration and for a Player to be eligible to Play in Official Matches, deliver the executed originals of all Contracts of Service and amendments and/or extensions to Contracts of Service and all other agreements providing for payment, other than for reimbursement of expenses actually incurred, between that Club and Player, to the Secretary, within fourteen days of such Contract of Service or other agreement being entered into, amended and/or, as the case may be, extended.
D9.2 All Contracts of Service between Clubs and Players must be in writing, fully completed and in a form approved, from time to time, by the Board.
D9.3 No Player may receive any payment of any description from or on behalf of a Club in respect of that Player’s participation in Association Football or in an activity connected with Association Football, other than in reimbursement of expenses actually incurred or to be actually incurred in playing or training for that Club, unless such payment is made in accordance with a Contract of Service between that Club and the Player concerned.
So what does this tell us?
1 Players must be registered before being permitted to play.
2 A player’s registration application must be accompanied by a copy of the player’s signed and executed Contract of Service with a signed and executed original delivered within 14 days of the contract being entered into. Any agreement providing for payment to the player, between Club and Player, must be handed over too.
3 The form of the contract must be approved by the SPL.
4 A player cannot be paid by or on behalf of a Club for playing football, or any activity connected with football, unless in accordance with the Contract of Service.
The speculation has been as follows. Did Rangers produce full contracts plus the alleged side letters to the SPL? Even if they did, was a payment to the player from the EBT a valid payment, coming as it did from a third party?
I have repeatedly said that Rangers will not, despite Insolvency Events etc, lose their titles due to what has been referred to as “financial doping.” Some have suggested that playing ineligible players, either because the full contracts were not produced, or because a third party made some of the payments, would cause the SPL to re-assess matters and retrospectively punish Rangers for such alleged misdemeanours.
What is prohibited is payment from or on behalf of a Club, in respect of football or football related activity and such payment must be in accordance with a Contract of Service.
It would be of interest to see the form of contract approved by the SPL and whether or not this approved format allows a side letter to constitute part of the said contract.
This seems to imply therefore that payments can be made to a player, legitimately, in the following scenarios over and above normal remuneration:-
1 Clubs can pay players for activities which are neither “playing football” nor “football related” and details of such a payment, under SPL rules, need not being included in Contract of Service.
An example of this could be, for example, a profit share paid to a player, even if ex gratia, rather than a bonus for winning a trophy. The argument would run, as I could see it, that this was not for the player’s “participation” in football or football related activities, but for his being an employee of a profitable company (on the assumption there might actually be a football team making a profit). In terms of clause D1.13 such a contract would need to be produced if it mentioned such a payment, referring as it does to “all payments between player and club” but the different phraseology of D9.3 suggests that the SPL accepts that there can be payments which can be made without being notified, if ex gratia and of that nature and that there are payments which can be made not for football activity which are not per the Contract.
2 Players can be paid by third parties, as long as these payments are not made by or on behalf of the Club. Therefore under SPL rules, it is legitimate for a payment to be made by a third party, if not “on behalf” of the Club. One hears every so often about some expensive player coming to a club (if I recall correctly this was said about Fabrizio Ravanelli at Dundee) and the Chairman or a rich benefactor agreeing to pay that player’s wages.
Where does this take us? Could Rangers, or any other team in a similar position, argue to the SPL that (a) the EBT from which payments were made was not for “participation” in football activities and (b) was made by a third party and not “on behalf” of the Club? Thus getting round any argument that they had breached SPL rules?
On the basis that there is no word that the SPL has mounted any inquiry into this issue, one assumes that Rangers can adjust their submissions in light of the outcome of the big tax case. Indeed, it is not unknown for lawyers, on their client’s instructions, to argue two mutually inconsistent positions – for example “my client has an alibi, and anyway he was acting in self-defence”.
As I have said, and in any event, if Rangers are left heading to insolvency as a result of the big tax case, I suspect the SPL and SFA would be happy to determine (a) that any breach of the rules about third party payments etc was merely “technical” and (b) so long ago that it might no longer even be legal to look to examine the alleged offences. If Rangers were liquidated, then there would not even be the miscreant there to be punished!
A Rangers win in the tax case, or at least a substantial reduction in the sums to be paid, would also not have them, in my view, fall foul of the rules mentioned above, for the reasons mentioned.
Boston United – A Helpful Comparison?
In 2006, Steve Evans, manager of Boston United and his former chairman at the club pled guilty to “conspiring to cheat the public revenue between 1997 and 2002”. I mention in passing that Steve Evans qualifies as an Albion Rovers “Great”!
As the BBC say in the article linked to above:-
“The jury heard the club operated a shadowy system of parallel contracts and secret payments which enabled them to recruit the best players which they otherwise would not have been able to afford.
Star striker Ken Charlery told the trial he was given one contract which promised him £620 a week plus a £16,000 signing-on fee.
Neither the Football League nor the Inland Revenue was ever shown this contract.
They were shown a bogus contract which purported to pay Mr Charlery only £120 a week and failed to mention the signing-on fee.”
So we have “secret contracts” provided over a number of years, and hidden from the football authorities, and done in such a blatant fashion that a criminal prosecution was mounted (and as I have mentioned before, criminal tax prosecutions are very rare events). This case was seen as being such a scheme as to justify a prosecution. What was the penalty imposed by the football authorities on Boston, bearing in mind that the team did not enter insolvency?
The FA punished Boston by fining them £100,000 and docking them four league points!
The points deduction was not even applied to the previous season, which would have resulted in Dagenham & Redbridge being promoted instead.
So, for a tax scam which resulted in suspended gaol sentences for the manager and former chairman, which lasted over a number of years, and which was of admitted direct benefit to the club, resulting in promotion, there was a measly four point deduction.
The FA in England is not the body clearly with jurisdiction over Rangers’ case, but in terms of the scale of the punishment, if Rangers were found to have “cheated” the tax man and deceived the football authorities, then rather than the prospect of numerous league titles and cups being deleted from the record, we might see a small points penalty on top of the insolvency deduction.
I should make it clear that I am not suggesting that Rangers or its former or present management is or was engaged in tax fraud of any nature, nor of deceit of the football authorities in Scotland.
What About Gretna?
Gretna was a great romantic football story. Based on the financial backing of Brooks Mileson, who himslef was a remarkable character, they climbed form low non-league status to the SPL, the Scottish Cup final and to European competition, before Mr Mileson’s ill heath caught up with him, and when he was no longer fit to fund the club, it folded. It had clearly been run at a level beyond its means, though no suggestion fo financial improprietry has been made.
When it passed into liquidation, did the football authorities expunge their dividion titles achieved on their drive to the SPL? No, they did not.
In the same way, I do not see them affecting the past when it comes to finalise any “penalty” on Rangers.
The plan is for part 2 of this post to address issues regarding the proposed anti-sectarian legislation in Scotland, Hearts and the prospect of a sale, and the referee’s assistant whose life ban was upheld. Stay tuned!