The Lawyer magazine reported yesterday that Gary Withey, erstwhile Company Secretary at Rangers, and, along with Phil Betts, Craig Whyte’s right hand man, had withdrawn his application to be joined as a party to the action raised against his former firm, Collyer Bristow by the administrators of Rangers Football Club PLC, Duff & Phelps.
Collyer Bristow is accused in the action of “deliberate deception” in connection with Mr Withey’s role in the Whyte takeover. The allegations relate only to Mr Withey. The former partner in the respected London firm is alleged, for example to have been involved in providing proof of funding when there were not in fact funds present.
In August Mr Withey had applied to the court to be joined as a separate party, the case being raised only against his former firm. Mr Withey’s counsel told the court then that he wished the chance to defend himself against the allegations made about his conduct.
At the same August hearing counsel for the administrators told the court that there was a “conspiracy” to cause injury to Rangers by causing it to be taken over by Mr Whyte rather than having a share issue to raise funds and clear debt. Counsel also stated that it would be very difficult for Collyer Bristow to demonstrate that Mr Withey’s statements had been anything but false.
The defence countered saying that the claim was highly speculative, and that the case would be defended vigorously.
Mr Withey previously told the Lawyer that the accusations were an outrage, that they were groundless, and that they should never have been made.
It seemed an odd choice for Mr Withey to put himself in the firing line as a party. Whilst on one hand one’s professional reputation is very important, becoming a party to the case would have exposed him to potential awards of damages, and to having to meet a share, if not all, of the costs if the claim succeeded. As matters stand, and as they will remain after this decision by him not to join in, his reputation falls to be guarded by the lawyers for the insurers of Collyer Bristow.
Should the case go against Collyer Bristow, then it would be possible for the insurers to seek to recover its losses from Mr Withey personally, but that would depend on him having assets to make a substantial payment towards any damages. The insurers would not pursue a claim where it would only cost them more money.
The case itself was originally sought to have an expedited hearing soon after it was raised. Counsel for Duff and Phelps asked the court in April to fix a quick hearing as the outcome could affect the survival of Rangers and its ability to keep trading. This was refused by the judge due to the complexity of the case, and a full hearing was set down for October this year.
However Mr Withey’s application resulted in the October hearing been cancelled, and instead the case will not now proceed until next year.
The net result therefore of Mr Withey’s intervention has been to have him incur some costs to his own legal team, but, more importantly, to cause the postponement of the determination of the case.
Who benefits from such a delay?
On one hand, whilst unrelated now to Rangers Football Club Ltd, the company formerly known as Sevco, an airing of the dirty laundry about Mr Whyte and his purchase of the club in the middle of the share flotation scheduled for the coming weeks would not have been conducive to positive reactions from institutional investors, one suspects. It might be argued that exposure of the mess surrounding Mr Whyte’s purchase of the company could be beneficial to the float, in that it would allow Mr Green to contrast his vision and bona fides with that of Mr Whyte. I do not see though how that helps financial investors, rather than fans, decide to buy shares.
Am I suggesting that Mr Green in some way has persuaded Mr Withey to co-operate in having the case delayed? No. Might the hearing being postponed work to Mr Green’s advantage? Most certainly.
Does it help Duff and Phelps? Yes.
If the case had still been scheduled for this month it would likely have been up and running prior to the handover from the administrators to the liquidators. Duff and Phelps, I am sure, are delighted to be getting out of the picture at Ibrox. The start of the case this month would have left them deciding how to proceed, and whether or not to accept any settlement offers. The delay means that their handling of the court action, and any steps taken to settle the matter, cannot be second guessed.
It also saves them the potential embarrassment of instructing counsel to cross-examine Mr Whyte himself regarding the purchase of Rangers, as MCR, the firm taken over by Duff and Phelps, played a significant role in the acquisition, acting for Mr Whyte and thereafter for Rangers.
Will it help the creditors of Rangers Football Club PLC (now RFC 2012 PLC)? It may, if BDO are more assiduous that it appears Duff & Phelps have been. The liquidators will have the resources available to them from the biggest creditor, HMRC, to fund the court action. The chances of the insurers buying HMRC off are slim.
It might take the sight of the liquidators, fully funded by HMRC, to make the insurers propose any without admission of liability settlement.
On the other hand, BDO might be less inclined to look at the PR side of things in deciding how to proceed. Duff & Phelps have given the impression, I am sure inadvertently, that its concerns lay in saving Rangers, the football team, rather than acting for the creditors. The sums spent by them on PR seem to give a strong indication about their focus. Of course, in keeping the business running, it was necessary to keep the customers happy. Did D&P go over the score on this?
The problem, to my eyes, with the case seems to be as follows.
To win the case it is necessary, inter alia, to show (a) that Collyer Bristow failed to fulfill its legal obligations i.e. by Mr Withey allegedly making false statements and that (b) that Rangers Football Club PLC, as it then was, incurred losses as a result of Collyer Bristow’s failures.
The response by the defence quoted above, that the claim is highly speculative, seems to me to be addressed to the second requirement. In law, a party can only recover actual loss. If there has been no financial loss, then no matter how badly a party has breached its legal duties, there will be no award of damages made.
The basis of the D&P case seems to be that the actions of Collyer Bristow allowed Mr Whyte’s company to take over RFC (as I will refer to the former Rangers Football Club PLC from now on in this piece). If he had not taken RFC over, then it is alleged that instead a share issue would have taken place, as envisaged by Paul Murray, on of the famous Blue Knights. That share issue would have raised £25 million or so, and as a result of Mr Whyte’s takeover RFC was deprived of that sum.
Bearing in mind the history of RFC share issues, and the fact that Sir David Murray had been attempting to sell RFC for some years, with no success, it might be felt that the chances of a share issue raising £25 million in April or May 2011 were similar to Eddie the Eagle returning to ski jumping to win an Olympic Gold. After all, at that stage the First Tier Tax Tribunal was still in full flow, with huge potential liabilities. Other than die-hard fans with too much money, and riverboat gamblers, who was going to take up shares in a company which potentially faced confirmation of the already delivered multi-million pound tax demands?
The chances of RFC proving that it was more likely than not that a successful share issue could have taken place seem microscopic.
On the other hand, there is the argument that, by Collyer Bristow’s alleged fault, RFC was deprived of the chance of a share issue. That is far more likely to have some success. To give an example, if a client seeks to pursue an Employment Tribunal claim for unfair dismissal, but their representative failed to lodge it in time, leading to its dismissal, the fact that the claim was doomed to fail even if it had gone ahead would not lead to the case against the representative failing. Instead, in such an event, the court would compensate the client for the lost chance of pursuing their claim. Unless the claim was guaranteed to succeed, damages for the lost chance would fall far short of what might have been won at the tribunal, but, even in a hopeless case, there would have been t he possibility of a nuisance settlement, for example.
It seems to me therefore that RFC’s best, and indeed only, chance in this case with Collyer Bristow is not to argue that there was a £25 million share issue waiting to be snapped up by investors, but that there was a possibility that a share issue could have raised something, and thus RFC lost that chance.
What value would be placed on the chance? Very little, in my opinion.
If RFC seeks to argue that Collyer Bristow is to blame for losses caused to RFC by Mr Whyte’s antics when in charge, on the basis that it was through Collyer Bristow’s actions that he achieved ownership, then I see that as too tenuous and remote a connection.
As far as the case goes therefore, it may be that RFC can establish that Collyer Bristow failed, through the actions of Mr Withey, in its duties. It may be that a judge, in such an event, would decide that there was a chance, however remote, of a share issue working in 2011. That could lead to the court awarding RFC damages against Collyer Bristols, but at a significantly smaller sum than claimed.
However, English High Court proceedings are very expensive. If this case runs to its conclusions, then the legal bill will run to several millions of pounds. If the case is weak, or in reality for a much smaller sum than claimed, can the liquidators justify spending even more of the creditors’ money on it?
On the other hand, Collyer Bristow are unlikely to want the case to proceed if it means that any Withey related dirty laundry is aired in open court, and publicised, as it would be. The insurers too would be concerned about the risk that, if the case proceeds, an award is made against them, as this could trigger a huge legal bill.
Therefore I think that the case being postponed could lead to a better deal for creditors too, if the most likely outcome of an out of court settlement, without admission of liability, and at a level one tenth of what is presently claimed, comes to pass.
In that event, the court time and costs of a full hearing are not incurred; the insurers save significant expense in going to trial and the risk, slight though it may be, of a substantial award being made; Collyer Bristow bring the matter to a conclusion; and the liquidators get something back for the creditors.
Therefore, the postponement seems also to work in favour of all parties, by giving more time for a settlement to be achieved, and perhaps doing so less in the public glare than at present.
And what of Mr Whyte? The delay works to his advantage too, in that it postpones the day of reckoning for him. Undoubtedly he would have been sought as a witness in this case. He might have refused to come back to the jurisdiction to give evidence, with the consequences that would have for him, or else he might have returned to stand in the box and, under oath, go through the background of his purchase. In either event, it is hard to see matters ending positively for him. Therefore a delay which allows more time for settlement, especially one where BDO rather than D&P have control of RFC, suits Mr Whyte too.
We therefore seem to have a situation where, as it stands, the delay caused by Mr Withey’s planned intervention and subsequent withdrawal suits everybody.
Looking round the assembled “suspects” each of them has a motive for engineering the delay. However as that would require one to believe that Mr Withey was prompted to make his application to the court at the instance of Mr Green, Rangers, Collyer Bristow, its insurers, Duff & Phelps or Craig Whyte, I think the simplest explanation is the most likely.
Mr Withey did want to enter proceedings as a party to “clear his name”. He has either realised that he cannot afford the costs, possible costs and possible damages, or has reached an agreement with those representing Collyer Bristow and its insurers which will allow the defence to pout froward Mr Withey’s position without there being any conflict between Mr Withey and his former firm.
Maybe by next year when the case comes back to court, matters will have moved on, and the spotlight will be off Rangers-related matters, or more likely there will be a small story in The Lawyer mentioning that the case has settled.
As with many matters in this saga, we can only wait and see.
Posted by Paul McConville