Duff and Phelps Prepare To Liquidate “Old Rangers” but Many Questions Remain

The creditors’ meeting on Friday 12th October has approved the liquidation of RFC 2012 PLC (the former Rangers Football Club PLC). Mr Clark of Duff & Phelps announced that the process of appointing BDO as liquidators was to start imminently.

At this stage there remain many questions about the administration process, the value to the creditors of the actions of Duff & Phelps. With hindsight, it seems clear that the creditors would have got a far better result from an immediate liquidation than from the process which has been followed.

The BBC reported Mr Clark’s statement and I have some comments upon it, which are in bold.

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Joint administrator Paul Clark said: “Creditors have today given their approval for the administrators to bring the administration process to an end and to place the company into liquidation.

“As a result, we as administrators have instructed our legal team to prepare the necessary application for lodging in the Court of Session as a matter of urgency.

The process is as follows. The application is made to the Court of Session. The court will place the liquidator temporarily in control of the company and make an order for publication of an advert notifying interested parties of the application and appointing any that wish to do so to lodge written Answers within eight days. Thereafter, subject to the court’s views, the liquidators’ appointment would be confirmed, and they would proceed with the winding up of the company.

It seems a trifle ironic that Mr Clark makes reference to “a matter of urgency”. After all, the assets and business of the company in administration were disposed of in mid-June. Four months have passed during which D&P have continued charging fees, running over the period from June to August at £60,000 per week. All they have had to do, from the outside perspective, is to look at the fast-dwindling bank balance and to instruct their lawyers in relation to the ongoing English High Court proceedings.

Over three months ago Lord Hodge stated that he did not want the administration to end, and by implication liquidation begin, until D&P reported to him regarding allegations of a conflict of interest arising from the involvement of one of the partners in D&P, David Grier, and of the firm as a whole, with Craig Whyte prior to the administration appointment being made.

D&P have confirmed that they have provided the report to the court, but there has been no public comment on it, nor any known reference to the matter in court since.

“Should the application be approved, then Malcolm Cohen and James Bernard Stephen of BDO will be appointed liquidators of RFC 2012 plc, and will undertake the process of liquidation of the ‘oldco’ company and the continued recovery of funds for creditors.”

Mr Clark does not mention that the creditors (effectively HMRC) rejected the proposal by D&P to have itself appointed to liquidate the company. Appointing them would have saved some costs for the creditors, as there would have been a considerable overlap between what the administrators had done and what the liquidators ought to do. HMRC was not prepared to do so, and insisted that its own nominees, from BDO, be appointed.

As far as the “continued recovery of funds for creditors” goes, almost every penny gathered in so far has gone on paying the fees of the administrators, and of the various representatives, especially lawyers, engaged by D&P.

Liquidators have greater powers though than administrators. This includes investigation of the actions of former directors, and the ability to seek to reverse any “gratuitous alienation” where assets of the company have been disposed of for less than “adequate consideration”.

I have seen some recent comments regarding this issue on the blog.

IT IS NOT FOR BDO TO PROVE THAT INADEQUATE CONSIDERATION WAS PAID – BUT FOR THE PURCHASER TO PROVE THAT THE CONSIDERATION WAS ADEQUATE.

Mr Clark said this would not affect the new Rangers “as it is a completely separate entity”.

True, unless BDO challenge the sale as a gratuitous alienation. That process involves them contacting the purchaser and asking for more money, on the basis that there was a gratuitous alienation. When the purchaser responds by, politely, telling BDO to jump in the Clyde, the next step is for BDO to raise a court action against the purchaser.

This court action has three possible outcomes.

  • The court can agree that adequate consideration was paid, in which case BDO lose.
  • The court can decide that it was not paid, and order the buyer to pay additional sums to arrive at an adequate consideration.
  • If the buyer does not pay up, then the court can order return of the assets to the liquidator.

In most cases of this type, the buyer ends up paying the liquidator something to bring the case to an end. This might be a full value payment, or a “token” settlement, made without any admission of liability, to bring proceedings to an end.

Of course, when dealing with large sums as we are here, a “token” could still amount to millions of pounds!

Should BDO go down that road, it will not be to “punish” a football club. It will be purely to raise more funds for the creditors.

He added: “As administrators, our primary statutory function was to ensure Rangers continued as a business and this was achieved.

No. That is wrong. The primary purpose of administration is, in the interests of the creditors, to rescue the company as a going concern. That has not happened. The company is going to be liquidated.

“Secondly, we were tasked to secure a buyer for the club and this too was achieved.

The second purpose was to achieve a better result for creditors through administration than if there had been no administration, and the company had been liquidated.

D&P clearly feel that sale of all of the assets and business for £5.5 million was a good result for the creditors, even where Mr Green is now saying, as I understand him, that the assets are worth £80 million.

“We are delighted that plans for the revitalisation of Rangers are now continuing with the new owners’ intention to float the club on the AIM market.”

Good for him, although that is not part of his remit.

Mr Clark said the administration process had been “comparatively short” and had been handled by Duff and Phelps to “the highest professional standards”.

Agreed – the administration has taken eight months. It can take twelve before the administrators need to seek a court order extending it. However this has been an administration carried out under enormous public scrutiny. It has also been, as I pointed out above, four months since the assets were sold.

As far as the standards of the administration go, this is a matter for the court and the professional body to determine, not for D&P to decide on themselves.

It is also a pity that Mr Clark did not address the fact that the SPL has laid a disciplinary charge against Rangers for failure to co-operate with the SPL investigation, in a period when D&P were in charge. It seems to me to be, should that charge be upheld, proof that the standards exhibited were not high enough.

“We have co-operated fully with inquiries into our appointment by Lord Hodge at the Court of Session and the Insolvency Practitioners’ Association,” he added.

Is it important that, whilst he says they co-operated fully, he does not say that either the court of the IPA is satisfied?

I think it is. If they had been “cleared” the this would have been trumpeted from the rooftops by them as a vindication, and might even have formed the basis for an action for damages against the BBC which was promised and threatened after the second Mark Daly programme in the summer, but which has never, as far as I am aware, actually been raised.

 

Conclusion

It is not surprising that D&P leave the stage with a statement which is open to substantial questioning.

If the purpose of their appointment had been to save the football team, then they have succeeded marvellously on that score. However, that is not what the Insolvency Act states. Their duties are to the creditors.

Hindsight is perfect, and we are not blessed, or cursed, with the gift of seeing the future.

However, when D&P were appointed administrators in February, Rangers had nearly £4 million in the bank. Admittedly this was because Mr Whyte and Rangers had stopped paying VAT and PAYE, but the money was there and was used by D&P to run Rangers to the end of the season.

What would have happened if, on day one, they had decided that liquidation was inevitable, taking into account that Sir David Murray had tried unsuccessfully for years to sell the company, and had only managed to generate £1 by doing so, leaving the company worthless as a result of its debt burden?

D&P were also very aware of the financial position of the company, as they had been integral to Mr Whyte’s takeover and to subsequent discussions with HMRC.

If, after a week, D&P decided a liquidator should be appointed, then there would still have been most of the money left in the bank, together with all of the fixed assets.

The players registrations would have been valueless in a liquidation, and the “goodwill” too, but intellectual property rights, and the famous “history” could have been sold on.

The fixed assets alone were in the books at over £100 million and when revalued by D&P, this came to well over £4 million.

The liquidators would still have been in position to pursue anyone then that they can pursue now.

The £4 million trading loss incurred by D&P would not have taken place.

And, finally, the likelihood is that someone, maybe even Mr Green, could have bought the ground and intellectual property to set up an new team to start this season, even in SFL3.

As I said, hindsight is perfect, but from the very appointment as administrators there were observers saying that continuing to run the club in an effort to get to the end of the season was not best for the creditors. The absence in many of the D&P statements to any reference to the interests of the creditors suggested, maybe wrongly, that Messrs Clark and Whitehouse were enjoying the chance to play a real life game of Championship Manager! Unfortunately they were doing so with the creditors’ cash.

Does the above mean that I would have preferred the company to close with the job losses that would have occurred? No, of course not. I am well aware of the problems caused by businesses failing. However, the administrators did not emphasise that they were there to save the employees. Their stated goal was saving the football club and, laudable though that might be, that is not what the Insolvency Act imposes on them as their duty.

We will see if the court or the IPA or the liquidators take issue with D&P. I can say that I have spoken to nobody with experience of insolvency work who has ever known an administration to proceed as this one has. That does not make what D&P have done wrong, but when experienced insolvency practitioners and lawyers scratch their heads about how it has proceeded, it raise questions in the minds of simpler folk like me.

 

Posted by Paul McConville

 

 

 

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25 Comments

Filed under Administration, Insolvency Act 1986, Rangers

25 responses to “Duff and Phelps Prepare To Liquidate “Old Rangers” but Many Questions Remain

  1. mick

    great read paul and certianly a good summing up of d&ps time in charge over ibrokes and there dutys seem well questionable lets hope BDO forensically analysis there tenture ,if greens spouting 80mil now and floating shares am sure he wont mind handing some over to the creditors pot in the intrest of fairness ,over the last couple of days the cindars have been relit on the above topic and the pot is bubbleing nicely so it will be intresting to see what the final meal in it all will be lamb or porriage ,dont forget d&ps even have discrepencies in the accounts piegate ,BDO have a lot to deal with and it would be nice to here from Lord Hodge and his take on them its Gratuitous Alienation in my eyes no matter what happens its all failure to act appropriately on behalf of creditors and is not on

  2. Sir Nicholas Fairbairn

    Surely the only Admin in corporate history without a single redundancy -aside from Wiggy and Comical Ali

  3. blindsummit63

    “The £4 million trading loss incurred by D&P would not have taken place”
    This is another hugely puzzling aspect of this “administration”. That an administrator, brought in to stop the bleeding in an already insolvent company, could be allowed or even contemplate continuing to trade while insolvent is staggering. Can the court really conteplate just signing off on this? As a layman, I can’t understand how this is legal.

  4. lordmac

    hi Paul read on phil’s site if green was involved in february was he getting preferential treatment over other bidders, it was never mentioned that green consortium where on the go. Duff and Phelps
    would have been wrong, but then again it does look like Green@ Whyte
    where in cahoots.

  5. mcfc

    Sterling work Paul. Fascinating that D&P recommended themselves as liquidators – how convenient that would have been !

    In the same spirit I’d like to recommend myself as Heston’s food tester and Angelina’s lover.

    But if D&P were involved I’d probably end up as Angelia’s food tester . . . . . . .

  6. mick

    a little of topic but what about this comment on bets

    1 Since Oct 2011 did Wm Hill offer the best odds of all bookmakers for RFC to win the SPL and the worst odds for CFC to win the SPL?
    2 How much money in bets did Wm. Hill take on CFC and RFC to win the SPL between the date in Oct 2011 when Ralph Topping learned RFC were trading while insolvent and 14 Feb 2012 when RFC went into Administration?
    3 Would those bets have been be invalidated by Wm Hill if it had been public knowledge on 14 Feb that their CEO Ralph Topping had advance warning of an insolvency event? If so are all bets made to win the league since Oct 2011 now invalid?
    4 Were Ralph Toppings SPL actions since Administration influenced by the knowledge that Wm Hill were compromised by him knowing RFC were trading while insolvent in Oct 2011?
    5 Did Ralph Topping resign as Chairman of the SPL on legal advice from Wm Hill lawyers?
    6 Is it a criminal offence for the CEO of a leading bookmaker to lay bets on an event when he has inside information which would materially affect the outcome of that event?

  7. JimBhoy

    How does Green work out he has £17m pledged already was that like the RFFF who had close to £6m pledged at one point yet couldn’t see fit to use that to get a rangers minded backer to put forward a bid backed by those loyal bears… OR is this just Green plucking numbers out of the air, I am assuming he is not multiplying the amount of interest x (£)500, cos of that £17m, £15m will be pledges from Celtic fans taking the p!ss… 🙂

    It will be interesting to see rangers audited accounts early next year, I am intrigued to what extent the bonuses will be for those on the board. I cannot see Chico settle for £2-3m after the IPO and then to walk, not when there is more of this cashcow to be milked…I can see Chico and Amran scoop £3-4m between them each year.. PLUS other perks at a longterm price to rangers. Chico owns the history but I think all he could plan on selling the future of rangers now for his immediate benefit.

    It’s gonna be hand to mouth for a long time to come and in Chico’s best interest not to splash out on players, we will see rangers fans buying season tickets earlier each year because other than floating worthless shares that’s the main revenue stream, well that and having 5 new strips each season. The IPO gives them a stay of execution under the current incumbents and may see them through to the end of the season.

    On a purely footballing note it will be interesting to see what impact the tough 4th Division takes on the older players like McCulloch who doesn’t have the luxury of the big players around him and also the younger boys who will get it much tougher and rougher than in the bigger leagues, playing cup finals each week… I think Injuries will play a big part in ranger’s success this season, if nothing else it will give Chico and Ally an excuse should they fail to get promoted and they can then blame the SPL/SFL/Lawell/Petrie/Timmy/Declan/Phil/Paul/BBC/STV/Whyte/Murray/A.N Other….

    • Thomas

      50% pledges from bad bhoys, 20% drunk Sevco fans, 10% Sevco fans with no wife approval leaving 20% actual cash money=£800,000 best est. I may be way off though.

  8. John Burns

    First Class account, as always, Paul. What about Ticketus?

    The last I heard was that Ticketus were going to sue Whyte – surely if that were the case then, he (Whyte) would be expected to be ‘keeping his head down’

    However this latest interjection, via the interview with Chris McLaughlin, MUST be for a purpose – what do you think that could be?

    It seems to me that it is inconceivable that Ticketus are just going to take a £27 million loss ‘on the chin’. Last night Whyte again stressed that he did not receive a loan from Ticketus, rather it was that they bought future tickets – could this arrangement still be valid?

    Is Green really going to reveal all in the promised IPO, or is he playing for time for some other reason. Also, as you said, why state that only four months later the physical assets – i.e. Ibrox and Murray Park, were purchased for £1.5 million, are now worth £80 million – surely this would leave the door open for BDO to challenge the original sale.

    On the other hand, perhaps Green has been given the assurance that all that has gone before will not be challenged.

    And finally, what was ‘wee tartan Eck’s’ involvement and why on earth should he be ‘batting’ for a disgraced company who were alleged to have ‘duped’ the Treasury and umpteen Scottish companies out of £140 million?

  9. Martin

    Thanks Paul,

    interesting as ever.

  10. Dens Park

    Reblogged this on Dens Park and commented:
    In which Duff and Defer prepare to get their chips…

  11. mick

    heres a wee song for any dundeefans popping in to view the blog

  12. Violet Carson

    Well done again and well done to Ecojon for the other article. On the matter of the £17m being pledged, that might include the original £10m. The £80m valuation of the assets comes as no surprise, but it does conflict with the £50m on a bad day. Still, never mind. I am having date trouble. Imran didn’t join Zeus until May but was there in Feb. Have I got that wrong?

    Can the IPO really go ahead when Mr Green freely admits that the assets are worth £80m when he bought them for £5.5m At the very least the prospectus should warn potential investors that there may be a risk from BDO scrutiny.

    Finally, thanks to the contributor who sent the link to Saintee. It is a bit out of date, but it does give me something to work on. Who’s on TV tonight, I would welcome another chance to see that nice Mr Traynor. By the way, that nice Mr Whyte said that talk of him being a billionaire was hyperbole by the press. Did he issue clarifications at the time?

  13. Violet Carson

    Mick

    Please remove that DFC video. It is so bad I may be forced to watch it again and I try not to fill my brain up with too much rubbish – I wonder if the fans still sing it.

  14. ian lewis

    Just a query-

    Whyte said Duff & Phelps knew all about the way the Lloyds debt was funded.The rebuttal statement today said the ADMINISTRATORS strongly denied this.As the administrators are appointed as individuals rather that the firm is this a case of the well known midfieder semantics coming into play?

  15. Thomas

    Paul, feel like Im on an Open Uni’ course!
    Splendid.
    Did our man Whyte admit that SDM’s company mention Ticketus to him? Im sure he did.

  16. lordmac

    who would raise a action against Duff and Phelps, now that the share holders have agreed terms.

  17. On the question of gratuituous alienation, have you checked how what Green paid for the business, club and assets compare to what was paid in other footballing insolvencies?

    I’ve posted before about the standard practice in recent English footballing insolvencies of there being a sale of the assets, business etc from the oldco to the newco, with the oldco agreeing a CVA from the proceeds of this sale, and then either liquidating or dissolving. One of the examples I’ve given is Plymouth Argyle Football Club, which newco’d following insolvency in 2011.

    The oldco in Plymouth’s case was Plymouth Argyle Football Company Ltd (0110819), and the newco was Green Pilgrim Ltd (07796376), which subsequently changed its name to Plymouth Argyle Football Club Ltd.

    In Plymouth’s case, the price paid by the newco for the oldco’s assets was £2,251,000. (£2.25m for the ground, and £1,000 for stock fixture and fittings.) The newco also paid £100k towards the oldco’s trading costs during administration, and £300k for the exclusivity fee.

    Plymouth is the only one I’ve checked (it happened fairly recently – the final admin report is dated 3rd March 2012), but it does seem to me that a similar sort of argument about undervaluing of assets could be made in Plymouth’s case. Perhaps assets and business sales from insolvent football companies just don’t achieve the sort of prices we would imagine.

    Then again, the Plymouth oldco is due to be liquidated at HMRC’s insistance (yes, even though a CVA was agreed for the oldco), so that the company’s affairs in the run up to insolvency can be investigated. Perhaps HMRC’s nominated liquidators will be looking to void this sale too…

    • tykebhoy

      Plymouth has been in almost as much turmoil as Portsmouth but I doubt any balance sheet has valued the ground at more than £15-20m. Without access to Plymouth’s accounts it is difficult to confirm, but I am told that in the accounts to 31/5/09 the Fixed assets were on the balance sheet at £10m. Now even if that was Home Park alone that means the ground was sold at just under a quarter of its balance sheet value. Incidentally the ground was later sold to the council on a leaseback deal for only £1.6m.

      Compare and contrast with Ibrox which had a balance sheet valuation at over £100m in the last audited accounts, was sold for less than £5m but is now talked about being valued at £30-40m in the run up to the IPO..

      Yes an undervaluing argument may be made but certainly nothing like the scale of Ibrox.

  18. duplesis

    Yes, Plymouth assets were valued at around £12.4m in 2009 (around £19m if creditors and current assets are included), so the difference between the book valuation and the price achieved in the asset/business sale from the oldco is less then in RFC’s case.

    The point I was making though is that what can actually be achieved in an asset/business sale from an insolvent football company may be somewhat less than one might anticipate, and bears little relation to their book valuation – particularly where the heritable assets are concerned.

    The question of course is whether adequate consideration was paid, not whether the book value was reached.

  19. Marching on Together

    Paul

    You state that the goodwill of Rangers would have been valueless in a liquidation – that is simply not true. Good piece otherwise.

    You have posted on parallels in professional cycling before now – thought you light like to see this – http://www.cyclingnews.com/news/gazzetta-reveals-scale-of-doping-and-money-laundering-under-dr-ferrari

    The Gazzetta dello Sport in Italy has revealed details of amongst other things, dual contracts in professional cycling, with contracts for image rights for cyclist not registered with cycling’s governing body, the UCI. From the Cyclingnews report: “Many riders and team use a tax avoidance scheme on their image rights contracts to limit their exposure to tax. Gazzetta claim that Scimone and the riders worked with a company called T&F Sport Management in Monte Carlo to register image right contracts and avoid tax.”

    “The contracts are apparently not registered with the UCI and the riders pay just six percent tax and then are able to transfer the cash to Switzerland and use it for various activities, including paying Dr. Ferrari for his services. The Italian police have investigated if this has lead to money laundering.”

    The UCI will no doubt also be interested in the lack of registration of contracts with them, in the same way as the SFA have eventually been.

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