Those kind chaps at Duff & Phelps are scrupulous about fulfilling their duties, even where they have sold off all of the assets and business of Rangers Football Club PLC (In administration). Yesterday, with a non-existent fanfare, their latest Report was published, dealing with the six months (yes, it has only been six months) since they were appointed.
You can view the full Report here. Rangers – Progress Report – 24 August 2012
My plan is to do a couple of posts about it, but there is one issue which I have been going on and on and on and on about in my blog since February, I think!
The interests of the creditors.
It looks to me, as an outside observer, that there is no relation between the value of what Mr Green’s company acquired, and the price it paid. This is even more marked when the issue of money due to Rangers (in administration) is factored in, as these sums too were sold to Sevco.
As well as having a look again at “gratuitous alienations” I pose a quiz question regarding the value of the Rangers “history” which forms part of the goodwill, and the price paid by Mr Green for them.
Purpose of administration
3(1) The administrator of a company must perform his functions with the objective of—
(a) rescuing the company as a going concern, or
(b) achieving a better result for the company’s creditors as a whole than would be likely if the company were wound up (without first being in administration), or
(c) realising property in order to make a distribution to one or more secured or preferential creditors.
(2)Subject to sub-paragraph (4), THE ADMINISTRATOR OF A COMPANY MUST PERFORM HIS FUNCTIONS IN THE INTERESTS OF THE COMPANY’S CREDITORS AS A WHOLE.
(3)The administrator must perform his functions with the objective specified in sub-paragraph (1)(a) unless he thinks either—
(a)that it is not reasonably practicable to achieve that objective, or
(b)that the objective specified in sub-paragraph (1)(b) would achieve a better result for the company’s creditors as a whole.
(4)The administrator may perform his functions with the objective specified in sub-paragraph (1)(c) only if—
(a)he thinks that it is not reasonably practicable to achieve either of the objectives specified in sub-paragraph (1)(a) and (b), and
(b)he does not unnecessarily harm the interests of the creditors of the company as a whole.
4The administrator of a company must perform his functions as quickly and efficiently as is reasonably practicable.
I have added emphases.
Now, we all know that D&P proceeded through a long and tortuous process, leading to the sale of the assets and business of Rangers to Sevco Scotland Ltd (and not Sevco 5088 Ltd, as stated in the CVA proposal to creditors).
I have looked in detail twice at what Mr Green’s consortium bought for its payment of £5.5 million.
As I wrote in June:-
The value placed (in the CVA Proposal) on Ibrox and Murray Park was £4,590,214. This however was not the value which has been assessed by the valuers… Instead “the estimated realisable value of the freehold properties is based on the Joint Administrators’ agent’s valuation less holding and disposal costs based on a period of two years. It is possible these costs could exceed the gross realisable value rendering the properties onerous and without value.”
… that seems to suggest that the valuation of £4,590,214 is not the value today, but instead is the value after paying for two years to maintain them without any income and then to sell them. I assume that the fees of selling agents for marketing such properties would be fairly high.
Therefore Mr Green has bought an asset worth £4,590,214 plus the costs of maintaining for two years and selling. Let us be generous and say that the valuation today would be only £4,750,000.
The CVA Proposal stated, “The sale consideration under the New Company scenario has not been apportioned”.
I can help. He has paid a total of £5.5 million. Therefore he has acquired everything else for £750,000:-
The Player Contracts – the contracts of employment of those employees of the Company who are professional football players registered with the SFA;
The SFA Membership;
The Company‘s share in the SPL;
The Goodwill and intellectual property rights – the goodwill relating to the business of a professional football club carried on by the Company and the exclusive right to use the name “The Rangers Football Club”;
Stock, plant and equipment and cash at bank;
Amounts owed to the Company (other than the Player Transfer Fees).
He may also have acquired the Player Transfer Fees and the right to pursue the High Court Proceedings.
No matter what deals were agreed with the players regarding reduced fees for them to be sold, and regardless of anyone’s opinion of the value of Rangers’ players, as long as the players agree to join newco, then Mr Green could, by the end of the transfer period, sell off all his high earners and make millions of pounds.
He has acquired the rights to use the name Rangers, and that is one with which, in the past anyway, companies have been glad to be associated, and on commercially advantageous terms to Rangers.
Mr Green has spoken about selling the naming rights to Ibrox for £10 million.
He anticipates selling lots of season tickets, and as Ticketus is nothing to do with the deal any more, he expects to receive many millions through the door for these too.
Finally, he is anxious to float the company by selling shares, especially to those whose shares in the Company in administration are now worthless (even though pre-administration they were worthless anyway).
By July, we had the report from D&P, which can be found here Rangers FC PLC Interim Report by Duff & Phelps 10 July.
In it the value of the land and buildings, which as you might recall were in excess of £100 million in Rangers FC PLC’s last accounts, and around £4.75 million in the CVA proposal, was now down to £1.5 million.
There was a lack of “clarity” about precisely what Mr Green had got for his £5.5 million.
Yesterday’s report gives some more “transparency”.
On page 10 of the PDF copy of the report we find:-
6.5 For clarification, any monies due from the SPL were included amongst the assets of the Company sold to the Purchaser and were reflected in the sale consideration paid. It was therefore for the Purchaser to negotiate with the SPL regarding payment of these monies, which was concluded in the above noted agreements.
And on page 11 we see:-
8.9 A further arrestment was made by Donald McIntyre, which included the sum of £120,238, held by the SPL.
8.10 As noted at paragraph 6.4, the Company’s interest in these monies and any other monies owed to the Company by the SPL was sold to Newco under the terms of the SPA.
The businessman (Mr Green) also agreed to waive any claim to £2.55m in prize money earned by Rangers for finishing second in the SPL in 2011/12.
So, for his £5.5 million, Mr Green got not just all of the fixed assets, players, SPL membership, SFA membership etc, but also the right to £2.55 million from the SPL in prize money and £120k arrested in the hands of the SPL.
So, included in what Mr Green bought for £5.5 million was a right imminently to receive £2,670,000 from the SPL.
PUT ANOTHER WAY, FOR A NET PAYMENT OF £2,830,000 SEVCO BOUGHT FIXED ASSETS WORTH OVER £100 MILLION, OR £4.5 MILLION, OR EVEN £1.5 MILLION. HE BOUGHT WHAT HE THOUGHT WERE THE RIGHTS TO ALL OF THE PLAYERS. HE BOUGHT THE GOODWILL AND INTELLECTUAL PROPERTY RIGHTS. HE BOUGHT ALL OF THAT, THE HEART, SOUL, BONES AND SINEWS OF AN SPL FOOTBALL CLUB, FOR LESS THAN £3 MILLION!
And Mr Green might even have pulled off a better deal!
The report says on pages 11 and 12:-
8.12 As at the Appointment Date, the Company was owed £3.8m from other football clubs in respect of deferred transfer fees which will fall due over a period of time up to 31 May 2014. No further monies have been received since my previous report to creditors and total collections remain at £1,021,712.
8.13 Two deferred transfer fees of £300,000 and £503,947 respectively are now overdue. The Joint Administrators are continuing to pursue the debtor football clubs in respect of payment of these amounts.
8.14 Other debtors of approximately £538,846 at the Appointment Date largely consist of amounts due in respect of Hospitality and Sponsorship. A further £1,178 has been collected with respect to other debtors bringing total collections to £484,495.
8.15 The Joint Administrators, with the assistance of Newco, will continue to pursue the residual amounts.
It is not crystal clear to me if Mr Green also acquired the rights to these football debts. The fact that the Administrators are trying to recover them suggests he did not. The fact that Sevco is assisting the pursuit of these funds suggests that, in fact, it has an interest in them.
So if there remains £2.8 million due to Rangers, in some form or other as transfer fees, and this sum is due to newco, then Mr Green has managed to acquire what was at the time an SPL club, and a debt free SPL club, for around £100,000.
Mr Green should get a role on the Dragons’ Den on the BBC, if he is capable of pulling off such a remarkable deal.
On page 9 of the report we see the following:-
4.6 As part of a wider agreement with the Joint Administrators which was finalised prior to the CVA meetings, Newco was obliged to purchase the business, history and certain assets of the Company should the CVA fail. Accordingly a going concern sale to Newco completed shortly after the meetings, which has resulted in the Joint Administrators achieving the second objective identified on the previous page, as a better result for creditors has been achieved than if the Company had been wound up without having first being in Administration.
The last line suggests that D&P believe that, as they say, this sale process has turned out better for creditors than a winding up. Couple with a trading deficit of almost £4 million during its operations, and costs running around £5 million, that frankly seems absolutely astonishing as a statement.
Lord Hodge, or the liquidators BDO, might well have something to say about that.
As a side note, you will see that para 4.6 refers to the “history” being sold. The history is clearly vital to Rangers and to its fans. Clearly it has a value in monetary terms as well as emotional.
Guess how much the administrators sold the Goodwill to Sevco for?
I will give you a few minutes to do the sums…
If you said ONE POUND, you win the prize!
s242 of the Insolvency Act 1986 matters here. Subsection four states
“On a challenge being brought under subsection (1), the court shall grant decree of reduction or for such restoration of property to the company’s assets or other redress as may be appropriate; but the court shall not grant such a decree if the person seeking to uphold the alienation establishes—
(a) that immediately, or at any other time, after the alienation the company’s assets were greater than its liabilities, or
(b) that the alienation was made for adequate consideration …”
The liquidator thus has the power to challenge a “gratuitous alienation”, meaning a transfer of assets for no price or for an inadequate price.
Where a liquidator brings such a challenge to a transaction, it is not for the liquidator to prove that the transaction was a gratuitous alienation, but instead for the defender to show that it was not. The Act lays down that the court “shall grant decree of reduction or for such restoration of property to the company’s assets or other redress as may be appropriate” unless certain statutory exceptions are engaged.
Based on the figures above, it would not be a surprise to see the liquidators raising a court action stating that the sale by D+P, acting as agents of RFC PLC, to Sevco was a gratuitous alienation.
Sevco would have to prove that “adequate” consideration was paid.
As Lord Cullen said in Lafferty Construction Ltd v McCombe 1994 S.L.T. 858
In considering whether alienation was made for “adequate consideration”, I do not take the view that it is necessary for the defender to establish that the consideration for the alienation was the best which could have been obtained in the circumstances. On the other hand the expression “adequate” implies the application of an objective standpoint. The consideration should be not less than would reasonably be expected in the circumstances, assuming that persons in the position of the parties were acting in good faith and at arms length from each other.
If I was one of the lawyers working for Mr Green, I would be digging out the books and trying to work out how on earth I could justify the above transaction as being, in any way “adequate” consideration. I suspect a migraine headache would be ensuing as I looked frantically for an answer!
Posted by a baffled and mystified Paul McConville