For all then comment that Mr Whyte has looked all at sea in recent weeks, this may well be a master stroke by him, if he wants (a) to keep the arrested sums available to the administrator/receiver (b) survive long enough to generate cash from sales in January and (c) trigger an Insolvency Event prior to the relevant court or tribunal rejecting the efforts to recover the money by him.
I explain, in some detail, below how this might work but there are options open to Mr Whyte to allow him to put off transfer of the money till the end of January anyway. However, despite the brilliance of the stratagem, it will do nothing to assist his general reputation and would be seen as a most blatant attempt to thwart the taxman getting his money.
I think such a move, if correct, is the best proof possible that his plan is to take the club down and extract as much cash from the carcass, before leaving the joys of establishing a “Rangers 2012” to someone else, whilst Mr Whyte sits on the Monaco sea front reading his Rangers Annuals from the late 70’s.
Such a move, if followed though, might be a devastating blow in favour of Mr Whyte, but at the same time, many more nails knocked into the Rangers coffin lid. It will be interesting to see how this one plays out
The Story So Far
The sum of £2.3 million had previously been arrested by HMRC in connection with that bill. In terms of the Debtors (Scotland) Act 1985 s73J inserted by the Bankruptcy and Diligence (Scotland) Act 2007 that sum was about to reach a total period of 14 weeks since it was arrested. Under s73J on the expiry of 14 weeks, the sum arrested would be remitted by the bank holding it to HMRC.
Some wise people (and me) had speculated that, as soon as HMRC got its hands on that money, there would then be aggressive efforts to obtain payment of anything else which was outstanding and not subject of an appeal. It has been noted that HMRC have not been reluctant to lodge winding up petitions in connection with Hearts and it has been asked why not with Rangers too? I think that the prospect of getting £2.3 million made it worthwhile to hold off till the 14 weeks passed; otherwise Rangers entering insolvency beforehand might have left HMRC with little or nothing.
It seemed odd that, once those funds were trapped, Rangers did not simply hand them over the HMRC. This led some to speculate that the insolvency event would take place before the 14 week deadline, to keep the funds available to an administrator/receiver, and under the floating charge assigned to the former “Wavetower”, the company through which Craig Whyte bought Rangers, the funds would be heading to Mr Whyte’s castle rather than the tax man.
No one thought that the bill itself, of which £500,000 has already been paid, would be subject of an appeal as (a) Rangers had formally accepted the liability prior to the takeover and (b) Mr Whyte’s Circular to shareholders at the takeover committed Wavetower (effectively Mr Whyte) to pay this bill.
How on earth can (a) he appeal now, (b) does this help with the funds and (c) what happens now?
I think he will need to be instructing agents to carry out various actions as soon as courts open on Monday. What I suggest below might actually be more procedure than is needed, but it would be the “belt and braces” approach.
Raise an Action of Suspension, Interdict and Reduction?
There are two ways of stopping an arrestment resulting in an automatic transfer of funds under s73J.
The first would be to obtain an interim interdict from the Court of Session preventing HMRC acting on one of the constituent parts of the process, namely (a) the summary warrant under which the sum was adjudged to be due to HMRC (b) the formal agreement between Rangers and HMRC if registered “for preservation and execution” (c) the “charge for payment” or (d) the arrestment itself. As well as the interim interdict, there would be a crave for a decree suspending the relevant part of the process then “reducing” or quashing it and thus preventing HMRC completing their diligence. The big problem Mr Whyte would have with this is as follows.
If Rangers apply for an interim interdict against HMRC, then this would not be granted without HMRC having a chance to object. At any such interim hearing, counsel for HMRC would, I suggest, drive a bus through any argument Rangers could put up. The bill has been agreed, part payment made, and the new owner has been in place for seven months. The arrestment was effected almost 14 weeks ago. It is well nigh impossible to see what substantive argument would get round the factors that (a) Mr Whyte has known about this for some time and (b) he has had the opportunity for a lengthy period to take the best legal and accountancy advice about the bill. Even if he had received an opinuion now that the bill was not in fact due, then frankly the court would consider that he has long since missed the boat, and even if he did have an argument available to him, he should have pursued this some time ago.
Of course, it might be that there is some fundamental flaw in the documents mentioned above which would render the process invalid, in which case his waiting to the last minute effectively buys him another 14 weeks. I find that hard to imagine though. And if, for example, the Sheriff Officers have erred leading ultimately to HMRC not getting its money then the Sheriff Officers will be on the phone to their indemnity insurers immediately.
The risk for Rangers is that, if they seek an interdict and fail, they might be seen as having “shot their bolt”.
If Rangers’ argument is simply that the bill itself is wrong, then I think it would be very hard for the judge to grant an interim interdict. The position would be that they were coming to court far too late. Of course, if Rangers were prepared to lodge £2.3 million as caution for the sum arrested, then the court would be more kindly disposed to an interdict, but Mr Whyte won’t want to put up another £2.3 million if he can void it (and if indeed he has it!)
Make an Application under s73M(1) or s73Q(2) of the Debtors (Scotland) Act at Glasgow Sheriff Court?
S73L states that automatic transfer cannot take place where an application is made under either of the above sections.
S73M relates to the lodging of a “note of objection” to the arrestment. This can been done by the debtor (Rangers), the arrestee (the bank) or a third party. The grounds for objecting are as follows:-
(a)the warrant in execution of which the arrestment was executed is invalid;
(b)the arrestment has been executed incompetently or irregularly;
(c)the funds attached are due to the third party solely or in common with the debtor.
It is unlikely, though not impossible, for grounds a or b to exist. I see no argument regards c.
The application must be lodged “before the expiry of the period of 4 weeks beginning with the date of service of a copy of the final decree under section 73C(2) of this Act or, as the case may be, the date of service of the schedule of arrestment.”
The 4 week period is long past. But there is an inherent jurisdiction allowing a party to apply to the court out of time. Grounds for a late application being late can cover various matters, but wilful disregard for the rules is not one of them.
As long as the application includes a request that it be allowed to be received although late, the Sheriff Clerk cannot simply reject it. That is a decision for a Sheriff.
S73N (1) specifies that “before the expiry of the period of 8 weeks beginning with the day on which an application by notice of objection is made under section 73M(1) of this Act, the sheriff shall hold a hearing to determine the objection.”
Therefore if the application is lodged on Monday, there would have to be a hearing by 30th January 2012. Of course, the 8 week period is a maximum and, in theory, a hearing could be fixed for the following week (or even day!). How likely is it that HMRC could get the case accelerated up the court lists?
If therefore there is an allegation however spurious, that any of the three factors mentioned above is there, the automatic transfer would be delayed (For the avoidance of doubt, I do not mean to suggest that any such application lodged by agents for Rangers would be done by them in the knowledge that it was spurious.)
The fact that the bill is subject to a late appeal to the FTT would NOT be a ground for an application under s73M.
S73Q can be dealt with more quickly. This covers applications by the debtor where it is stated that the arrestment is unduly harsh. S73R gives the procedure. If the Sheriff is satisfied that the arrestment is unduly harsh to the debtor (Rangers) he may recall it in whole or in part. There is no time limit for lodging such an application, nor any for the court to deal with it.
The lodging of either application would prevent the funds being automatically transferred until the matter was dealt with. The application would NOT release the funds, but if insolvency struck before the matter was dealt with, then the funds would probably revert to the administrator/receiver.
Neither of the Sheriff Court applications are connected however with a late appeal to HMRC. That can only relate to the Court of Session proceedings.
The Late Tax Appeal
The Taxes Management Act 1970 s49 tells us the rues for tax appeals. An appeal should be lodged with HMRC and thereafter with the FTT within 30 days of the decision or assessment to be appealed. Applications after that date are out of time.
Here the application should be at least one year, and probably more, late. However, if HMRC refuses to accept the appeal out of time, the taxpayer can ask the FTT to accept the appeal on that basis anyway.
The FTT needs to be satisfied that satisfied that
- there was a reasonable `excuse’ for the lateness of the appeal or postponement application
- the application has been made `without unreasonable delay’ after the expiration of the time limit.
The HMRC Handbook refers to “reasonable excuse” as encompassing “`absence, sickness or other reasonable cause`. Moreover, it may cover not only the absence or sickness of the appellant himself but also that of his agent. However, the reasonable excuse has to be personal to the appellant: so a late appeal should not be agreed where for instance a new decision of the Courts, unconnected to the instant case, has made an appeal more viable. In that case the remedy, if there is one, is by reason of an error or mistake claim, TMA70 Section 33.”
Malcolm Gammie wrote in the British Tax Journal in 2010 that “the Tribunal’s discretion in these matters is not limited in any way and it can accept late appeals if it believes that it would be in the interests of justice to do so.”
I find it well nigh impossible that, in these circumstances, either HMRC or the FTT would accept the appeal out of time. The cases show a reluctance on the part of the FTT to do so. For example, in Ogedegbe v The Commissioners for Her Majesty’s Revenue and Customs  UKFTT 364 (TC) the Tribunal said “While this Tribunal has got power to extend the time for making an appeal, this will only be granted exceptionally. Moreover, there must be at least an arguable case for making the appeal. In the present circumstances I cannot see that the Appellant has even an arguable case. He has at no time provided evidence of any taxable supplies during the period to which the tax assessment relates. He has shown no grounds for a conclusion that the expenditure, to which the input tax related, was incurred for the purpose of making taxable supplies. The combination of the facts that the appeal was lodged many months late and that the appeal had no realistic chance of success persuade me that the Appellant’s application for an extension of time should be refused.”
Even if Rangers’ position now is that their advisers, or former advisers, erred in their advice, then the FTT would view this as something to be taken up between Rangers and those advises, or their insurers.
However the application would still need to be made and rejected. This will buy some time.
What Happens Now?
If Rangers succeed in stopping the automatic transfer of funds, then I expect HMRC to look to proceed full steam ahead with a winding up petition for anything owed to then now which is not under appeal. To contest this, they are going to need deep pockets to pay the solicitors, counsel and advisers they will employ. However, if “Wavetower” pay these costs for Rangers, then I imagine that they would demand return of the costs with interest and additional “management fees” from the insolvency. Thus Mr Whyte has a great reason to keep the arrested funds out of the taxman’s hands – 2.3 million reasons + interest and fees to be precise!
Whilst the steps above look to be the acts of a desperate man clutching at straws, as long as the flimsiest of cases can be put forward, then the professionals involved will be able to act within their ethical boundaries. Whether lodging a spurious appeal or applications makes Mr Whyte more of a fit and proper person is for the SPL and SFA to judge!
Mr Whyte might not pursue all of these options, but the scatter gun approach gives the best chance of stopping the loss of that money. I wonder if his advisers might have told him that they would be prepared to lodge the application or applications, but that they would not be prepared to stand up and argue the points?
When I think that there no more legal novelties to come, Mr Whyte pulls another one out of the hat!