New or Extra Information from the Case
1 Rangers Football Club PLC (Rangers) was and remains unable to pay its bills as they fall due.
2 The application for the Administration Order referred to a £9 million liability to HMRC.
3 The administrators (D&P) want either to rescue Rangers with a share issue, or to sell off the assets of the company, in either event with a CVA.
4 D&P wanted the court to give them carte blanche to breach the Ticketus deal, without fear of legal action by Ticketus.
5 D&P based their original sale prospectus on the Ticketus deal being void, but had to amend this to include the possibility of it staying in place.
6 “Ticketus” is a combination of two Limited Liability Partnerships, Ticketus LLP and Ticketus 2 LLP, both consisting of a large number of companies under the Ticketus umbrella.
7 The Ticketus agreement was with Rangers, not with Rangers FC Group Ltd (Group) or anyone else.
8 The agreement was signed, and first payment of £20 million made, on 9th May, 3 days after the takeover.
9 It was proposed that Rangers would lend Group £16 million.
10 A second payment of £5 million was made six days after Martin Bain was granted a court order freezing sums in the Rangers accounts.
11 Notwithstanding any other argument D&P have, they are trying to have the Ticketus deal declared unenforceable on “financial assistance” grounds.
I aim to discuss the new information revealed in this case below in more detail.
In later posts I want to explain some of the implications of the case for Rangers’ future and potential sale of the Club.
Finally, it is also the case that the decision could have serious consequences for the Scottish finance sector, which I will try to address. As always, I am happy to be educated and corrected by those wiser than me.
Do We Learn Anything New From The Decision?
This case and Lord Hodge’s decision are the first public acknowledgement of many issues which have been causing confusion since the Rangers situation started to deteriorate.
The relevant, and in some cases, newly revealed facts are as follows:-
As we know D&P had to go back to the court on the basis that their original appointment by Rangers was defective, because of a failure to notify the FSA. When Mr Sellar (D&P’s QC) asked the court to grant an administration order backdated to 14th February, this confirmed (a) that Rangers accepted that it had been insolvent as at 14th February and (b) that D&P accepted that Rangers remained so on 19th March when the retrospective administration was dealt with.
Mr Sellar referred the court to a debt of over £9 million to HMRC. That is assumed to relate to the unpaid VAT and Income Tax accrued by Rangers whilst under the control of Mr Whyte, or more correctly of his companies.
How Do D&P Aim to Get Rangers out of Administration?
D&P have come up with two alternative ways of achieving the purposes of administration. They are laid down in the Administration Rules. The primary purposes are, in order, to rescue Rangers as a going concern, which failing, to achieve a better result for the creditors as a whole than if it was wound up without first being in administration.
D&P have identified, and told the court, that they see two realistic options.
Option one is a “subscription of new shares in Rangers and a sale of the present majority shareholding combined with a Company Voluntary Arrangement (CVA) between Rangers and its creditors”.
The alternative is “a sale of the business and assets of Rangers, again combined with a CVA”.
I will come back to these later.
What Were D&P Wanting the Court to do, and Why?
The Administration Rules allow administrators to approach the court for “directions”. These can be sought to give the “green light” to planned actions, or to validate steps taken by the administrators. In addition, this procedure can be used to clarify matters which may be in dispute regarding the administration.
In this case D&P initially asked the court for a direction as follows:-
“as to whether the administrators can be prevented from causing [Rangers] to terminate, albeit in breach of their terms, the [Ticketus agreements].”
As the hearing continued, the application was amended to request, in the alternative:-
“a direction as to the legal nature of the rights which the agreements confer on Ticketus in respect of (i) the Company’s Stadium, and (ii) the proceeds of future sales of season tickets for that Stadium;”
“a direction as to the legal test which is to be applied by [the] administrators or by the court in determining whether those administrators can be prevented from causing the company to terminate the agreements, albeit in breach of their terms.”
What does this mean?
From the limited press coverage of the court hearing, it seemed that the only issue was that D&P found the Ticketus deal inconvenient as regards a sale, and therefore they wanted permission to “rip it up”.
As we can see, there was a lot more than that!
The initial application was to for confirmation from the court that D&P could not be stopped from breaching the Ticketus agreement on behalf of Rangers. This was based on the premise that the Ticketus deal was valid (to which I will return) and that there was no contractual reason permitting the breach of contract.
If D&P decided to breach the contract with Ticketus, they wanted to be sure that Rangers would not be on the receiving end of a court action either preventing the breach by interdict, or ordering Rangers to perform it.
Whilst in administration no such action could be pursued without consent of D&P or the court. However, if Rangers emerged from administration, D&P did not want the company to be saddled with the Ticketus deal, and if the deal was broken, then the Ticketus claim would, at best, be an unsecured claim in the CVA.
The first added request was for a direction on the nature of the Ticketus “rights” and what legal form this took as regards Ibrox and the proceeds of future ticket sales. This part is probably the most legally complex, and the area of broadest legal impact (of which more later).
The second added request was for Lord Hodge to lay down a formula to be applied by D&P and the courts in deciding if D&P could be stopped from breaking the Ticketus contract. This was an attempt to get round the possibility that, under the originally formulated request, the direction could have been refused, whereas this new method would, even if refused, tell D&P what they had to do.
Why Was This Important?
D&P issued a “Memorandum of Offer” inviting expressions of interest in acquiring either the majority shareholding in Rangers or most of its business assets. The Memorandum of Offer issued on 14 March 2012 invited interested parties to assume that “no future revenue needs to be committed to Ticketus” both in the context of a CVA and a trade sale of Rangers’ business and assets. D&P issued a revised Memorandum on 16 March 2012 which contained a third option of a CVA in which the arrangements with Ticketus continued to have effect.
Any bidders for either Rangers or the assets needs to know if there is an ongoing liability to Ticketus.
In the same way, any bidder for Rangers, as opposed to the assets, needs to know the outcome of the Big Tax Case first.
Who or What is Ticketus?
One of the apparent mysteries in this case related to the identity of Ticketus.
The press statement released by Octopus on 17th February did not really help make things crystal clear.
“Octopus Investments would like to clarify the position of Ticketus with regard to the current Glasgow Rangers coverage.
Ticketus is one of the many entities into which Octopus Protected EIS invests. Ticketus has purchased tickets for Glasgow Rangers games for a number of seasons in advance, as it has done for a number of years previously with the club.
Ticketus does not lend money; Ticketus is the owner of assets – the tickets. Octopus is continuing to work with the administrators and Glasgow Rangers on this matter.”
Lord Hodge notes that “Ticketus” for the purposes of this action consists of two limited liability partnerships registered in England, namely Ticketus LLP and Ticketus 2 LLP.
Both of these are, as stated, limited liability partnerships. The “partners” in each are a large number of Ticketus companies, each with an individual number.
The first LLP has, as per its last accounts (July 2010), over £92 million of net assets, with the second just over £70 million. Between the pair at that time they had cash as per the balance sheets of £131 million. Therefore, even though these are wealthy organisations, and they exist primarily to provide tax breaks to investors, the Rangers deal is a large and risky one for them.
Ticketus LLP formed in November 2008 and Ticketus 2 LLP in June 2009.
For such large organisations, in monetary terms, the combined total number of employees was only 23.
What Was the Ticketus Deal?
Lord Hodge describes it thus:-
“Ticketus operates a business of buying and selling tickets for, among others, sporting events. The two contracts with Ticketus, which I discuss below, in summary involve the sale by Rangers to Ticketus of season tickets and an agency arrangement by which Ticketus is to receive the income flow from the sale of the season tickets. On or about 9 May 2011 Ticketus paid £20,300,912 for the first tranche of the season tickets which covered the seasons 2011-2012, 2012-2013 and 2013-2014. On or about 21 September 2011 Ticketus paid a further £5,075,213 for the second tranche of season tickets, which covered the seasons 2013-2014 and 2014-2015. I am informed that the expected income flow from the sale of the season tickets is likely to represent about 60% of the cash flow of Rangers in those seasons. Accordingly, the sale of that income flow is likely to have a significant effect on what interested parties may bid for the majority shareholding in Rangers or for that company’s business and assets.”
This clarifies a lot of the misinformation and speculation about the Ticketus deal.
1 It was not and is not a loan.
2 The contract was between Rangers Football Club PLC (Rangers) and Ticketus.
3 It was not a contract directly involving Group, Liberty Capital Ltd or anyone else.
4 The money was not paid until after the takeover had been effected.
5 Therefore, whilst the arrangements were put in place prior to the sale, the purchase of shares by Group proceeded in advance of the Ticketus payment.
6 The takeover was not paid for by Rangers.
7 Ticketus paid a second tranche in excess of £5 million on 21st September 2011.
I find point 7 particularly interesting. The payment was made to Rangers six days after Lord Hodge granted an order in favour of Martin Bain permitting him to freeze a substantial sum within Rangers bank accounts.
This might help to explain how Rangers managed to keep going when some observers were guessing that the money would have run out by then. In addition of course the non-payment of tax at a rate of around £1 million per month would also have helped with the cash flow!
The contract for the sale of season tickets was dated, as I have said, 9th May and it provided that the sale would take place in two tranches. It seems very fortuitous for Rangers that, six days after a judge decided that there was, in light of the Big Tax Case, a serious risk of insolvency, Ticketus paid for more tickets for 2013-2014 and for 2014-2015!
By that stage of course, HMRC had already arrested £2.3 million in Rangers accounts.
Were Ticketus looking to get out of the deal, or were they in a position where the only realistic way of protecting the investment was to pay over more money? If the latter, that fully explains why Ticketus is involved with one of the consortia trying to buy Rangers.
D&P Are Trying to strike the Ticketus Deal Down
Lord Hodge also confirms that D&P are trying to have the Ticketus deal declared unenforceable. This is over and above the issues explored in this application, and whilst the judge mentioned it, he offered no view at this time.
The argument by D&P seems to be as follows.
1 Rangers would use the payment for the first tranche of tickets to “effect repayment” of the £18 million owed by Rangers to the Bank of Scotland.
2 Rangers would lend Group £16 million to “enable that debt to be repaid” and the “bank’s debt and its securities would be assigned to (Group)”.
3 Such an arrangement is, according to D&P, illegal under s678 of the Companies Act 2006. This is the so-called “financial assistance” rule.
D&P have a choice about how to deal with the Ticketus deal on the “financial assistance” point.
They can go to court for an order that the contract is unenforceable, or the contract can be repudiated by them, on behalf of Rangers, and they can defend any court action which Ticketus might later bring, subject to the complications caused by administration etc.
Either way, it seems that Ticketus and D&P are likely to be back in court on a regular basis.
Posted by Paul McConville