A blog post in which I pose some questions for Duff & Phelps regarding their plans and court actions, future funding, and whether they have taken sufficient steps to obtain information from all parties regarding Rangers’ affairs. If so, have Mr Whyte and Mr Ellis committed a criminal offence, and if so, have Duff & Phelps done anything about it?
Whilst a lot of work has been done by them in eleven weeks, how do they intend to keep the doors open until a bidder completes due diligence and signs a deal?
Has the stop/start process (some of which might rest at D&P’s door, but much of which has been caused by outside events) resulted in Rangers being unable to continue as a going concern?
This week has seen the focus shift from the administrators of Rangers on to the SFA disciplinary process and the furore regarding the “anonymous” Judicial Panel.
I will pass over that for now, and pose a couple of quick questions for Duff & Phelps. It would be easy to forget that the administration process is still going on! I do not expect them to answer me, but some response might be forthcoming to someone.
An interesting piece was posted on the Web.3D.Law blog last night. This concludes by stating:-
“ If I am right, it begs the question as to why and how D&P are taking offers for the club in the first place, especially since Craig Whyte can block any action to sell his shares.
Are the administrators fulfilling a PR exercise?
Of course. They must they be seen to be doing everything possible to save Rangers. Are they under instructions from CW himself to try and find a buyer? To me, the whole thing reeks of an exercise in futility – unless of course CW’s security is less than publicly reported, it makes no logical sense as to why he would sell to either bidder and Duff and Phelps have raised a lot of Rangers supporters hopes for nothing. Again.”
The administrators of Rangers are very experienced Insolvency Practitioners. They are fully aware of the rules under which they must operate. To lesser mortals like me, some of their decisions seem baffling. I am sure that is my failing, rather than theirs. However, responses to the following questions would be of interest.
Have They Received Notification of the Result of the Big Tax Case?
The parties are made aware of the terms of the decision a few days before it is made public. If they had heard, then I am sure leaks and spin would already be taking place.
However, as the amount assessed by the Tax Tribunal as due by Rangers is important for the purposes of assessing what proposal can be made in a CVA. It also affects the amount that a buyer, whether of the company or the assets, might have to put into the pot.
If no result has yet been notified, have they been told when this might take place?
Have They Received a Statement of Affairs from Mr Whyte or Mr Ellis and Whom Have They Asked for One?
Rule 47 of Schedule B1 to the Insolvency Act states as follows:-
(1)As soon as is reasonably practicable after appointment the administrator of a company shall by notice in the prescribed form require one or more relevant persons to provide the administrator with a statement of the affairs of the company.
(2)The statement must—
(a) be verified by a statement of truth in accordance with Civil Procedure Rules,
(b) be in the prescribed form,
(c) give particulars of the company’s property, debts and liabilities,
(d) give the names and addresses of the company’s creditors,
(e) specify the security held by each creditor,
(f) give the date on which each security was granted, and
(g) contain such other information as may be prescribed.
(3)In sub-paragraph (1) “relevant person” means—
(a) a person who is or has been an officer of the company,
(b) a person who took part in the formation of the company during the period of one year ending with the date on which the company enters administration,
(c) a person employed by the company during that period, and
(d) a person who is or has been during that period an officer or employee of a company which is or has been during that year an officer of the company.
(4)For the purpose of sub-paragraph (3), a reference to employment is a reference to employment through a contract of employment or a contract for services.
(5)In Scotland, a statement of affairs under sub-paragraph (1) must be a statutory declaration made in accordance with the Statutory Declarations Act 1835 (c. 62) (and sub-paragraph (2) (a) shall not apply).
Rule 48 states:-
(1)A person required to submit a statement of affairs must do so before the end of the period of 11 days beginning with the day on which he receives notice of the requirement.
(2)The administrator may—
(a) revoke a requirement under paragraph 47(1), or
(b) extend the period specified in sub-paragraph (1) (whether before or after expiry).
(3)If the administrator refuses a request to act under sub-paragraph (2)—
(a) the person whose request is refused may apply to the court, and
(b) the court may take action of a kind specified in sub-paragraph (2).
(4)A person commits an offence if he fails without reasonable excuse to comply with a requirement under paragraph 47(1).
In the 5th April Proposal to creditors Duff & Phelps stated:-
“The Joint Administrators are yet to receive a signed SOA from the Directors of the Company. One of the directors, Dave King has confirmed that he holds insufficient financial information relating to the Company to prepare the SOA. No response has been received from the other directors.
If the SOA is received by the Joint Administrators the document will be submitted to the Registrar of Companies and be available to download from the Club’s website and the Companies House website. “
As the Rules show, a Statement of Affairs can be requested from:-
A person who is or has been an officer of the company – the directors, Messrs Whyte, Ellis and KIng and Company Secretary, Mr Withey; and the former directors, such as Messrs Betts, McClelland and Greig and Bain; and
A person employed by the company in the year prior to entering administration – Ali Russell, former Chief Operating Officer, or anyone else employed in Rangers financial department.
Mr King has offered his plea that he cannot tell, due to his distance from the company, but other than that, how long ago were the directors asked?
The Rules require D&P to ask for this as soon as is reasonably practicable after appointment. A response is required, unless the recipient is excused, or has the timetable extended, within eleven days. Failure to respond is a criminal offence.
Who has been ordered to produce a Statement of Affairs?
What have D&P done about anyone, such as the directors sans Mr King, who have failed to reply?
Bearing in mind the confusion about securities etc, surely someone in Ibrox, from the list mentioned above, will have answers? Or is it the position that, as Mr Jardine of Rangers has said, “I have to say that nobody knew that he wasn’t paying bills”. In that case is he suggesting that the records did not reflect reality?
After all, I do not imagine that Mr Whyte kept all the Rangers accounting records and the chequebook locked up in Castle Grant!
When the accountants. Grant Thornton, were trying to prepare audited accounts, did they see the books (one assumes so) and if they noted an increase in creditors, did they speak exclusively to Mr Whyte?
In which case, why did he bother with a Chief Operating Officer, and other directors and executives?
D&P need information. The Insolvency Act gives them the right to obtain this information. What have they done about using those rights and powers?
The Vote at the Virtual Creditors’ Meeting Closed One Week Ago – What were the Results?
The creditors voted on five resolutions. I discussed them here. Clearly the decisions of the creditors on these resolutions will have a major effect on how the administrators continue, and indeed if they even remain in post!
Rule 53 of the Insolvency Rules deals with what the administrators have to do after the initial creditors’ meeting.
“(1) An initial creditors’ meeting to which an administrator’s proposals are presented shall consider them and may—
(a) approve them without modification, or
(b) approve them with modification to which the administrator consents.
(2)After the conclusion of an initial creditors’ meeting the administrator shall as soon as is reasonably practicable report any decision taken to—
(a) the court,
(b) the registrar of companies, and
(c) such other persons as may be prescribed.
(3)An administrator commits an offence if he fails without reasonable excuse to comply with sub-paragraph (2).”
The question of what is “as soon as is reasonably practicable” depends on the facts and circumstances. The task of counting and allocating each vote might have taken some time, but after a week one would expect it to have been completed. After all, D&P could simply draft in more staff, knowing that they will undoubtedly be paid.
It took 12 days for the D&P proposal to creditors to appear on the Companies House website. Will it take as long for the results to appear there too?
As far as the court is concerned, it has to be notified too. If the resolutions proposed by D&P have not been accepted, then what happens?
At this point, Rule 55 comes into play:-
“(1) This paragraph applies where an administrator reports to the court that—
(a) an initial creditors’ meeting has failed to approve the administrator’s proposals presented to it, or
(b) a creditors’ meeting has failed to approve a revision of the administrator’s proposals presented to it.
(2)The court may—
(a) provide that the appointment of an administrator shall cease to have effect from a specified time;
(b) adjourn the hearing conditionally or unconditionally;
(c) make an interim order;
(d) make an order on a petition for winding up suspended by virtue of paragraph 40(1) (b);
(e) make any other order (including an order making consequential provision) that the court thinks appropriate.”
Therefore, if the resolutions have been rejected in part or in full, we can expect a court hearing very soon. As of Friday nothing was listed on the Scottish Courts website for next week, but that can change at short notice. The court has very wide powers – basically to do whatever it thinks is right in the context of the administration for the benefit of the creditors.
If the major creditors, Ticketus and HMRC, voted down the resolutions, then one wonders if D&P would want to stay in place. That would be an overwhelming vote of no confidence in them.
Might the creditors have become concerned about the shifting closing dates, and the apparent vagueness of D&P’s goals?
If the results are not yet available, can D&P announce when they expect them to be?
What Steps Have the Administrators Taken – To Divest Mr Whyte’s Group of its Shares in Rangers?
The administrators were quoted universally in the press as describing Mr Whyte as “irrelevant”. Some weeks later they stated that they had not said this, but instead had said he would not be “an impediment”.
Mr Whyte, through the Rangers FC Group Ltd, owns 85% of Rangers. The Court of Session was told that D&P believed the purchase was funded via illegal “financial assistance”. Have D&P taken any steps to seek to render the purchase of the shares void?
As Mr Whyte appears to want to receive a payment for his shares, and as D&P have been bullish about being able to circumvent him, what have they actually done?
If the aim is to sell the club as a going concern, and not to hive off the assets leaving the club to be liquidated, then Mr Whyte needs either to reach an agreement for a sale or be removed as majority shareholder. To be removed as majority shareholder requires (a) a court order or (b) a share issue diluting his interest below controlling or blocking levels.
If the plan is to dilute his shareholding by a massive share issue, then when do D&P envisage doing this? It is not something which can be organised overnight.
What Steps Have the Administrators Taken – To Invalidate Mr Whyte’s Group’s Floating Charge?
If the assets of the company are to be sold off, whether into an “incubator company” (© Bill Miller), or in a sale to a newco, the secured creditors line up ahead of the unsecured. Depending on the precise amount of Mr Whyte’s claim under the security, this would leave nothing for the unsecured creditors.
In that case an unlikely CVA becomes an impossible CVA.
Therefore, if the business is not being sold as a going concern, D&P need to remove the floating charge. This can be done by declaring that there is nothing owed to Mr Whyte, in which case the charge is worthless. For example, if you repay your mortgage in full, but do not discharge the security over your property, the lender still has the security in place, but it is securing a debt of zero. Ergo it has no effect (although a discharge would still need to be registered).
If Mr Whyte thinks he is a creditor, then it would require a court determination to decide this.
Alternatively, D&P might believe that the assignation of the floating charge from the Lloyds Banking Group to Mr Whyte was in some way defective, for example as the transaction was financed by illegal “financial assistance”. In that case D&P need a court to agree.
Neither of the steps taken above would be very quick, so if D&P have not started the ball rolling now, when do they intend to?
What Steps Have the Administrators Taken – To Have the Ticketus Deal Rendered Void?
Counsel for D&P told the court in March that the Ticketus deal was to be challenged. As Lord Hodge wrote:-
“The administrators’ legal advisers have challenged the enforceability of the STA (Season Tickets Agreement). It envisaged that Rangers would use the payment for the first tranche STA tickets to effect the repayment of its debt of about £18 million to Bank of Scotland plc. It was also proposed that Rangers would lend £16 million to Wavetower Limited (now called The Rangers FC Group Limited) to enable that debt to be repaid and that the bank’s debt and its securities would be assigned to Wavetower Limited (Schedule 19). The administrators’ legal advisers have asserted that the STA is illegal on the ground that it was an agreement for the giving indirectly by Rangers of financial assistance for the acquisition of its shares contrary to section 678 of the Companies Act 2006. The existence of this challenge is not however relevant to the directions which I have to give as I must assume at this stage that the Ticketus agreements are valid.“
What has been done to progress this challenge? It will need a court to decide on the validity of the contract. Have D&P set the wheels in motion?
How Do the Administrators Intend to Fund Rangers in Administration, if the Process Continues into Next Season?
Various people have crunched the numbers regarding the ongoing costs of running Rangers. I have done so myself here.
Without (a) massive cost cutting or (b) the addition of significant sums to the pot or in fact probably (c) both of the above, it is impossible to see how Rangers can continue in administration beyond June or July at the outside.
After the season ends in mid May the players’ voluntary pay reductions end. As this process saved Rangers £1 million per month, and as, even with that saving, the bank balance was shrinking fast, how on earth do D&P intend to fund Rangers in administration next season?
Whilst a fire sale of players might generate cash, and reduce the wage bill, I suspect that the creditors, whether Mr Whyte, HMRC or Ticketus, would not appreciate the sale of assets being used solely to keep the club running. After all, whilst the first purpose of administration is to rescue the company as a going concern, this is to be IN THE INTERESTS OF THE CREDITORS!
If Rangers, for example, could play in European competition next season, the administrators would have a pot of gold to justify keeping going. But they are not going to play in Europe. Therefore that goal is not there for them.
Finally, What is the Plan?
D&P have been through numerous final deadlines for bids. The interested parties have been in, then out, then back in again.
All this means is that after eleven weeks of administration, the available funds have gone down the plughole, and to get the company out of administration, a bidder needs to get in, carry out due diligence, and agree the terms of a deal which will allow a successful CVA.
How do D&P plan to deal with this?
I have no idea. I am sure Duff and Phelps do and that their plans are running exactly as intended.
It would be helpful, in the interests of creditors, bidders, fans of Rangers and Scottish football as a whole, if they could tell us!
Posted by Paul McConville