Rangers and the Incubator – Part 2 – Who Could Stop the Deal?

The Bill Miller takeover of Rangers is intended to take place this week (by 11 May). That does not leave much time. My plan is to write a few posts looking at the hurdles Duff & Phelps and Mr Miller will need to cross to achieve the goal of having Rangers play its last game of the season next Sunday under the ownership of the American trucking tycoon.

 

The second area I will look at is that of the possible legal challenges to the proposed deal.

 

Creditors and shareholders could seek to block the deal if they consider that they are prejudiced, and even the sale happening will require court actions to decide ho much, if anything, can be put in the pot for a CVA for unsecured creditors!

 

Let’s remind ourselves of what Mr Miller said pre his preferred bidder status.

 

Bill Miller –

 

“My proposal on the table now is to pay £11.2M for the club which includes the £500,000 deposit required by Duff & Phelps.

 

“In order to preserve the club’s history, records, championships and assets, I will put the “heart” of the club into an “incubator” company while Duff & Phelps works to make the “sick patient” healthy through a CVA process that effectively works to “radiate” the toxicity of past administrations’ sins out of the patient while the “healthy heart” is preserved and moves forward. Once the CVA process has been completed and the patient is on the mend, the administrators will return Rangers Football Club plc to me for a nominal sum. The healthy heart and the healthy patient (The Rangers Football Club plc) will then be reunited through merger.

 

“In this scenario, the club can continue with all of its business assets, including its history, protected from the present illness. Thus a new corporate entity will own the club’s assets during the incubation period including all of its history.”

 

 

And what did D&P say when Mr Miller was chosen as preferred bidder.

 

Paul Clark of Duff & Phelps –

 

“We are delighted to announce that today we have received an unconditional bid for the business and assets of Rangers Football Club plc from Mr Bill Miller which has been accepted and he is now the preferred bidder. Mr Miller now proposes to complete his transaction by the end of the season.

 

“Mr Miller’s proposal involves the use of a specially created newco in addition to the retention of the Rangers Football Club plc. The business and assets he proposes to purchase will be sheltered in a newco and returned to the plc once the plc has been ‘cleaned up’.

 

 

How does this work as regards anyone trying to stop the deal going through?

 

 

 

First of all, as administrators, D&P have the power to sell any and all of Rangers Football Club (in administration) PLC’s assets. The administrators have all of the powers of the company, plus some additional ones.

 

If the company tried to sell assets secured by a crystallised floating charge, as is now the case, they would not be able to do so without the secured creditor’s agreement. But this is not the case with administrators.

 

The Insolvency Act 1986 Schedule B1 tells us, at Rule 70:-

 

(1)The administrator of a company may dispose of or take action relating to property which is subject to a floating charge as if it were not subject to the charge.

 

(2)Where property is disposed of in reliance on sub-paragraph (1) the holder of the floating charge shall have the same priority in respect of acquired property as he had in respect of the property disposed of.

 

(3)In sub-paragraph (2) “acquired property” means property of the company which directly or indirectly represents the property disposed of.

 

Therefore D&P can sell any asset secured by the floating charge, without reference to anyone, whether the floating charge holder Rangers FC Group Ltd, or the creditors.

 

The restriction applied if they sell an asset secured under the floating charge is that the charge holder “shall have the same priority in respect of acquired property as he had in respect of the property disposed of.”

 

Therefore, if D&P sell the assets of the company for, say £11.2 million, then, subject to the 2 points below, Group would be a secured creditor for that £11.2 million.

 

The two exceptions are (a) that D&P are entitled to their costs and for payment of the costs of the administration first and (b) Close Leasing Ltd has a charge in relation to a debt of around £1.6 million which is ahead of the floating charge.

 

So, if the sale happens to Mr Miller, then there can be no offer of a CVA to unsecured creditors until it is determined (a) if Group’s floating charge is effective and (b) how much debt owing to Group by Rangers, if any, is secured by it.

 

It therefore could be the case that “Rangers” continue in administration as a company with no assets, no income and no outgoings pending resolution of court action on these matters, and also a decision in the D&P v Collyer Bristow case.

 

All the while, D&P will continue to charge fees, to which they are lawfully entitled, and newco will be “Rangers”. This seems to fit with D&P saying that a newco with CVA side route would take many months – I assume they are budgeting on a court battle.

 

Matters are made more complicated by the Resolutions put forward to creditors by D&P.

 

The most relevant one was:-

 

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.

 

We do not know yet of that was accepted or rejected by creditors. One imagines that the votes have been counted by now!

 

If accepted, then, subject to what I say below, they can proceed, although their transactions can still be questioned later by creditors.

 

If rejected, then D&P would need one of the following to allow them to conclude such a sale.

 

(a)    Approval from the court; or

(b)   Approval by a Creditors’ meeting.

 

D&P do not have a lot of time if they have to go to court this week, as the judge could order that the matter be put to a creditors’ meeting.

 

It could be that the case calling on Friday last related to this, although I have seen no report or confirmation as to what actually took place there.

 

Finally, can anyone intervene over and above the hurdles mentioned above?

 

Yes – Rule 74 kicks in here.

 

“(1) a creditor or member of a company in administration may apply to the court claiming that—

 

(A) The administrator is acting or has acted so as unfairly to harm the interests of the applicant (whether alone or in common with some or all other members or creditors), or

 

(B) The administrator proposes to act in a way which would unfairly harm the interests of the applicant (whether alone or in common with some or all other members or creditors).

 

 

(2)A creditor or member of a company in administration may apply to the court claiming that the administrator is not performing his functions as quickly or as efficiently as is reasonably practicable.

 

 

(3)The court may—

 

(a) Grant relief;

 

(b) Dismiss the application;

 

(c) Adjourn the hearing conditionally or unconditionally;

 

(d) Make an interim order;

 

(e) Make any other order it thinks appropriate.

 

 

(4)In particular, an order under this paragraph may—

 

(a) Regulate the administrator’s exercise of his functions;

 

(b) Require the administrator to do or not do a specified thing;

 

(c) Require a creditors’ meeting to be held for a specified purpose;

 

(d) Provide for the appointment of an administrator to cease to have effect;

 

(e) Make consequential provision.”

 

So therefore a creditor (any creditor) or a member (any shareholder) of the company can ask the court for an order regulating the actions of the administrators if they, the creditor or shareholder, believes any of the following:-

 

(a)    That the administrator is acting or has acted so as unfairly to damage the interests of the applicant

(b)   That the administrator proposes to act so as unfairly to damage the interests of the applicant

(c)    That the administrator is not performing his functions as quickly or as efficiently as is reasonably practicable.

 

The court can make any order it sees fit, dismissing the application if groundless, ordering the administrators to do or refrain from doing something and even terminating the administrator’s appointment.

 

If anyone, from the smallest shareholder or creditor, up to HMRC, Ticketus or Mr Whyte/Group wants to challenge the deal, they can do so. Any application to court this week would, almost certainly, prevent completion of the sale by 11th May.

 

As any hearing is likely to be fixed at very short notice, even scouring the Scottish Court website might not flag up the presence of a challenge to the proposed sale.

 

If there is one, it will at least mean that the court will hear the precise details of what is intended.

 

The court next week could be interesting!

 

 

PART 3 – to follow – what does Mr Miller need the SPL and SFA to do?

 

Posted by Paul McConville

 

 

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33 Comments

Filed under Administration, Insolvency, Insolvency Act 1986, Rangers

33 responses to “Rangers and the Incubator – Part 2 – Who Could Stop the Deal?

  1. Joseph

    Keep up the good work Paul. Today I sent the following email to Mr Michael Johnston, chairman of Kilmarnock Football Club. If anyone thinks the way I do then I urge them to send a similar message. In the Kille website there is no email for Mr Johnston, so I just send it to all of his background staff, marking it for his attention.

    Dear Mr Johnston

    Your comments in this morning’s newspapers “The clubs are mindful of a sporting integrity aspect, but the commercial benefits may outweigh that” indicates that you are personally of this view. Do you fully understand what you are saying? Money is the God. What a disastrous road you are going down. If you have raised your children up in this belief then we are creating a society of dog eat dog. Can you not see where this will end?

    If this is the view that the whole of the SPL take then I, for one, will give up on this sport and never attend another football match.

    Matthew Lynch

    • Kenny McCaffrey

      Nice one Matthew. I think you should send a copy to the owners of Man City and explain what has been going on, how the integrity of sport is at stake and what a really good bit of PR it would be if they could speak out – and more importantly, oppose the sale in the interests of getting a proper pay-out for the small businesses, charities etc that are suffering undue hardship because of the deal. Make them sell the assets! It’s disgusting that they should be allowed to transfer them to the newco.

    • Niall Walker

      Sporting integrity is a hollow principle if it destroys the sport, half the SPL would go bankrupt without the Sky money and Rangers away support, neither would exist if Rangers doesn’t exist.

      • Mick

        Rubbish. Where is your evidence? Just as likely correct as incorrect. Supposition

      • Den

        “Sporting integrity is a hollow principle if it destroys the sport”

        THE SPORT will survive.
        Scottish football may have to change but people will still play and watch the game.

        We can of course carry on with the current debt fuelled situation, cowering to Rangers percieved fianancial muscle and threats from Mr Jardine (a man I had some respect for).

        Under the circumstances every club will withhold tax and any other expense and enter administration every year, coming out via a CVA or Phoenix club.. The league could possible retain Lawyers for thsi very task.

      • Carntyne

        It is Rangers lack of sporting integrity that has led them and the rest of Scottish football to this sorry pass.

        The cancer that is Rangers has to be cut out.

        I believe it will, because if it is not it will soon be back to it’s old habits.

        I can’t believe you think sporting integrity is hollow.

        Cheats in every other sport are punished.

        Rangers deserve no less.

  2. @sea_warrior

    For the life of me I can’t believe the MSM have managed to push the argument into one of commercial benefit vs sporting integrity. It is nothing of the sort. Neither argument was proffered when Celtic were being closed for 7m not 20 times that amount. And sporting integrity hasn’t been a problem through the years of ahem, honest mistakes! No the discussion should be centred around why do the SFA, SPL and MSM insist that Rangers and Rangers alone must be saved at all costs!

  3. George Murray

    Why don’t Celtic, as one of the clubs to whom monies are owed, lodge an objection as Paul describes above. This would surely blow the whole project out of the water.

    • Carntyne

      I’m a little dismayed that Celtic have remained silent so far in this affair.

      I’m beginning to think they are in favour of Rangers being admitted straight back to the SPL if they are liquidated.

    • Niall Walker

      Celtic need teams to play football against, half of the SPL would be insolvent wihout the Sky money and Rangers away support.

      • TheBlackKnight TBK

        What happens to demoted teams?
        Teams drop out of the SPL every year.

        How many have gone bust as a result?

  4. the taxman cometh

    A poster on RTC claims to have attended the court of session on friday

    “john clarke says:
    04/05/2012 at 2:47 pm
    20 0 Rate This
    Just out of Court 6, chaps and chappesses. Nothing too exciting. Ticketus had a motion trying to argue that the way expenses of their actions etc were to be calculated should be one way and the Aministrators argued it should be another way (on a lower scale of fees) Lawyers among you will know what the difference between party/party and agent/client scales are.
    Lord Hodge referred them to the interlocutors he had previously made, when Messrs Clancy and Sellar had agreed that the normal arrangements applying to Trusts would apply.
    He continued the motion rather than explain what he himself had meant by the words he had used in the interlocutors.
    But both parties were to a) ask the Auditor how he would interpret the interlocutor, and b) look at the practice followed in Trust cases.

    The motion was continued to a date yet to be agreed, with the solicitor for D&P making sure that the expenses of preparing for today and the next hearing would be included.
    As far as I could make out, all the expenses will fall to the Administrators’ ‘pot’ anyway. It’s just that one basis of calculation would result in a whole lot less of a bite out of the ‘pot’.

    And that was that.
    Quite interesting in its own way, and I’m puzzled as to why Lord Hodge didn’t simply explain what he had meant at the time.
    At the continued hearing, if the parties aren’t agreed, the merits of the motion can be argued in full.”

  5. Fisiani

    Can I buy a single share in Rangers and then lodge a lengthy court case that I may be disadvantaged by the adiministrators

  6. Carntyne

    Another great post Paul.

    This whole saga has been like watching Tommy Cooper performing magic tricks.

    He plays the bufoon but then ends with a bewildering clever finale.

    Will Duff and Phelps manage to pull a rabbit out of the hat as the curtain is about to come down?

  7. TheBlackKnight TBK

    Paul, what do you believe to be the chances of success of the proposed ‘deal’ to invoke a football creditors rule in Scotland? The MSM appear to be reporting that a deal is in the making between the SPL and BM in favour of settling the football debts ahead of any other unsecured creditor?

    • Marching on Together

      HMRC will go ballistic with the SPL try this. They are already going to court down south to get this rule over-turned, and the UK Parliament has hinted that it will legislate to have it removed if not done voluntarily. I can think of no action that the SPL could take that is more likely to guarantee that HMRC vote against ANY proposals put to it by D&P that does not involve them getting repaid 100%. Of course perhaps that is the cunning plan?

  8. mick

    please would some1 send this to all the creditors and criag whyte what a great read yous are well good at this stuff am intermidate and cant copy and paste or a would do it its a con the whole lot of it

  9. mick

    is this whats happening not similiar to a pheniox company asset stripping ????????which is ilegal is the sfo not getting involved????serious fruad office

  10. mick

    could some1 explan why this is not asset stripping ????

  11. Jim Harkins

    If the football creditors rule themselves out of a legal challenge to avoid possible reaction from Rangers supporters, and small business creditors ditto (and also because of the likely cost), this would leave HMRC and Ticketus as the only sources of such action?

  12. mick

    and criag whyte ????

  13. Mick

    Methinks Hector about to walk on stage

  14. Niall Walker

    Mick,

    Rubbish is a tad harsh, the evidence you seek can be found in the accounts of half of the SPL teams, and in the voting actions of the SPL members themselves. The members are not trying to find a compromise that keeps RFC in the SPL because they are all closet Rangers fans. Celtic may not need Rangers to survive but half the teams in the SPL do.

    • Mick

      So the financial viability of the league depends on a bankrupt club?
      Don’t think so.
      Some teams only play RFC once a season at home. Seriously saying that keeps them afloat?
      Much more likely that small teams crowds would improve in a more competitive league which is not subject to financial doping, and cups and Euro spots attainable for greater number. Most likely that Celtic would be weakened also, enhancing competition.
      Smaller teams would also be less inclined to spend over their means making SPL more stable.
      Saying that SPL can’t survive without RFC is an assertion without basis in reality. When the environment changes, the organism adapts. As true of football as biology.
      Only two beneficiaries of Newco are 1. newco and 2. Pundits who keep their jobs

  15. Friar Balsam

    I cannot see any reason for a challenge. If the deal does not go through, then the creditors will rely on a liquidation sale which will take time, cost money and will raise a sum of money that no-one could accurately predict.

    In addition, HMRC will prefer to keep rangers going so that they get tax revenues every year. If they liquidate they get one small payment and that’s it. Ticketus will take what they can and then go after CW.

    So Bill is the creditors best hope of a) fast cash, b) a known amount of cash, and c) future cash. Why object? The current plan is their least worst scenario.

    • Mick

      HMRC may decide that a body is required pour encourager les autres.

      I’m sure they have already realised they’re not getting much money here. Not a reason to keep a corpse on life support – or in an incubator!

  16. Bhoywonder

    Glad you cleared up the issue of the floating charge. I was under the impression that CW held the keys to the assets. It the beggers belief that the duffers are still sitting on them. It strengthens the view that the creditors in this charade are regarded as immaterial. Due dilligence may be required to analyse the covertness of the duffers in this whole administration process.

  17. Geddy Lee

    Fascinating to see some people still clinging to the assertion that Scottish football somehow “needs” rangers to survive.

    How insulting is that? I don’t remember any club complaining in the 80’s when both Celtic and rangers had to play second fiddle to the likes of Aberdeen and Dundee utd. There were no 50,ooo crowds then yet both those clubs mentioned reached European Finals without the aid of a powewrful Old Firm to keep them alive.

    It was not until Murray, and his corrupt financial dealings infected Scottish Football, that the Old Firm truely dominated.

    No one batted an eyelid at the SFA or in the Scottish media when Celtic were at death’s door. Indeed Mc Coist himself was quoted as saying “I can’t deny i’m not enjoying what’s happening to them”

    Those Chairmen bleating about needing rangers are sealing the fates of their own clubs, as they face not only a boycott from their own fans, but any team voting to keep a new-co in the SPL will also have to do without Celtic’s massive travelling support.

    You see rangers? other clubs can do “threats” just as well as you.

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