Put very simply (and with due respect to the 63 paragraphs of the decision), he decided:-
A that any rights Ticketus hold in Ibrox Stadium, the season tickets for the stadium and the proceeds of future tickets sakes are personal contractual rights. This means that Ticketus can only enforce their agreement against Rangers Football Club PLC, and they would have no rights against any other party who acquired Ibrox Stadium for use as a football ground during the currency of the Ticketus agreement, which ends after season 2014-2015.
B that he was not wiling, standing the information he had been given, to make any order or give any guidance to D&P permitting them to break the Ticketus contract with impunity.
D&P, as stated to the court, see two ways of achieving the purposes of administration. As you may recall, the primary goal is to rescue the company as a “going concern” which failing to achieve for the generality of creditors a better result through administration that through insolvent liquidation.
Their two ways of doing so are as follows: a share issue and sale of the majority stake in the company; or a sale of the assets of the business. In either case this would be accompanied by a CVA.
I will look at both in more detail now, with reference to the Ticketus scenario. (For fans of large thrillers, doesn’t “The Ticketus Scenario” sound like a Robert Ludlum title? I digress.)
The Share Issue Option
The Rangers Debt Situation
Rangers Football Club PLC is in a dreadful financial mess. It presently owes at least £9 million to HMRC in connection with unpaid taxes accruing since May 2011, as stated by counsel for D&P in the Court of Session. That figure may be as high as £15 million.
Rangers owe the Debenture holders who contributed some years ago to ground improvements around £8-9 million, the Debentures becoming due and payable upon the company entering administration.
Rangers owe HMRC in relation to the “Big Tax Case”. Whilst the case awaits a decision from the Tax Tribunal, HMRC cannot enforce payment, but they will move to do so as soon as they have a judgment. The determinations under appeal by Rangers date back to February 2008. The appeal was commenced in 2009. HMRC will have lodged a claim with D&P for the full sum it is seeking, together with interest and penalties. This liability was described by Craig Whyte as possibly running to £75 million!
Martin Bain, the former Chef Executive, has a damages claim due to be heard in court in July where he is seeking over £1 million in compensation.
Rangers FC Group Ltd, which appears to hold security in the form of a floating charge over Rangers’ assets claims to be a substantial creditor too, for many millions.
Rangers’ business model has resulted in it having an annual £10 million “black hole” in terms of excess of expenditure over income, if European income does not appear.
D&P have been able to cut £1 million per month from running costs by letting 4 employees leave, and by having the players take temporary pay cuts till the end of the season, at which time one imagines the players will want paid in full again.
The Ticketus deal means that 60% of Rangers’ season ticket income would go to that company and not to Rangers.
Let’s ignore for a minute the requirements that an ongoing Rangers needs to fulfil to play in the SPL next season, as I am sure that the SPL would exercise its discretion to allow them to compete even if deadlines were missed. (For the avoidance of doubt, I do not criticise that decision, should it be made. If the football authorities can act legitimately in a way which helps a member club, as long as this is not at the expense of other members, then this is consistent with the notion of a “league”).
However, UEFA will not, and ought not, to excuse the failure of Rangers to obtain a UEFA licence for next season. As Financial Fair Play is a key part of Michel Platini’s manifesto for UEFA, then it will not excuse Rangers owing tax, being in administration and failing to produce unaudited accounts. Therefore, for at least one season, the existing Rangers will not have any European income.
I am also ignoring, for this purpose, the ongoing SPL inquiry into the legitimacy of payments to Rangers players, and the penalties which could be imposed on the club in the event that guilt is established.
I am also assuming, for this purpose, that the SFA Judicial Panel investigating Rangers and Mr Whyte for bringing the game into disrepute will neither suspend nor terminate Rangers’ membership of the SFA.
So Where does that Leave Rangers at the Start of Next Season?
It would have a squad of players it could not afford. It would need to cut costs drastically. There would be no prospect of a credit line from any bank. Therefore, it would have to run on the income it generated. The Ticketus deal removes the majority of the season ticket income. And all of this has still not paid a penny to the outcome of the Big Tax Case.
To escape from administration in a positive way, D&P need funds to put into the pot for a CVA. Even ignoring the HMRC publicly declared policy which leads me to believe they would oppose all but the most generous CVA’s (and by that I mean something like a 90p in the pound deal – which is clearly not going to happen), I see no way in which the existing club can generate money to offer to creditors.
In fact even if the Ticketus deal had been unravelled by the court, it would not really help much. Whilst Rangers would get all of its season ticket revenue, it would just have increased the pool of creditors by in excess of £30 million, as Ticketus will look not just for return of its capital investment, but also for its profit, if Rangers breaches the contract.
We are looking at a pot of creditors exceeding £100 million.
How could Rangers raise a substantial sum? Remember this is existing “oldco” Rangers we are talking about.
Some people talk of a sale and lease back of the ground. That, in the present circumstances, would be a huge risk for a buyer. Ibrox’s value lies in it being used as a football stadium. If you are the landlord, you need a football team to play there. Could oldco fund a rental? If oldco disappears, what guarantees are there that a newco will be able to play there?
This also ignores potential court battles over the floating charge and the rights of creditors in security over the assets.
Therefore oldco Rangers needs many millions of pounds paid into the pot to survive. One or two investors, with huge bank balances, might do so, but generally such people do not get huge bank balances by paying off huge debts other people have run up!
This brings us, finally, to a share issue.
The last share issue for Rangers failed to generate public support. It seems that the fans viewed it not as a method of improving the club, but instead of paying off Sir David Murray’s debt.
How likely is it that a share issue in oldco Rangers would generate from the fans and business community the sums – £50 million, £60 million, £100 million – needed to solve the club’s problems?
How many Rangers fans would be willing to invest the large sums needed to pay off tax debt accrued by the Murray and Whyte regimes, together with the other bills due? This would be against the backcloth that the team would be drastically reduced in salary levels, if not necessarily quality, and for at least one year would have no prospect of European income. Paying huge sums to see Rangers survive, but with a massively weakened team, seems something only the most loyal and committed fans would sign up for (and I would compliment such fans for their dedication to the club they support). However, especially in the present economic climate, that is not going to happen in sufficient numbers.
Even if a share issue led to an acceptable CVA (which is highly unlikely) this would still leave Group ie Mr Whyte, owning a large number of shares, although diluted by the share issue. He would still be the largest shareholder.
Whilst D&P have made rumblings about Mr Whyte no in fact being the owner, due to irregularities in the purchase, then that too would require a long court action. Till then he is still there.
As some of the players seem to have had their contracts amended to include a clause entitling them to leave for no fee if Mr Whyte is still in charge, then D&P need to get rid of him too. This can only be achieved by liberal applications of large bags of money. Would Rangers fans be willing to subscribe to a share issue knowing that every penny paid in would go to paying off old debt and also to buying out Mr Whyte? I doubt it.
The other alternative with a share issue would be issuing sufficient new shares to a consortium looking to take over the club, to dilute Mr Whyte’s shareholding to a point where the new kids on the block take control. However, as that will have to raise money for the reasons mentioned above, I find it hard to see why anyone with business acumen, even if a Rangers fan through and through, would countenance this.
Therefore, as far as I can see, the share issue idea is a dead duck, and, at least as that suggestion is concerned, the Ticketus decision is irrelevant.
What Does the Lack of Prospects of Success of a Share Issue Mean for Oldco Rangers?
Put simply, oldco Rangers cannot survive.
The company is hopelessly insolvent, and probably would be so even if it was 100% successful in the Big Tax Case!
Any “normal” business in these financial straits would have slashed staff the minute the administrators came in, and would have been winding up very soon afterwards.
However, in this situation, the most readily realisable assets of the club are players. Therefore, if D&P work out that they can get the club to the summer transfer window and sell some players then, this will increase the pot for creditors. To do so they need continuing support of the fans turning up and paying for admission (although most coming to Ibrox will be doing so on season tickets D&P are honouring).
As an aside, it is clear that D&P honoured the season tickets, not out of generosity to the fans, but because of the Ticketus involvement. They could only dishonour season tickets sold by Rangers for Rangers, not those sold by Rangers for Ticketus, and the mayhem caused by refusing admittance to thousands of fans all over the ground would be a cost, in financial and bad PR, which D&P elected not to incur.
If Rangers cannot achieve a successful settlement with its creditors, it will be wound up. This can be done by a liquidator or by an administrator, depending on the circumstances. In either event, oldco Rangers will be no more.
NB – If financial wizards, or even sorcerers’ apprentices, can see how this analysis is wrong, then please feel free to comment.
Next post – How Does the Ticketus decision affect sale of the assets of Rangers – some good news for D&P
Posted by Paul McConville