The BBC produced an exchange of emails between Craig Whyte and David Grier from February this year regarding the terms for Duff & Phelps to be appointed as administrators. You can find the emails here. I have copied them at the bottom of this page.
The emails are very instructive regarding what Mr Whyte’s plan was back in February.
The tone is business-like but friendly, which is not what one would expect bearing in mind Mr Grier’s contention that he and his colleagues had been misled by Mr Whyte. Clearly they had resolved their differences.
So, let us go back to February. On the evening of Saturday 11th, after Rangers had returned from Dunfermline where they had achieved a 4-1 victory, Mr Whyte emailed Mr Grier. This was in reply to a proposal regarding, amongst various matters, fees for the administration of Rangers.
Mr Whyte first of all asked that the proposal be addressed to the Rangers FC Group Ltd. This was agreed by Mr Grier.
On 14th February when the administrators were appointed, this was at the instance of the company, Rangers Football Club PLC. It was not at the instance of Rangers FC Group Ltd, although as apparent floating charge holders that company could have appointed an administrator.
As we have all learned over the last few months, the fees of the administrators are paid from the funds for creditors, effectively as a first preference. Why therefore make out the fee quote to the parent company? Either (a) the parent company was going to appoint the administrator or (b) D&P wanted security for costs from the parent. That seems unlikely as it is Mr Whyte in the email exchange asking for the fee quote to be made out to Group. This could of course mean that the original was addressed to Liberty Capital or to Mr Whyte personally.
Having done so, why did he then proceed to have the administrators appointed by the company, and not the parent?
On the 14th of course, the day after Mr Whyte intimated his intention to have Rangers enter administration, HMRC had applied to the court to have an administrator put in place immediately. They only agreed to drop the application on condition that Rangers appointed an administrator by 3.30pm that day. Is it possible that, in the haste to get D&P in place, Mr Whyte picked the wrong method of appointment, in that rather having the administrators appointed by the floating charge holder, he had them put in place by the company?
The key factor in the plan is shown by the fee quote, being restricted, subject to some variation, to £500,000. As we have since learned, the fees D&P have been charging run to around £200,000 per week. Therefore, by a simple exercise in arithmetic, it was anticipated on the 11th and 12th February that administration would last a very short time indeed. Remember, the £500,000 figure was what Mr Whyte wanted fees capped at. If the bill came in lower, he was not going, subject to one factor, to top it up.
Mr Whyte wanted “all costs pinned down and no unpleasant surprises later on”. That wish has proved unfulfilled!
Even at this stage Mr Grier, whilst agreeing with the cap, was wanting to discuss “additional payment…in so far as this does not impact on your position”. Put another way, Mr Grier appears to be saying, “Let us charge more, as long as you, Mr Whyte, are not paying it”.
Mr Whyte wanted “clarity” on anything not included and “capped fees” from other parties who would have to be involved. He stated that PR and Security could be handled by the Club and therefore would not be a cost to the administrators. Bearing in mind that administrators take over the running of the company, and the existing executives are sidelined, one wonders how Mr Whyte could, in an arms-length administration seek to impose such conditions on the administrators. Equally, whilst a PR company might not have the same issues of “conflict of interest” as lawyers could have, surely there was a significant possibility that the PR needs of the administrators would not at all times tally with those of Mr Whyte.
Mr Grier was happy to agree this, giving an indication that the cost of a valuation of fixed assets, land and buildings, would be around £50k.
The plan is outlined in Para 3 of Mr Whyte’s email. He envisaged (a) a straightforward CVA agreed with HMRC or (b) “a pre-pack business and assets and CVA of oldco to keep league membership and UEFA…” As Mr Grier agreed, the option to be followed would be determined during the meetings with HMRC during the 2-week moratorium, which of course was wiped out by the HMRC petition.
As this stage there was no mention of Ticketus. Did Mr White intend to dump that deal, or to honour it? If he intended to drop it, then presumably Ticketus would have been mentioned too, as a party whose consent to the CVA was essential?
In any event, what was more likely was the idea suggested by Mr Whyte at (b) above. We can see where Bill Miller got the “incubator company” idea from! It was Mr Whyte’s plan to sell off the assets and business of the company to a newco, whilst retaining the oldco to hold the league membership and ability to qualify for UEFA competition. The CVA proposed would have been on the basis that the oldco only had what it had been paid for the assets, and as was discussed at length some months ago, on of the problems with a “pre-pack” is that assets often seem to be sold at knock-down prices to people connected with the former owner, if not indeed to the former owner himself. On the basis that there was no “preferred bidder” lurking in the wings to swoop, this seems to suggest that what was intended was that the newco would itself be owned or controlled by Mr Whyte. If his plan had succeeded, then he would have owned a debt free Rangers, and would have been able to sell it off, presumably for a hefty profit, whilst at the same time having a security over the assets.
Mr Whyte envisaged D&P doing the necessary work including the finalising of accounts, to lodge relevant papers with the SFA by 31st March to allow a UEFA licence to be issued for 2012-2013. Whilst there remained any prospect of a CVA for the existing company, as is in fact the case now, surely D&P should have moved heaven and earth to get the relevant application in timeously. If so, and a CVA could be agreed, then the new owner would have access to the European pot of gold immediately. Why did D&P not do this? Did they recognise prior to 31st March that a CVA was a dead duck?
Mr Whyte pointed out that, whatever happened, administration should be short. Therefore he wanted D&P to be incentivised to get in and out of administration very quickly, and to avoid them having any incentive to linger. Mr Grier was happy to agree to this as well.
The fee estimate was soon blown out of the water by the fact that the administration started with the moratorium being eliminated by the HMRC action. The two weeks intended to allow the pre-pack to be set up disappeared in a puff of warranted petition. However, this ought not to have scuppered the initial plan. One wonders if we will ever know precisely what knocked the deal off the rails.
Mr Whyte did not want three administrators, which presumably had been D&P’s suggestion. Two administrators would be cheaper than three.
He was concerned that HMRC would be hostile. Oddly enough, after the initial steps taken by the taxman, HMRC has been supine, rather than hostile.
Finally, Mr Grier had suggested a “success fee” to Mr Whyte. I will come back to that in another post.
Finally we have seen what Craig Whyte’s plan was. His goal was to either get HMRC to agree a CVA (unlikely though that was) or else hive off the assets and business into a newco, whilst leaving the oldco to have a take it or leave it CVA done, once all the assets had gone in a pre-pack sale.
The Bill Miller incubator plan might even have been suggested to him by D&P, rather than vice-versa. After all, this seems to have been the plan worked out between Messrs Whyte and Grier.
However, something resulted in D&P not moving out as quickly as planned – the fees have gone from a “capped” £500,000 to £3.3 million and rising.
I suspect the “success fee” is not getting paid now!
And a final thought for now – after Mr Whyte going through all of the careful and detailed planning which he clearly did prior to becoming involved, and once he was seated at the Boardroom table, and after all the flak he has taken, does anyone seriously believe he is heading off into the sunset, having been paid £2 for his shares by Charles Green, and having accepted that his floating charge is ineffective as he is not owed any money, and at the same time he is being sued for millions by Ticketus and by Duff & Phelps?
Posted by Paul McConville
Click on the pictures below to expand the emails