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.
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.
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