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