D-Day for Rangers? Preferred Bidder to be Declared? All Problems Sorted? Maybe Not

I posted this as a comment on the Rangers Tax Case Blog last night:-

“The Blue Knights are to be the preferred bidder! The world is rosy again! Let us fill Edmiston Drive and sing our sings of triumph!

That seems to be the consensus amongst internet Rangers fans just now.

Indeed plans are already afoot for a £50 million share issue. Wealthy Rangers fans will contribute £40 million and the rank and file £10 million.

The less wealthy fans are already making their plans however, to ensure that a part of them will remain in Rangers, and vice-versa.

As one of them commented:-

Holidays and nights out will be a memory after I take out a bank loan for as much as I possibly can to invest in my Club. The hope just now is utterly overwhelming.

Wait a minute! Perhaps this poster is Sir David Murray in disguise – after all, was his MO not to fund Rangers by way of ever increasing bank lending!”

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Forgetting the attempts at humopur in the above comment, I wondered if the plan was near fruition.

The plan seems now to be as follows, with what I see as obstacles noted.

1                     The Blue Knights take over, and pay the administrators slightly more than Mr Miller’s £11.2 million offer.

 

 

2                     As the Blue Knights are set against liquidation and a newco, this must, by necessity, involve them buying Rangers Football Club PLC (in administration).

 

 

3                     That company is 85% owned by Rangers FC Group Ltd, which is in turn, and eventually, owned 100% by Craig Whyte.

 

 

4                     To displace Mr Whyte, the administrators will need to go to court (and what about the owners of the remaining 15% of the shares)?

 

 

5                     IF Mr Whyte’s ownership is overturned, then who owns Rangers? Murray International Holdings?

 

 

6                     Let us assume that the “purchase price” paid by the Blue Knights is in fact to go in its entirety into a pot to pay creditors. The order of preference is as follows:- Duff & Phelps (administration expenses); Close Leasing (finance re catering); Rangers FC Group Ltd, as holders of a floating charge; and finally unsecured creditors (potentially HMRC/Ticketus etc).

 

 

7                     How much money will be left, if any, to propose an acceptable CVA to the creditors? D&P’s costs will now be around £2 million; Close is due £1.6 million; Rangers FC Group Ltd might be due £10 million, £20 million, who knows!

 

 

8                     Therefore, unless I am missing something, like the floating charge being declared invalid or Group not being a creditor (which will involve a court decision), there is nothing left for a CVA.

 

 

9                     D&P had a share issue, followed by a CVA as one of its two strategies (the other being an asset sale and a CVA).

 

 

10                 The publicity regarding the Blue Knights seems to suggest that the plan is a CVA, followed, once the club is debt free by a share issue.

 

 

11                 That, if achievable, would seem to meet the first purpose of administration, namely to rescue the business as a going concern.

 

 

12                 However, paragraph 3 (2) of the Insolvency Rules contained in Schedule B1 to the Insolvency Act states “the administrator of a company must perform his functions in the interests of the company’s creditors as a whole.

 

 

13                  Is it “in the interests of the creditors as a whole” to rescue the club with a CVA, if accepted, which meant unsecured creditors receiving 1p to 5p in the pound, if that?

 

 

14                 The assets are valued at far more than the £11 million being offered. In that event, surely it would be better for creditors for D&P to (a) limp on till the transfer window opens, funds permitting (b) sell every player with any value and (c) either pre or post liquidation sell the fixed assets of Murray Park and Ibrox?

 

 

15                 Also, if a share issue post CVA might raise £50 million, being one of the figures bandied about, might the creditors wonder why D&P would not attempt one pre-CVA, as indeed is their stated plan?

 

I am sure I am missing many important factors, and very wise people can correct me on them. However, if Mr Miller bids £11.2 million to buy all the assets of Rangers, which are in the books at far more than £100 million, how on earth is that generating a better result for creditors than a sale as described in para 14 above?

It all comes back to para 3 (2) of the Insolvency Rules. Whilst I am sure D&P have not forgotten what that says, I suspect other people, in the rush to “save Rangers” have done so.

The purpose of administration is not to save Rangers for the club, for its history or for its fans; it is to save it for the benefit of its creditors!

—————————————————————–

 

Addendum – The always on the ball James Doleman has pointed out to me the following story from the Herald this morning:- “RANGERS’ administrators are likely to pull back from naming a preferred bidder for the club today after hours of intense negotiations ended in stalemate last night.”

And so the saga continues…

 

Posted by Paul McConville

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21 Comments

Filed under Administration, Football, Insolvency Act 1986, Rangers

21 responses to “D-Day for Rangers? Preferred Bidder to be Declared? All Problems Sorted? Maybe Not

  1. weeminger

    I have to say I suspect something is afoot to prevent a serious review of the valuation of the Rangers’ fixed assets being carried out. If that can show a serious flaw in the revaluation that was carried out, then it opens yet another series of questions about the methods they (and the banks) have used to stay competitive (in business?) in the last decade.

  2. Albert

    It is depressing to see so many buffoons all in one place at the same time. Even more depressing is the fact that they are all either profiting (or, at least, are attempting to) mainly using taxpayers hard earned.

  3. BlantyreKev

    OK, so what if, on police and security advice, this week is to be a positive news week and liquidation is not to be formalised until after a certain derby game? Perhaps there will be an announcement this week that all parties would prefer to await the SPL meeting of the 30th to be able to remove the caveats from the offers.

  4. Brim

    One thing that strikes me is that if the company liquidates it may be more beneficial to the creditors in the short term but perhaps not in the longer term, for example liquidate and the HMRC get no tax in future, the face-painter gets no repeat business, no more Davie Weir style gifts to be purchased. Does the removal of potential future revenue for the current creditors make any difference?

    • Michael

      Hi Brim,
      Why would that not be the case with virtually every liquidation? Clearly in all these cases potential future tax is lost & there is no repeat business for suppliers, but liquidations happen. Of course CVAs also happen and that is because more than 75% of the creditors by value give the go-ahead having taken all things into account such as how many pennies in the pound and what future revenue they might get.

    • AndrewJD

      “Newco” Rangers would pay tax would they not. And I’m fairly sure they would be involved with other business’ as well such as the face painter ect.. Perhaps they would enjoy business with newco as they might get paid by the compnay and not the supporters this time

    • salah al din

      There is no guarantee that HMRC would lose out in the event that Rangers is liquidated. The loss of Rangers will have little influence on aggregate economic activity. Just think about how the money that is currently spent on non-tax paying Rangers would be diverted to honest businesses which keep up to date on PAYE, VAT and NI.

  5. Bhoywonder

    It is now becoming very clear why CW was so keen to employ D&P as administrators. With hindsight it may gave been better for the creditors if the court, given CW’s known track record, had enforced the placement of a court appointed independent administrator….the appointment of D&P seems be be where the interests of RFC has taken precedence over the creditors.

    • AndrewJD

      Here here, I would never question the the legality or morals of court approved administrators but I don’t see how anything duff and phelps have benefited anyone but the football club. As far as I am aware administration is to save the company as a going concern FOR THE CREDITORS. I’m no expert but I don’t see how any creditors have benefited from anything done so far

  6. 100bjd

    Dear Paul,
    Completely agree with your analysis, however this administration has been very odd since the beginning. The Daniel Cousin affair was startling and their susequent dealings have been illogical at best. Currently The Duffers are pursuing Collyer Bristow for a speculative consequential loss claim with a huge quantum when it is obvious to most observers that there was a put option in place between Craigiebhoy and Ticketus with Collyer Bristow holding the Ticketus funding in a client account to be paid to Craigie when the deal is concluded. SDM is guaranteed that the required fund are indeed in place (in the same client account) and signs up. This happens a lot unless you really want to detail the transactions and I do not really thin SDM was asking too many questions.

    Keep up the great work

  7. john clarke

    In 2011, there were 1237 insolvency cases in Scotland. In only 14 of these was a CVA able to be arranged! RFC(IA) have not a hope in hell( or it would indeed require Satanic powers- they’re not called the Forces of darkness for nothing!) – to achieve one!

  8. Jinky

    I noticed one of the creditors was a wee charity up Jordonhill way that were owed over £3000.00 They helped kids all over the world that had suffered genocide and starvation. My Q is. Did RFC collect this money and did not hand it over to this charity? Is that not a criminal act??

    • Garibaldi

      The best people to notify regarding this are the Office of the Scottish Charity Regulator, mailto:info@oscr.org.uk They might contact the Charity involved & offer assistance regarding the matter if it’s within their remit.

  9. Lennon

    Excellent analysis Paul

    One would assume D&P ate playing a PR game to milk RFC(IA) for all it’s worth

    I will be stunned if there fee is less than £2.5M when this ends

  10. Sir Nicholas Fairbairn

    I undrstand that no Insolvency practitioners in Scotland wanted to be involved for obvious reasons. Brian Jackson of PKF who done the Mwell gig said that was bad enough .Could you imagine the hasslle these guys would have got from disgruntled Rangers fans especially when loonies like Leggat are putting contact details on the web to encourage other loonies to have a go at the Admins and their staff and premises.

  11. Niall Walker

    I understand the proposed deal in a different light:

    Any bid involving Ticketus effectively removes the floating charge ( secured creditor)) and reduces the share asking price back to a £1. This is dependant on Ticketus not incurring any loss on their original deal, if a loss is incurred then it will be recovered by CW either through his floating charge or share sale.Therefore the ordinary creditor gets rid of the biggest secured creditor and will receive substantially more than in a liquidation event.

    Any liquidation offer will ALL go to the secured creditors and the ordinary creditors( HMRC) will get nothing. The assets are not worth the paper they are printed on, the property value is a replacement value and not a market value. It is fair to assume the floating charge more or less covers the market value of the property. As for the players, they can not be sold, they can walk for free under the pay cut agreement, they have little value at the season end.

    HMRC will be offered the lions share of the CVA in the knowledge that neither the old or new owner have benefitted from the CVA.The alternative is nothing in liquidation and the tax payer will be penalised.

    D&Ps have calculated Rangers will bring a higher return to the ordinary creditors as a going concern under a CVA, than in liquidation, because it removes the largest secured creditor from the equation.

    The biggest problem I can see is the shortfall in any Ticketus agreement, it can not be too substantial or it may tilt the scales toward liquidation.

    I can just imagine the publc outcry when HMRC appeal against any unfavourable judgments involving a liquidated company, having just thrown away an offer of 8-10 million under a CVA.

  12. Den

    My understanding is that Ticketus are not the preferred Creditors, that is CW through Rangers Group. I don’t see how having Ticketus in the bid removes the preferred Creditor.

    If the players can walk as a result of the pay cut agreement D&P will have a lot of explaining to do, that would jeopardise the continuation of the business and also be to the detriment of the Creditors.

    Although the asset values are undoubtedly overstated they are worth a bit and HMRC and the other creditors may get as much in liquidation as in a CVA.

    I think the public will be more outraged that HMRC didn’t call a halt on Ranger’s disregard for the taxation system earlier. Accepting a few pence in the pound makes them look inept. Along with Ticketus they know that they will give out a message that they can be fleeced at will.

    Even if Rangers cut a CVA deal, get back into the SPL with no point deduction there is the question of going concern. No one in their right mind is going to extend credit to Rangers as is, or a Newco, They are running at a cash deficit of £12m to £20m per annum and the administrators with all their powers release only two executives and a couple of players with other clubs lined up. That won’t do much to balance the books. Looks like there is not a viable business there.

    The next stage is litigation which is going to be costly and time consuming, Rangers have dwindling funds and a new season looming.

    Short of a Billionaire who wants to squander £100m+, none so far: Rangers only sensible course is liquidation. They need to drop down the divisions (especially if their best players have walked) and re-build.

    Rangers may never be the force they once were if they drop down the divisions but any other course of action just means that they will have other ‘insolvency events’ on a regular basis, and fade away.

    Not good for Rangers and the sooner they accept it the better, unless they fond that Billionaire.

  13. Niall Walker

    Den,

    In order to hold a floating charge over the company’s assets Craig Whyte has to be a creditor, you can not put a charge over a company if they do not owe you anything, it is a debt security.
    Since Craig Whyte has not directly put more than £1 into RFC, the debt he has secured is his 24-27 million guarantee to Ticketus, this in effect makes Ticketus for all intensive purposes a secured creditor, all being it indirectly.
    IIt is perfectly legal and valid since he used the Ticketus money to repay the overdraft and as RFC working capital.
    As stated, having Ticketus on board any new deal removes them from the creditors pot , they are not owed any money. However if you exclude them under a CVA or liquidaton they effectively become a seured creditor through a third party( CWs floating charge).

    There is one thing Mr Whyte seems very proficient at, and that is planning for liquidation events, he planned for this one, unlike most he did see the elephant in th room ( BTC) and planned a busines strategy to suit.

    RANGERS EARLY EXIT FROM CL GROUP STAGES IN AUGUST SEALED THEIR FATE, THERE WAS NO WAY A BUSINESSMAN SUCH AS WHYTE IS GOING TO PLOUGH INTO RFC A 10 MILLION SHORTFALL WITH HIS OWN MONEY, KNOWING WHAT WAS JUST ROUND THE CORNER. HE PREFERED TO USE HIS HMRC CONTRIBUTIONS AS WORKING CAPITAL., WHAT IS ANOTHER 10 MILLION ON TOP OF THE POTENTIAL 75 MILLION.

    Is it ethical ? nope, but its legal.

  14. Niall Walker

    Den,

    Hello again,lets assume a CVA is agreed by HMRC and the new owners take over before June 1st, part of the administrators duties is to ensure the new owners have a viable business plan and are not going to run up another series of debts.
    Rangers must pay back the loss of wages to players and get their contracts back, this enables them to sell the unaffordable high earners in the close season. This could result in approx 6-8 million, they have sellable fixed assets of 35 million from which they can borrow half ( 18 million). This adds up to 26-30 million which just happens to be equivalent to the Ticketus advance .If they can not borrow against the fixed assets then they can raise money through a share issue.
    Reducing costs by 8 million per year is achievable when more than two thirds of this is excessive wages, the balance will be staff redundancies and other cost cutting measures.

    Again ts not easy but it is do-able.

    You do not need 100 million and you do not need to liquidate, you just need to operate within your means, as Celtic have demonstrated.

  15. Niall Walker

    I do not believe Rangers can start in Div 3 and survive, I estimate their revenue would drop by 75% and they can not reduce the fixed overheads by 75%. You can not run a corner shop in a superstore, there is a limit to downsizing Rangers and Div 3-2-1 are way below these viable limits.
    The average Ibrox attendance would be 10-12,000 with little other forms of income, you don’t have to be Stephen Hawking to work out the turnover is just too small to keep the lights on at Ibrox and Murray Park.

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