In which I ponder –
- the mystery of what Mr Green is selling
- the likely structure of the sale
- how likely will Rangers fans be to buy shares in the company which owns the company which owns the football club
- the new Rangers owner having as bad luck with official forms as his predecessor, Mr Whyte
As we know, Rangers Football Club (and I use the term deliberately) is on the point of seeking to raise finds by an issue of shares. The Prospectus is eagerly awaited, and indeed might be almost as popular as the last Harry Potter book.
There has been extensive debate about precisely what fans and investors will be invited to “own”.
In the aftermath of the administration of Rangers Football Club PLC, which is now RFC 2012 PLC, the argument was put forward that the imminent liquidation of that company would not affect the football club itself. Instead, it was argued, the company was effectively a “holding company” although not as defined by the Companies Acts, and as such “held” the club in its metaphorical hands.
When the assets and business of the football club were sold by the administrators to Mr Green’s Sevco (and I deliberately leave the reference as Sevco) then it was seen that his company had bought the club, and its history, and that it continued – Then, Now and Forever.
This of course means that owning shares in the “holding company” is not owning shares in the club. The football club, not being a legal entity, cannot be directly owned. Instead it is “owned” by the company which controls the “assets and business” of the club and, in the same way as these were sold off by the administrators, the “Assets and business” of the club could be sold to another company or via a string of them.
This piece is not intended to look again at the debate on whether or not the club continues in such circumstances. That can be renewed another day, and probably will be. Instead, as I said I wanted to look at what the share offer relates to.
The website Rangersshareoffer.com talks about “Rangers Football Club” looking to sell shares. There is no mention I saw of either Sevco 5088 Ltd or Rangers Football Club Ltd. The latter company was originally Sevco Scotland Ltd.
Regular readers will know that the administrators announced that there was a binding agreement to sell the assets and business to Sevco 5088 Ltd, a company incorporated in Wales.
It is of note that the Registered Office has been changed to 35 Vine Street, London. That is the address of Field, Fisher, Waterhouse who have been acting for Mr Green and who, entirely coincidentally, have previously been involved acting as solicitors in connection with a business deal involving Craig Whyte and Aidan Earley. The change of Registered Office was made in May 2012.
Mr Green is the only recorded Director of that company.
It appeared though that Sevco 5088 Ltd did not acquire Rangers. Instead Sevco Scotland Ltd did so, presumably as nominee of Sevco 5088 Ltd. A Rangers spokesman stated previously that Mr Green wanted Rangers owned by a company registered in Scotland, as Sevco Scotland/Rangers Football Club Ltd is.
The application to the Register of Scotland to take title to Rangers’ fixed assets was in the name of Sevco Scotland Ltd.
That therefore seems simple – as Sevco Scotland Ltd, as it then was, now owns all the assets and business of Rangers, it is that company in which shares will be offered.
But is it?
The share offer site does not say that the shares to be offered are in the former Sevco Scotland Ltd. As it was that company which applied for, and ultimately received membership of the SFA and admission to the SFL, it would be unfortunate if now Mr Green suggested that it was not in fact the owner. In addition, as part of the “fit and proper” person test, Mr Green had to produce details of the ownership of the club/company to the SFA.
All of which leads me to my next point.
I previously confused myself thinking about the statement that, apparently, there are now 22 million shares in Rangers Football Club Ltd issued. The original company, when floated, had two shares issued. I was under the impression that the public records only needed to be updated at the time of the Annual Return. However, I was wrong.
Where a private limited company, as Rangers Football Club Ltd is, allots new shares, then this must be recorded in its register and more importantly notified to Companies House.
The relevant sections of the Companies Act 2006 are to be found here.
The ever-helpful Companies House guide to the Life of a Company, which I recommend highly, explains the process in plain English.
6. Allotment of shares
A company may increase its share capital by allotting additional shares. Shares are ‘issued’ when a person is registered as a member in the company’s register of members.
7. Authority to allot
‘Allotment’ is the process by which a person acquires an unconditional right to be issued with shares. Directors allot shares on the company’s behalf, but either the company’s articles or a resolution of the company needs to authorise them to do so.
(An exception to this is that a private company incorporated under the 2006 Companies Act, that will only have one class of shares following the allotment, does not need any prior authorisation from the company to allot shares unless there is a specific restriction in the articles. Private companies incorporated before this date will need to pass an ordinary resolution to qualify for this exemption, provided there is no specific restriction in their articles).
8. Payment for shares
Payment for shares in a private company can be in a variety of ways including cash, goods, services, property, good will, know-how, or even shares in another company.
Generally, people can pay for shares in a private company;
- wholly for cash;
- partly for cash and partly for a non-cash payment; or
- wholly for a non-cash payment.
Payment for shares in a public company must, in most instances, be for cash. However, if shares are allotted in a public company for a non- cash consideration, the consideration for the shares is subject to an independent valuation in most cases. You must send a copy of the individual valuation report to the proposed allottee for the share(s) and to Companies House when registering the Form SH01.
9. Notice of allotment
Within one month of the allotment of shares, a limited company must deliver a return of allotment, on Form SH01, to Companies House. You must complete a statement of capital as part of this form.
If you are a limited company and the person pays for the shares in cash, you must include in the return details of the actual amount paid or unpaid.
If the company allots shares fully or partly for a non-cash element, you must show the extent to which the company has treated the shares as paid-up on the Form SH01 and you must also include a brief description of the non-cash payment for the shares.
You can notify a series of allotments on the same Form SH01, but you must send the form to Companies House no later than one month after the date of the first allotment. If you do this, the statement of capital should reflect the company’s position following the ‘last’ allotment.
The company must notify the allotment of bonus shares to Companies House on Form SH01. It should show the amount paid on each share as ‘nil’ or ‘0.00’ and the shares as paid up ‘otherwise than in cash’.
Under Section 554 of the Act, a company must register an allotment of shares within two months of the allotment. Failure to do so constitutes a criminal offence by the company and every officer of the company who is in default.
Under Section 555, a company must report the allotment to Companies House on Form SH01. This must be within one month of the allotment. Failure to do so is a criminal offence by every officer of the company (Section 556). This form also discloses if the shares have been paid for, or if not in cash, what consideration has been given for them.
Neither Sevco 5088 Ltd nor Rangers Football Club Ltd are disclosed on the Companies House website as having had anything more than the initial shares to the subscribers allotted. On the basis of Mr Green’s public statements about investors, it would appear possible that there has been an oversight on someone’s part and, through inadvertence, the public record has not been kept up to date.
Of course there are lots of reasons why a person would not want it to be known what they had paid for their shares, or what consideration had been treated as equivalent to the value thereof. For example, Mr McCoist, said top have 1 million shares, may have paid for them in cash, or might have been allotted them in recognition of his performance as manager. However I have no doubt that delay in reporting the allotment is simply an oversight. After all, Mr Green and his fellow directors are all very busy people.
Until the allotment is registered therefore, there might still be some mystery about precisely which company is being floated.
I wrote before too about a resolution passed by Sevco 5088 Ltd in connection with pre-emption rights. Put very simply, the original subscribers to a company’s shares have the right to purchase shares on an allotment to prevent dilution of their shareholding, unless the company passes a resolution excluding those rights.
As I quoted in my earlier piece:-
The Act provides that a company proposing to allot shares may not allot them for cash to any person unless it has previously offered them on the same or more favourable terms to its existing shareholder.
These are known as pre-emption rights and are intended to protect shareholders from having their shareholdings diluted by the issue of more shares. These rights can be disapplied by the company provided it follows the correct procedure.
Sevco 5088 Ltd, the company which seems to have been left dangling, has had such a resolution passed.
There is no record of any such resolution in relation to Rangers Football Club Ltd.
We therefore have the following facts.
- It is unclear which company owns the assets and business of Rangers.
- It is unclear exactly who the shareholders are in the company which owns Rangers.
- It is unclear in which company Mr Green intends to sell shares.
- Neither Sevco 5088 Ltd nor Rangers Football Club Ltd has reported to the Registrar of Companies the allotment of more shares (22 million more!)
- Rangers Football Club Ltd has not passed a resolution Disapplying pre-emption rights.
- Sevco 5088 Ltd has done so.
- In the presentation to potential investors in May, Mr Green laid out a plan of having two companies involved in running the football club. There would be a PLC, and as a subsidiary of that, a “football company”.
- This structure is not uncommon and indeed is that presently in operation at Celtic. The shareholders invest in the PLC, one of whose assets is the limited company which operates the football club.
- This structure allows creativity in inter-company transactions.
- Mr Green has given no indication publicly of the structure of the company post-flotation.
All of the above leads me to deduce the structure of the planned flotation as follows (and I accept I may well be wrong).
Mr Green is floating Sevco 5088 Ltd, and not Rangers Football Club Ltd.
The disapplication of pre-emption rights prevents any difficulties with the allotment of shares vis-à-vis the original investors.
I would imagine that the plan would be for Sevco 5088 Ltd to change its name, perhaps at the same time as the float, to Rangers Football Club PLC. (The former company of that name, presently in administration, is now called RFC 2012 Ltd.)
Therefore we would have a structure where the PLC Board would have the Zeus Capital representatives on it, as was envisaged in May. Mr Stockbridge is and Mr Ahmad was on the football company Board as representatives of Zeus Capital. The presentation envisaged a non-executive director on the PLC Board from Zeus Capital, as well as the Chief Financial Officer, which is the role of Mr Stockbridge. The presentation suggested that the CFO would sit on both boards, as would Mr Green, as CEO.
There would then be the separate and distinct Rangers Football Club Ltd, owned by the PLC.
Such a structure would, for example, permit the fixed assets to be owned by the PLC and leased to the football company or structured in some other way which proved to be advantageous to the group in terms of tax liability.
Of course that means that the club could be sold out from under the PLC shareholders, although that is obviously an issue in any football club where we take the view that the club and the company owning it are separate and distinct.
One would imagine that, prior to floating, the company would have to ensure that all regulatory requirements had been complied with. In such a circumstance we should expect imminent notification to the Registrar of Companies of the allotment of 22 million shares. That will make clear exactly which company is being sold off.
How will the fans who are the main target market take the issue of the shares, if I am correct, in the company which owns the company which owns the football club?
We shall see.
Posted by Paul McConville