Gratuitous Alienation and RFC 2012 PLC – Some Clarification for Clarkeng

In response to my post re Gratuitous Alienation earlier this week, I noticed that Clarkeng made a few comments disagreeing with my thesis. I think that there may be crossed wires on our parts so I thought I would clarify my argument.

Some of Clarkeng’s comments are indented below, with my responses in bold beneath.

As far as BDO challenging D&P about the value achieved for the sale of the business and the assets I do not think you will hear anything further despite Paul’s suggestion.

To be exact BDO would NOT be challenging Duff & Phelps. Instead they would be “challenging” the purchaser, Sevco Scotland Ltd (now Rangers Football Club Ltd). An administrator acts as an agent for a company in administration, and the actions of the administrator are the actions, legally, of the company.

This is unlike liquidation where the actions are those of the liquidator, as the company is in no state to take any action itself.

As for time scales, if there is to be action by BDO regarding an apparent gratuitous alienation, then I would not expect it until near the end of this year, at the earliest. Liquidations take time, especially where there are as many complications as seem to exist in the case of RFC 2012 PLC.

 

Both are effectively officers of the court and it would require cast iron proof that corruption had occurred in the sale of the assets before any progress could be made on that route.

If BDO intended to pursue a case against Duff & Phelps then this would be problematic because of the immunity administrators have. But the gratuitous alienation action, should it be taken, is NOT against the administrators.

As I have tried to explain, but obviously not with sufficient clarity, there is no need for there to be any question of corruption or wrong-doing to allow a liquidator to make a challenge on the grounds of “gratuitous alienation”. All it requires is the liquidator to think it is worthwhile asking the purchaser of assets to explain why the purchase price paid was an “adequate consideration”.

And, as my previous posts on the topic have shown, it is NOT necessarily enough to say that the purchaser paid the best price offered. If so, that would open up the possibility of an administrator and a prospective purchaser agreeing to have a “low-ball” offer made and accepted, whilst at the same time rejecting on technical grounds any higher bid.

There is no suggestion that this happened at Rangers, nor should such an inference be taken, but that shows simply that there is a difference between the “best” purchase price paid and an “adequate consideration”.

 

Unfortunately in the business world situations like this occur every day and are perfectly legal.

Maybe, but surely the differential here, being so large, justifies this at least being looked at? And the argument is NOT that the asset sale was “illegal” but that the price was not “adequate”.

 

However I cannot find anywhere a successful application to invoke the powers of para 74 and maybe this suggests the courts do not wish to interfere with the conduct of an administration except in exceptional circumstances i.e. where criminal wrongdoing was clearly proved.

I am NOT suggesting that BDO would look to interfere with the course of the administration. After all, it is over. But it is not necessary to question the administration process to pursue the question of “gratuitous alienation”.

 

As I have tried to explain an administrator is an officer of the court and acts under protection of the law to the extent that the process is considered to be that of the court.

Correct. If BDO decided to sue Duff & Phelps alleging that the administrators had been negligent in its handling of the sale this could fall foul of the protection given to the administrators. However that is why administrators carry insurance.

If it was alleged that the administrators had been guilty of criminality or deliberate wrong-doing, then they would not have the court’s protection.

But there is no such suggestion here.

As I said this is one of the very few occasions where the law protects the “loser” of a deal from the effects of its “bad deal”. But this is only because the protection is given to the creditors who lose out, rather than to the company which erred.

 

The sale of the assets by the administrator or the liquidator may well be the subject of challenge by a member ( shareholder ) of the company or a creditor but provided they have acted within the scope of their appointed duties as case law shows this is a futile exercise.

Yes – if it was the action of the administrator that was being challenged. But the scenario I suggest is NOT such.

 

Administrators and liquidators cannot be charged with Gratuitous Alienation.

We are not talking about anyone being “charged”. As I said there is no need to establish any wrongdoing at all – it is simply a question of the purchaser of assets satisfying the liquidator that “adequate consideration “ was paid.

 

The crime committed would need to be something along the route of the administrator being involved in a conspiracy to defraud the creditors.

But I have made no suggestion of any criminality, so the above sentence is academic.

 

Just one final point worth noting – it is not the liquidators role to investigate the administration nor does he have the powers to object to it unless fraudulent activity has been proved.

The liquidator will investigate the role of the Directors to determine whether there is any malfeasance which needs to be dealt with and will collect in any remaining assets for distribution to the creditors.

The liquidator has a legal duty to look into all dealings pre-liquidation. That includes an administrator’s actions. All of the liquidator’s actions are intended (a) to see what return for creditors can be maximised and (b) whether there has been any activity, especially by directors, which has fallen foul of the law.

Pursuing an alleged gratuitous alienation is simply part of function (a).

Nor would the liquidator be “objecting” to the administration. It has happened. It is complete. BDO are not looking to “unravel” the administration.

I’m glad that at least on this point, Clarkeng and I agree!

 

The people who could have objected were the creditors e.g. HMRC but that time would seem to be past.

But this process would not be an “objection” to the sale. It is simply asking the purchaser to show that it paid “adequate consideration” for the assets. It is then up to the purchaser to do so, not for BDO to show it was inadequate.

There is no attempt to declare the sale void.

 

In this case the most beneficial situation is likely to be the monies which will be recovered from Collier Bristow and Craig Whyte.

And on this point too we will have to agree to disagree. There is a long post to write on the liquidator’s claims as mentioned above. Clarkeng is confident money will be recovered. I am far less so.

In any event, and in my view, BDO would be failing in their duty if they did not seriously consider the gratuitous alienation issue. They may decide, for perfectly legitimate reasons, not to do so, once they have considered all of the evidence and information which they have access to.

I should make clear, although some might call me naïve, that I do not believe that anything other than their legal duties and obligations will influence BDO’s decisions in this case. For all of the concerns by some that the Scottish “old boys’ network” will allow the issues to be swept under the carpet, I do not see HMRC accepting that.

BDO is a reputable firm of Insolvency Practitioners, amongst other things. It will not operate to prejudice creditors, especially HMRC, just on the basis of a handshake, or a shared interest in Rangers.

 

Yes I think Paul has made an error in his suggestion that an administrator can be pursued for Gratuitous Alienation. As regards the liquidators pursuing such a claim I am saying that yes they can pursue the Directors or Members of the Company in the event that this is alleged to have taken place but not the administrator.

They are both officers of the court and as I say unless the administrator is suspected of having committed a fraudulent transaction then case law seems to be fairly clear. The burden of proof by any claimant against an administrator is very high and under SIP16 or paras 74 or 88 the only practicable recourse available would have been to remove Duff and Phelps.

As I said there is no recorded case law of a successful action against an administrator under para 74 and the creditors have not contested the administration. There are instances of removal under para 88 but these are very few and far between.

As mentioned above, BDO would NOT be pursuing the administrators. Nor, in the case of a gratuitous alienation, would they pursue the Directors or Members of the company. (There are matters where it is competent to pursue the Directors, but those are for another day, and only a BDO investigation will determine if grounds for that exist here.)

 

I saw Paul’s reference to BDO pursuing this but cannot see where he gets it from unless he is assuming that SDM is guilty.

Sir David Murray has absolutely nothing to do with any issue of gratuitous alienation.

Put very simply the position, as I see it, is this.

RFC 2012 PLC owned assets. These assets were shown in the accounts in 2010 as worth in excess of £100 million.

The administrators sold the assets for £5.5 million.

The purchaser immediately revalued those assets to be worth near £60 million.

Was £5.5 million “adequate” for assets worth either over £100 million or around £60 million, and can the purchaser prove that it was.

 

Finally, to end this response, Iain chipped in. He said:-

They would get what someone thought it was worth. And if…like the last time that figure was the highest of several bids received then it would be safe to assume that that was the most it was worth.

As the authorities make clear, when deciding on the “adequacy” of the price paid, the facts of the sale process are relevant, but not conclusive. There can be questions about the open-ness of the process and, for example, in this case, a higher offer was made by Walter Smith’s consortium on the day of the sale. And there had been higher offers before which were ruled out for various reasons.

 

Conclusion

Will BDO pursue this? Maybe.

Will it be a quick process? Probably not. After all, to use an example, the liquidation of Craig Whyte’s Vital company took around 7 or 8 years to conclude, and the issues there were far less complex and the money far less than with RFC 2012 PLC.

Will BDO be swayed by outside factors, such as perceived love for any football team, or dislike of them? Of course not.

Will I keep banging on about this? Probably! 

🙂

 

Posted by Paul McConville

 

 

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293 Comments

Filed under Administration, Insolvency, Rangers

293 responses to “Gratuitous Alienation and RFC 2012 PLC – Some Clarification for Clarkeng

  1. mick

    see were all united in dance celtic and sevco aside dance and music unites the world

  2. Mat

    After the judicial efforts regarding odco, It takes a “big ” man to have faith in the scottish version of the law.

  3. mick

    carson do you agree there is room for a salsa t in the park type event in the uk a carnivial of salsa weekend lol what a buzz that would be oh a smached that dvd in a rage think of the finiancial doping

  4. JimBhoy

    so i haven’t really been paying attention recently probably owe Adam an apology for a red wine fuelled rant and mick is talking Salsa ffs… Good will to all on this site.. it is nothing but interesting in a lot of ways and Paolo is fekin great to be honest, apart from rabidrangershaters.com i read this site first..

    My big son for those who follow the wee amateur coaching bit i do, he has a swollen knee but I could not stop him captaining his team tomorrow.

    Good to see everyone nice to each other, had a wee cancerous episode recently in the family nothing too bad but it fuks me up, takes me back and puts things in context…

    Take care fellas and lassies. Did I say The Celts rock..!!!!! 🙂

    • Budweiser

      JimBhoy

      Glad to hear you say that jim! i had always thought that you were a decent poster and was disappointed by ‘those’ posts. Sorry to hear of your troubles.

    • mick

      hi jim soz to here about the family hope its working out well ,the kids now would crawl about the park rather than miss a game these days a wonder if it was the red ash pitches if they would still be same ?

    • Den

      Jimbhoy,

      Some stuff you posted was way out of character for you . Sorry about your problems, hope things resolve for you.

      Tell that boy that after the game he will have have to look after the knee for a few day. At that age they are so resilient that it should be okay but he needs to respect injury. All credit to him for insisting on playing.

  5. mick

    http://www.scotsman.com/sport/football/sfl-division-three/rangers-set-to-remain-bottom-tier-in-12-12-18-plan-1-2827772

    Rangers set to remain bottom tier in 12-12-18 plan

    There will be no fast-track return to the top under the new 12-12-18 plan. Picture: PA
    By STEPHEN HALLIDAY
    Published on Saturday 9 March 2013 00:00

    THE combined rule book for a proposed 12-12-18 league set-up in Scottish football next season has confirmed there will be no fast-track route for Rangers back to the top flight.

    The first draft of rules for the new body, which would incorporate all 42 current senior clubs and be called The Scottish Professional Football League, also reveals there will be no championship trophy up for grabs for clubs in the middle tier of the new structure.

    The initial copy of the combined rules document, which was distributed to clubs this week and is subject to revision, has been obtained by The Scotsman.

    It formalises the composition of the controversial set-up, devised by the board of the Scottish Premier League and backed by the senior management of the Scottish Football League and Scottish Football Association.

    The unified SPFL, which would see the clubs in one league body again for the first time since the SPL breakaway in 1998, is intended to be put in place for the start of next season. It will require an 11-1 vote in 
favour from the current SPL clubs and then 75 per cent backing from the 29 SFL clubs eligible to vote – Rangers are ineligible due to their status as associate members of the SFA following their liquidation – if it is to go ahead.

    The rule book states that the 12 clubs in the top division for the 2013-14 campaign will be the first 11 clubs in the current SPL and the champions of this season’s SFL First Division.

    The second division of 12 clubs next season will be made up of the club relegated from the current SPL, the eight clubs finishing from second to ninth place in the current First Division, the champions of the current Second Division and the winners of two play-off ties.

    The draft document states the club who finish second bottom of the current First Division would go into the play-offs, but that is a clerical error. Those play-off ties would therefore be between the club who finish bottom of the current First Division and the fourth-placed club in the Second Division; and the second and third-placed clubs in the Second Division.

    This season’s Third Division play-offs will not take place if the proposal is approved. The new 18-team third tier will be comprised of the losers of the two Second Division play-off ties, the bottom six clubs in the Second Division and all ten clubs in the Third Division. That means Rangers, as Third Division champions, will remain 
in the bottom tier of league football next season. Details of promotion and relegation in future seasons under 12-12-18 are also detailed. The top two divisions will split into three groups of eight clubs after 22 matches of the campaign. The top eight clubs will play each other twice more, home and away, to determine who are Scottish champions and who earn European places.

    The middle eight, or play-off eight as described in the document, will have their points reset to zero and play each other home and away. The top four clubs will be in the top division the following season, the bottom four in the second division.

    No trophy will be awarded to the club finishing top of the play-off eight, with the document declaring: “Given the split at Game 22 it is difficult to have a Div 2 champion”.

    The bottom two clubs in the third group of eight will be automatically relegated to the bottom tier of 18 clubs for the following season. The top two clubs in the bottom tier will be automatically promoted to the second tier of 12 clubs for the following season.

    this is amazing

    There will be a play-off competition involving the third and fourth bottom clubs in the third group of eight and the third, fourth, fifth and sixth-placed clubs in the bottom tier to determine two more relegation-promotion places.

    There will also be a pyramid play-off competition between the two clubs who finish at the bottom of the 18-club third tier and two candidate non-league clubs identified by the SFA from a national competition

    approved by the SPFL board.

    Under the combined rules, there would also be a standard 15-point penalty for any club which experiences an insolvency event. Ten points would be deducted immediately, with the further five-point deduction applied at a stage of the season when the SPFL board determined it would have the most meaningful impact.

  6. mick

    thats why charlie has been going on about england as he got sent acopy of new plans he has no vote in it all our thoughts of fasttrack are wrong if this pans out pmsl div 3 agian for them then lol

  7. Budweiser

    adam

    It wasn’t whyte or murray! it was rangers – not one or two – They at the time were rangers!
    http://www.dailyrecord.co.uk/sport/football/rangers-in-crisis-sfa-report-damns-877716

  8. mick

    this is the line in the sand if this gos throw its over bar the monitoring of sevco and oldco troubles still to be played out well done to all the bloggers and every1 that has tried for change a would say thank you to yous all for saving our national sport

  9. JamboCol1874

    Not sure apart from London Welsh weren’t punished with a points deduction for every game.

    However there should be a call for another review to every person involved in the registration process – wasn’t LNS view – deliberate non disclosure- at Rangers, SPL and SFA. Anyone with knowledge of the non disclosure should be banned for life from Scottish football.

  10. Budweiser

    Where’s carson? Why isn’t he crowing about the ‘mighty rangers? – Annan Athletic – bloody hell! pmsl. And at Ibrox! pmsl- lol!

  11. SairFecht

    Queen Elizabeth of Saxe-Coburg Gotha, Lex MacLean, Pastor Jack Glass, Andy Cameron, David Leggat, Prince Phillip of Scehwezzleberg-Holstein-Glucksburg-Leibfraumilch, Ian Paisley, Chris Graham, Broxy Bear, Adolf Hitler…you’re boys took a hell of a beating….

  12. Budweiser

    Radio commentator:- ” the best day in the history of Annan!”

  13. arb urns

    its really hard for the players to cope with these third division pitches. a really mean it a really do. a rangers spokesperson said

  14. arb urns

    or…. the young rangers team battled manfully against the vastly more experienced annan men who used all this experience to fashion a two goal lead early in the second half and thwart our gallant young lads who understandably ran out of steam in the closing stages……………

    clarkeng hurry up with this grat alien clarification btw.

  15. SairFecht

    Think there’ll be a fair few sickies for acute embarassment going in this Monday morning. Now the big question is ~ how many millions will need to be plundered from the war chest in order for Ally to achieve promotion from the 3rd tier 18 team division with the mighty Stenhousemuirs, Stranraers, East Fife, Albion Rovers, etc.? And is c.34,000 – albeit a hugely impressive crowd for a 3rd Div. match – the beginning of a downward trend in attendance figures? And unless Rangers can respond with a thumping victory at Boroughbriggs next Saturday, what chance for another 40,000+ in the following week’s mid-day televised encounter with Stirling Albion. Or will blood-lust for revenge over 1-0 defeats and 1-1 draws be sufficient to draw the masses from the woodwork. Or now that CG is crowing about sufficient funds being in place and the ship being tight, has the emergency factor that has helped swell Ibrox to capacity and near capacity this season finally guttered out? The saga groans on. Where are the boys on their fighter planes toninght?

  16. Den

    There is an understandable element of triumphalism after today’s result as much as there was about a £21m bank balance mid week.

    What it says in my opinion is that Rangers have a long way to go, a very long way. It needs strategic thinking allied with an acute cost consciousness, these qualities don’t sit well together.

    I think that Rangers need strong, steady, focused management that is prepared to defy the nutters and build on the sensible fan base that really will stick with them.

    As a Celtic fan I should hope they don’t, but I hope they come back, slowly of course.

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