Rangers “Virtual” Creditors’ Meeting – What Happens Now?

The creditors’ meeting for Rangers Football Club PLC (In Administration) took place on Friday 20th April. The administrators had earlier issued their proposals to creditors (Duff and Phelps Proposal 5 April 2012), and proposed various resolutions to govern how administration should continue.

These were voted on by post, up to the deadline of noon on Friday, and the results are now awaited.

What effect, if any, will the decisions on the resolutions have for the administrators (D&P) and on the future of the Club?

I think the results of the votes, which have to be made public, will be very instructive as to how HMRC views the administration process. Opposition to the administrators might suggest that HMRC feels D&P have been too cosy with the company, for example.

It might simply be that HMRC is unimpressed by the efforts of D&P to secure a sale.

We will find out soon. But for now, what rules apply?

 

Creditors’ Meeting

Schedule B1 to the Insolvency Act requires administrators to hold a creditors meeting within ten weeks of administration staring (Para 51 (2) (b)).

The meeting shall consider the proposals made by the administrators and may (a) approve them without modification, or (b) approve them with modification to which the administrator consents. After the conclusion of an initial creditors’ meeting the administrator shall as soon as is reasonably practicable report any decision taken to the court, the registrar of companies, and such other persons as may be prescribed. (Para 53)

Where an administrator reports to the court that an initial creditors’ meeting has failed to approve the administrator’s proposals presented to it, the court has various options. The court may (a) provide that the appointment of an administrator shall cease to have effect from a specified time; adjourn the hearing conditionally or unconditionally; make an interim order; make an order on a petition for winding up suspended by virtue of paragraph 40(1) (b); or make any other order (including an order making consequential provision) that the court thinks appropriate. (Para 55)

D&P must report the results to the court and Companies House. If the proposal is approved by creditors, then the court will not interfere.

If the proposal is not approved, then the court has the job of deciding what to do next, having listened to counsel for the administrators and for any creditors who wish to make representations.

Voting on the resolutions is by simple majority. However, each creditor’s vote is in direct proportion to the debt claimed by it. The administrator can reduce or reject a creditor’s claim, but doing so could be subject to a court challenge.

When Portsmouth was first coming out of administration, HMRC tried to block the CVA which was to accomplish this. However, the administrator decided to exclude much of the HMRC claim, and to accept large claims by previous owners, which had the effect of dropping HMRC’s share behind the level it needed to block the CVA. HMRC tried, but failed, to have a court overturn this.

As far as Rangers are concerned, HMRC has the voting power, I believe, to block any resolution it does not accept. Where the resolutions are multi-part, the creditors cannot accept part of a resolution and reject another part of it. Individual resolutions can be rejected, but not parts thereof.

 

The Resolutions Proposed by D&P

What Do the Resolutions Mean? – Resolution 1

17.1 The Joint Administrators propose the following:

RESOLUTION (1)

17.1.1 That the Joint Administrators continue the Administration to deal with such outstanding matters in relation to the Company as the Joint Administrators consider necessary until such time as the Administration ceases to have effect.

17.1.2 That the Joint Administrators do all such other things and generally exercise all of their powers as contained in Schedule 1 of the Act, as they, in their sole and absolute discretion consider desirable or expedient in order to achieve the purpose of the Administration.

17.1.3 That the Joint Administrators can investigate and, if appropriate, pursue any claims the Company may have.

17.1.4 That the Joint Administrators can explore any and all options available to realise the assets of the Company without recourse to creditors. The Joint Administrators be authorised to conclude a sale of the whole, or part of the business, property and assets of the Company without having to obtain the sanction of the Company’s  creditors at further creditors meetings, upon such terms as the Joint Administrators deem fit and they be authorised to liaise with all relevant parties, bodies or organisations which they deem relevant for achieving that purpose.

17.1.5 That the Joint Administrators seek to establish a creditors committee, and they be authorised to so establish a committee in such terms and on such basis as they deem fit without having to obtain any further sanction from the Company’s creditors at a further creditors meeting.

Resolution 1 can be translated as D&P saying to the creditors “Please let us do whatever we think is necessary, without the trouble of us having to come back for your approval”.

Resolution 17.1.1 is a standard clause. Unless administration ends, it must continue.

17.1.2 is a reflection, should the administration continue, of the statutory powers that D&P have anyway. It does not prevent their actions being scrutinised by creditors or the court at a later date. This clause is not the equivalent of Mr Bill Miller’s “written guarantees” demand.

17.1.3 is a continuation of the statutory powers. Subject of course to funding still being available to the administrators, it is common for administrators to pursue claims, against debtors, advisers, delinquent directors etc.

17.1.4 is the first controversial part of the Resolution (if we accept that HMRC or another creditor is not looking to remove them). D&P do have the power to sell assets of the company. They want a clear run to be able to do so without having to get creditor approval. In a fast moving negotiation, there might not be time, especially as the money dwindles, to convene a creditors’ meeting to approve asset sales.

However in this case, especially where the Bill Miller bid of £11.2 million for the whole assets of Rangers is on, or near, the table, and that value is only a small fraction of the declared value of the assets in the last balance sheet, to 30th June 2010, I think that HMRC would be reluctant to give D&P a green light on this. That would be especially so if the Miller “switcheroo” was taking place, with the assets going to an incubator till the debt was wiped out, and then being returned to Rangers.

Once the assets are sold, then it is too late for the creditors. There would have to be evidence of gross misconduct by the administrators for a creditor to have any recourse against them. For all the criticism directed at D&P, there will not have been gross misconduct.

17.1.5 allows D&P to establish a creditors’ committee. The resolution seems though to put them, rather than the creditors, in control of it.

I would anticipate HMRC rejecting this resolution. The effect of doing so, as spelt out in para 55 of the Rules, would be that D&P would need to go before the court to explain what they were doing, and why, and to seek judicial sanction for continuing on their chosen route. At that stage HMRC has a wide range of options. It can sit and listen to what is said, and if the court goes along with it, HMRC might do so too.

HMRC might be looking to end the administration, and, as soon as the court decides it is over, because the purpose of administration acnnot be achieved, apply to appoint a Liquidator.

Of course HMRC might think that the matter is reaching its endgame anyway, and why should it bother doing the above. That does not take account of the comples manoeuvring of the possible bidders though.

 

What Do the Resolutions Mean? – Resolution 2

17.1 The Joint Administrators propose the following:

RESOLUTION (2)

17.1.6 That the Joint Administrators may propose such CVA(s) or Scheme(s) of Arrangement as they deem appropriate and see fit, subject to the outcome of offers.

17.1.7 Upon approval of a CVA or Scheme of Arrangement to exit the Administration at such time as the Joint Administrators deem appropriate by making an application to the Court pursuant to Paragraph 79 of Schedule B1 of the Act.

17.1.8 That the Joint Administrators are authorised, subject to implementation of a CVA, to conclude a sale of the whole, or part of the business, property and assets of the Company, without having to obtain the sanction of the Company’s  creditors at further creditors’ meetings, upon such terms as the Joint Administrators deem fit and they be authorised to liaise with all relevant parties, bodies or organisations which they deem relevant for achieving that purpose.

This was seen by some observers as D&P trying to get round the blocking vote of HMRC by, effectively, having the creditors agree to a CVA without knowing what is in it. That is not my readiung of it, but Is till think that this would be rejected too.

17.1.6 alllows D&P to propose a CVA, but they could do that anyway.

17.1.7 empowers them to exit administration once a CVA is agreed, which again is normal.

17.1.8 seems however to be giving D&P clearance to sell whatever it can for whatever it can realise, without any reference to creditors or creditors’ committee. We are back in the same area as 17.1.4, where there is no prior check on what sale deal the administrators achieve.

I suspect HMRC would oppose this resolution too. After all, they might say, a creditors’ committee meeting can be convened at short notice, and it is surely better that the creditors have some input into what money they will receive! Once the asset sale takes place, the assets are gone.

 

What Do the Resolutions Mean? – Resolution 3

17.1 The Joint Administrators propose the following:

RESOLUTION (3)

17.1.9 That the Joint Administrators, when it is anticipated that no better realisations will be made in the Administration than would be available in a winding up, take the necessary steps to put the Company into either CVL or into compulsory liquidation as deemed appropriate by the Joint Administrators. It is proposed that the Joint Administrators, currently Paul John Clark and David John Whitehouse of Duff & Phelps would act as Joint Liquidators or such other parties as creditors may resolve should the Company be placed into CVL. In accordance with Paragraph 83(7) of Schedule B1 to the Act and Rule 2.47 of the Rules creditors may nominate a different person as the proposed liquidator, provided the nomination is received at this office prior to the approval of these proposals. In the absence of such nomination, the Joint Administrators will be appointed Joint Liquidators and in accordance with Section 231 of the Act any act required or authorised under any enactment to be done by the Joint Liquidators is to be done by all or any one or more of them.

By this resolution D&P are trying to maintain continuity in the operation of Rangers should it have to go into liquidation. Of course, another view might be that they are trying to keep involved for their own purposes. I do not imagine responsible professionals, as they are, disregarding their legal duties for the interests of their own firm.

The Resolution requires creditors to nominate an alternative liquidator in the event that, at some point in the future, liquidation happens and D&P are not approved to act in that capacity.

There were extensive rumours on Friday that BDO, a worldwide business accountant with Glasgow offices, had been approached regarding Rangers. Was this an effort to nominate them, prior to Friday at noon, to be liquidators if winding up takes place?

The position of HMRC on this resolution will be very telling. If they let it pass that will be a sign that D&P are in it till the end. If not, then it would be clear evidence that HMRC’s patience had come to an end.

 

What Do the Resolutions Mean? – Resolution 4

17.1 The Joint Administrators propose the following:

RESOLUTION (4)

17.1.10 That the Joint Administrators’  remuneration be fixed by reference to the time properly incurred by them and their staff in attending matters during the Administration.

17.1.11 That the Joint Administrators’  statement of pre-Administration costs under Rule 2.25 of the Rules, where no Creditors’ Committee is established, be approved for payment in accordance with Rule 2.39C of the Rules.

17.1.12 That the Joint Administrators be authorised to draw Category 2 Disbursements.

This is a technical resolution regarding payment of fees. The charges to which the administrators are entitled are set by the creditors, or creditors’ committee.

Here D&P want the creditors to approve their detailed charges disclosed in the proposals.

If this resolution is reject6ed, then D&P should pack their bags immediately. That would be the ultimate declaration of no confidence!

 

What Do the Resolutions Mean? – Resolution 5

17.1 The Joint Administrators propose the following:

RESOLUTION (5)

17.1.13 That the Joint Administrators’  Proposals be approved without modification.

This simple resolution is one of the most important. It is possible, for example, that the first four resolutions pass, but that this one does not. In that case, D&P would have to come up with a revised proposal for achieving the purposes of administration or else maintain its position and head back to the court.

I would expect HMRC, if it is going to vote against any of the earlier resolutions, to vote against this one too.

 

So, What Happens Next?

If all are accepted, then matters continue smoothly on. However, if some or all of the resolutions are rejected, the court has to intervene.

As I mentioned previously, the case calls in court again on Wednesday. Lord Hodge might take the chance to ask the QC for D&P what the position is, and whether the proposal was approved. If he does not do so, counsel for Ticketus might!

The court can do anything it considers appropriate if the administrators’ proposals are rejected by creditors.

This can include setting a date for the appointment of the administrators to end, or indeed doing so forthwith.

If HMRC votes against any or all of the resolutions, the court will be told why, and what HMRC wants. The taxman has kept his counsel very well, but this would be the stage for it to make its plans public.

 

 

Posted by Paul McConville

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14 Comments

Filed under Administration, HMRC v Rangers, Insolvency Act 1986, Rangers

14 responses to “Rangers “Virtual” Creditors’ Meeting – What Happens Now?

  1. cmh64

    Hi Paul, I’ve been following this whole process for a while with varying degrees of understanding, but haven’t commented before.Thanks for providing clarity on what seems like a very murky process. I have a question, sorry if it is going over old ground: Are HMRC definitely the biggest creditors and therefore the most likely block to a positive route out of administration? Mr Miller seems to regard Ticketus as the creditor in this position – is this just because the FTT result hasn’t been published yet so the debt to HMRC is not fixed yet? If a deal is done for Rangers before the FTT result comes out, what happens to that?

    • Thanks cmh.

      Quick answers – HMRC are definitely the biggest creditor. They are most likely to block a CVA.

      Ticketus might become a creditor, if Rangers/administrators rip up the deal.

      For purposes of debt calculations, HMRC will have claimed the full sum it is looking for plus interest and penalties. D&P could decline to accept the claim at that level, in which case it would be a trip to court to decide it.

      A CVA can’t be done pre Big Tax Case result unless it takes account of the full sum HMRC is claiming.

  2. Carntyne

    Thanks for that Paul.

    Still going with my gut instinct.

    Liquidation.

  3. fisiani

    Can a liquidator be appointed on Friday yet the company not actually go into Liquidation till May 14th when the season ends?

  4. RayCharles

    Hi Paul. On Saturday, when asked about the delay in the Big Tax Case ruling, Paul Clark said: “Other than the voting power of creditors or the distribution value, the tax case doesn’t make a great deal of difference.”

    Does this not indicate that Duff & Phelps do not recognise the disputed assessment issued to Rangers by HMRC and will only do so once the ruling is made.

    In the creditors’ report D&P also listed the potential BTC liability and next to it simply had TBC.

    Do D&P not appear top be of the view that the BTC doesn’t count until the FTT rules.

  5. Thank you for that first-rate clarification of the resolutions’ niceties, Paul.
    I do rather wonder how well they’ll be understood by small creditors who can ill afford the expense of professional legal advice and have to figure it all out for themselves. (Mind you, it may be that many of them are wise enough to be following this blog!)

    As regards the taxman’s tactical decisions about the resolutions – to what extent is HMRC impeded by the fact that the BTC still hasn’t been resolved? Particularly with reference to Resolution 17.1.9, will the uncertainty about the upcoming FTT(T) verdict be a factor which, one way or the other, influences Hector’s stance about the desirability of applying for a winding-up order? If liquidation begins before there has been a legally binding statement about exactly how much HMRC is owed, it’s hard to see how the liquidation proceeds could be distributed fairly among the creditors. Would that distribution be put on hold, pending the BTC verdict?

  6. Hugh Jarse

    Hi Paul..
    2 Questions please…
    Regarding RFC(IA)/CW recent & deliberate non payment of PAYE/NI/VAT (of approx £9m.?)When will this amount(s)..
    1.. become due & payable
    if not due or paid
    2.. when does this become a debt..to HMRC
    Thanks..

  7. Jinky7

    To ensure largest creditor status and hold all the aces…..do you think HMRC will announce FTT result/amount before court hearing tomorrow?

  8. Jinky7

    Do they have any input or influence into timing of announcement?
    And why is it (in ur opinion or knowledge) taking so long to come out? Are there specific legal reasons?

  9. Pingback: Duff & Phelps – Have Delays In Administration Made Winding Up of Rangers Certain? | Random Thoughts Re Scots Law by Paul McConville

  10. Pingback: Duff & Phelps Finally Release the Results of the Creditors Meeting on 20 April! | Random Thoughts Re Scots Law by Paul McConville

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