In which I comment on:-
- the return to the fray of Craig Whyte,
- the confusing issue of whether Sevco Scotland Ltd (which was not a party to the sale agreement) or Sevco 5088 Ltd (which was) acquired the assets directly from Duff and Phelps,
- whether Mr Whyte’s challenge ought to have been mentioned as a “risk factor” in the Prospectus,
- whether Mr Whyte’s allegations might provoke BDO into further and more immediate action and
- whether his involvement, if established, bolsters or weakens any case of alleged “gratuitous alienation”.
Craig Whyte’s re-emergence on to the Ibrox scene has been met with the understandable and predictable reactions. He has already been demonised by much of the Rangers support, and his return welcomed with less acclaim than even the Black Death. He has also been greeted almost as a returning hero by non-Rangers fans.
It is fair to say that Mr Whyte’s contentions need to be taken with a certain amount of scepticism, although his collection of tape recordings seems to have the potential to provide corroboration for at least some of what he has had to say.
I should make it clear that this post is not assuming that either Mr Whyte or Mr Green is correct. That is a matter which might have to be decided elsewhere, although I would be happy to offer myself as a neutral arbiter, if required. J
Whilst the recent publicity has not, as far as I have seen, mentioned exactly when Mr Whyte made his demands upon Mr Green for a large sum of compensation or a share in the company, it is true to say that the continued involvement, in some form or other, of Mr Whyte has been rumoured almost since the day he left!
In addition his apparent close connections with Duff & Phelps, at least at the start of the administration process, make any continuing connection a serious danger for Mr Green’s plans.
Risk Factors In the Share Prospectus
I wondered if the RIFC Share Prospectus had identified any relevant risk factors associated with Mr Whyte’s alleged involvement.
I have extracted the relevant sections, as I see it, from the Prospectus and you will find them at the foot of this post. I will quote shorter extracts in the body of the post, so excuse the déjà vu by the end of the post!
First of all, as with many of these official documents, there are so many qualifications hedging what is said that it is very difficult ever to establish any material non-disclosures. As the Prospectus said:-
Additional risks and uncertainties not presently known to the Directors, or that the Board currently considers immaterial, may also adversely affect the business of the Rangers Group and/or the RFCL Group and the market price of the Ordinary Shares.
So, if a shareholder became concerned that there were risks not mentioned in the Prospectus which did damage the share price, and which had existed at the time of the float, their rights of action against the company or its advisers would be limited.
The Directors could state either that the risk was not known by them at the time, or that they were aware of it but considered it to be immaterial.
The latter presents some danger in relation to a flotation. After all, what the Board see as “immaterial” might have been very relevant to investors looking to pay millions of pounds for the shares!
This issue is framed within the date of Mr Whyte’s contentions becoming known by Mr Green. Did Mr Green think that Mr Whyte had abandoned any claim and, notwithstanding his being involved in defending a multi-million pound court action by Ticketus, had no financial interest in Rangers any more?
When did he include in his defence to the Ticketus action his continued claim to rights over Rangers?
In Scottish procedure, if a defender was alleging that they had rights against a third party which operated as a defence to a claim, then such would need to be intimated to the third party to allow them to respond.
As Mr Green has made clear, he views any claim by Mr Whyte as being “immaterial”.
Is there any merit in what of the claim has been publicised?
What About Sevco 5088 Ltd and Sevco Scotland Ltd?
Mr Whyte’s latest seems to revolve around potential involvement in Sevco 5088 Ltd, Mr Green’s original vehicle for the purchase.
At various times on this blog I have posted about the way in which Sevco 5088 Ltd was named by Duff and Phelps as the preferred bidder. However, once the smoke of the asset sale had cleared, then it transpired that Sevco Scotland Ltd had its hands on Rangers.
As I wrote back in June here, in discussing STV news’ revelation of the transfer of assets not to Sevco 5088 Ltd but to Sevco Scotland Ltd, and a subsequent statement from Rangers saying ““Yet again, ignorant and ill-informed journalism has caused alarm to Rangers supporters”:-
What could possibly cause people to be suspicious and indeed alarmed?
Let’s have a look at the CVA Proposal. Some extracts are below.
4.17 Following the extensive marketing of the Company and the extensive sale process, an offer was made by Sevco 5088 Limited (Sevco) to make a loan on certain terms (explained below) in conjunction with the purchase by Sevco of the Group Shares.
4.19 Consequently, on 12 May 2012, the Joint Administrators agreed and signed an offer letter with Sevco (the Offer Letter) and granted Sevco exclusivity to complete a takeover of the Company or a purchase of the Company‘s business and assets by 30 July 2012. Sevco made a payment of £200,000 to the Company for such exclusivity.
4.23 In the event that either this CVA is not approved, or the other Conditions of the loan are not satisfied or waived by 23 July 2012, Sevco is contractually obliged to purchase the business and assets of the Company for £5,500,000 by 30 July 2012. All further terms of that sale have been agreed in advance and are confidential.
(All emphases added)
That is clear then. D&P on behalf of Rangers had a contractual and binding agreement to sell the business and assets of Rangers to Sevco 5088 Ltd if the CVA failed.
On 18th May the Rangers website stated “CHARLES GREEN has revealed two of the names involved in the Sevco consortium taking over Rangers”.
On the same date, he was quoted saying “The contract was signed by Craig Whyte and witnessed by the lawyers and advisors. That contract between Craig Whyte and Sevco, the bid vehicle, is binding. The only way that the contract will terminate is in the event of the CVA not being approved. Mr Whyte’s transfer of shares to Sevco is conditional upon that but otherwise it is irrevocable.“
The CVA Proposal regarding the shares stated as follows:-
“4.22.4 Sevco acquiring the Group Shares (Sevco holds an irrevocable written undertaking from Group to sell the Group Shares to Sevco for £1, conditional upon approval by the creditors and members of the Company of a CVA);”
As we have seen Sevco = Sevco 5088 Ltd.
At the creditors’ meeting when the CVA was rejected, STV reported as follows:-
Charles Green, the club’s prospective owner, also told the meeting his newco entity, currently called Sevco 5088 Ltd, would be renamed The Rangers Football Club, which would be the club’s new trading name because of the death of Rangers Football Club plc.
Clark reiterated that Green’s group will definitely take control and there is no scope for a higher bid at this stage to be accepted. He added: “That is a done deal, it’s a contractual arrangement. We had a two-stage arrangement with Charles Green and, if for whatever reason, the CVA could not be concluded then the sale of the business assets agreement would be concluded, so it is a done deal.”
“As we have stated previously, there is a binding contract between ourselves as administrators and Charles Green, who is leading a consortium to acquire the Club. The creditors’ and shareholders’ meetings will take place at Ibrox on Thursday but the results of those meetings will now be entirely academic given HMRC’s decision.
“As soon as the CVA proposal is formally rejected, Mr Green’s consortium will move towards completion of an acquisition of the business and assets of The Rangers Football Club plc. That transaction will be completed within a few days.”
“As a result of that decision, which was known in advance of today’s meeting, the consortium led by Charles Green is obliged to buy the club’s business and assets and that transaction will be completed imminently.”
Prior to the meeting Mr Green said the following:- “Now that we will have to complete the purchase via the formation of a NewCo, the purchase price and therefore the amount available to creditors will be £5.5 million.”
On 17th June the Rangers website reported “The Sevco consortium headed by Charles Green completed the purchase of the club and its assets last week when HMRC refused to support an exit from administration through CVA.”
There was however a strange note in the report on the Creditors’ meeting. It stated:-
2.1 The following were present at the meetings of creditors:
- Paul Clark of Duff & Phelps Ltd. – Chairman and Joint Administrator
- David Whitehouse of Duff & Phelps Ltd. – Joint Administrator
- Charles Green – Sevco Scotland Limited
What was this Sevco Scotland Ltd?
In any event all the discussion was about the sale to Sevco 5088 Ltd.
So What Did Happen?
As the Sun reported on Friday:-
Whyte will argue that he and Aidan Earley were the moneymen behind the move. Green transferred the assets — including Murray Park and Ibrox — to new company Sevco Scotland just days after sealing the deal. Whyte claims the assets were transferred ILLEGALLY because Green did not have the permission of Sevco 5088’s backers — himself and Earley. Sevco Scotland Ltd later changed its name to The Rangers Football Club Ltd.
Whyte’s London-based lawyers will demand up to £50million to cover Ibrox stadium and Murray Park training ground. If Whyte is successful and Green does not stump up, the assets will return to the original Sevco — which includes him.
Mr Green’s representative on 27th June 2012 was quoted as saying:-
“For the avoidance of doubt, Sevco 5088 Limited bought the assets of the Rangers Football Club and then transferred them to Sevco Scotland Limited so that all the assets would be in the Scottish registered company that is Rangers FC.”
There is of course no “Scottish registered company that is Rangers FC.”
Sevco Scotland Ltd and Sevco 5088 Ltd were not related companies. One was not the subsidiary of the other. Apart from the name and the fact that Mr Green was a director of both, there was no legal connection between them.
Now it is perfectly legitimate for a person or company to buy property and to place it immediately in the name of another person or company. One would normally expect there to be some consideration, financial or otherwise, for this to take place.
If Sevco 5088 Ltd had exclusive rights to buy Rangers, as it did, then presumably Sevco Scotland Ltd should have paid 5088 something? If 5088 paid Duff and Phelps £5.5 million, did Sevco Scotland Ltd pay 5088 anything for the assets?
If Mr Whyte had an involvement in 5088, even if not officially recorded at the time, then one could see why an apparent transfer for nothing would upset him.
In normal circumstances the accounts of 5088 would show what happened.
However that company, which has only ever had one “active” director, Mr Green, has applied to be struck off the Register of Companies. If it is struck off, then there would be no obligation to produce accounts.
So we might never get to know precisely how, as between the two Sevcos, the finances of the deal were organised (unless a court is asked to decide).
How Does This Relate to the Risk Factors?
There are two areas where the Prospectus could be seen as warning obliquely about Mr Whyte’s claims.
The first is where it is stated:-
The risk of litigation arising as a result of the acquisition of the assets and business of the Club has been mitigated by the lapse of time since the acquisition was completed on the 14 June 2012 as the Directors consider that any material liabilities would have become known by now.
Now Mr Whyte’s apparent claim would be “litigation arising as a result of the acquisition of the assets and business of the Club”. Mr Whyte, if that is his gripe, would have five years from the wrongful act to pursue a claim. The lapse of 6 months from purchase to float might have satisfied the Directors, but in legal terms it is not very long, and it smacks of hubris to be suggesting that the passage of that amount of time was enough to remove the risk.
The second area where a possible challenge is touched on reads:-
RFCL purchased the assets and business of the Club from the administrators of RFC 2012 plc … Whilst the liabilities and creditors of RFC 2012 plc were excluded from the business and assets transferred to RFCL, there can be no certainty that there are no liabilities attached to the business or which may otherwise arise in relation to assets acquired by RFCL …
… Further uncertainty in relation to potential liabilities may arise from the appointment of the liquidators of RFC 2012 plc and the termination of the office of the administrators of RFC 2012 plc. The Directors consider that the risk of liabilities, other than as may be referred to in this document, has been mitigated by the competitive bidding process as a result of which RFCL acquired the assets and business under the APA, the terms of the APA itself which do not provide for RFCL to assume any liabilities and the fact that RFCL has acted in good faith as a bona fide purchaser on arms length terms.
Whilst RFCL cannot be certain that a liquidator or a creditor of RFC 2012 plc would not seek to try to establish grounds under the provisions of the Insolvency Act 1986 to challenge the acts of the administrators of RFC 2012 plc, the Directors consider that all necessary steps have been taken to ensure historic liabilities of RFC 2012 plc remain with RFC 2012 plc and that the APA is valid, binding and enforceable.
None of the above really covers Mr Whyte’s claim.
However his alleged involvement with Sevco 5088 Ltd might have a significant effect on any challenge brought by the liquidators, BDO, in respect of alleged gratuitous alienation. Regular readers will recognise that is a frequent subject for comment by me.
After all, if Mr Whyte had an active, although covert, role in Sevco 5088 Ltd, which was the preferred bidder and which was granted “exclusivity” for payment of a sum to which, it appears Mr Whyte may have contributed 25%, this blows a hole in the statement recorded above that RFCL (which is what Sevco Scotland Ltd became) “acted in good faith as a bona fide purchaser on arms length terms.”
Where Does The Issue Go From Here?
It will run and run, I suspect!
More specifically, there remains the prospect of the issues being aired in the English Ticketus case against Mr Whyte, or in Scotland should Mr Whyte pursue Mr Green and “Sevco” here.
All of this publicity would also be expected to cause some papers to be fluttering within the offices of BDO. Putting together a liquidation of an insolvent PLC is a time consuming process. Bearing in mind the records to be checked and the issues explored, a substantial liquidation can often take years to be resolved.
My prediction has always been that, by the end of 2013 or early 2014, BDO will have taken the plunge and, alleging a gratuitous alienation, will have asked Rangers for some money.
In light of all of the developments regarding Mr Whyte, I would not be surprised to see this quicken BDO’s pace, and the challenge might be brought earlier. After all, if Mr Whyte does challenge the alleged asset transfer from Sevco 5088 Ltd to Sevco Scotland, this will not prevent BDO pursuing a gratuitous alienation case, but it will cause additional complications, on the basis that it might not then be clear which “purchaser” is going to be at the sharp end of the demands!
Posted by Paul McConville
Extracted from the Rangers International Football Club PLC Share Prospectus
In addition to the other information presented in this document, the following risk factors should be carefully considered by Shareholders and prospective investors when deciding what action to take in relation to the Placing and Offer and before making a decision to invest in the Company and the Ordinary Shares. Additional risks and uncertainties not presently known to the Directors, or that the Board currently considers immaterial, may also adversely affect the business of the Rangers Group and/or the RFCL Group and the market price of the Ordinary Shares. If any of these risks materialise, the business, financial condition or results of future operations of the Rangers Group and/or the RFCL Group could be materially adversely affected. In that case, the trading price of the Ordinary Shares could decline and Shareholders may lose all or part of their investment. Before making any investment decision, Shareholders and prospective investors are advised to consult an appropriate independent advisor authorised under FSMA who specialises in advising upon investments.
A. Risks relating to the Company the Rangers Group and the RFCL Group;
Exposure to litigation
Given the high profile and complex environment in which the Rangers Group operates, many aspects of the Rangers Group’s and the RFCL Group’s businesses could be exposed to a risk of litigation or arbitration proceedings (such as matters involving player disputes and disciplinary action, football regulatory issues and operational arrangements with third parties). There is also uncertainty caused by RFC 2012 plc becoming insolvent and the manner in which RFCL acquired the assets and business of the Club pursuant to the APA, which is described in more detail in the risk factor below. Any litigation or arbitration proceedings which are brought against any member of the Rangers Group or the RFCL Group may have a material adverse effect on the Rangers Group’s or the RFCL Group’s business growth, prospects, sales, results of operations and/or financial condition. The Rangers Group’s and RFCL Group’s insurance may not necessarily cover any and all claims brought against the Rangers Group or the RFCL Group or liabilities in respect of any such claim. The risk of litigation arising as a result of the acquisition of the assets and business of the Club has been mitigated by the lapse of time since the acquisition was completed on the 14 June 2012 as the Directors consider that any material liabilities would have become known by now.
The business and assets of the Club were acquired by RFCL from the administrators of RFC 2012 plc
RFCL purchased the assets and business of the Club from the administrators of RFC 2012 plc and upon completion of the Acquisition, RFCL will become a wholly owned subsidiary of the Company. Whilst the liabilities and creditors of RFC 2012 plc were excluded from the business and assets transferred to RFCL, there can be no certainty that there are no liabilities attached to the business or which may otherwise arise in relation to assets acquired by RFCL (more specifically, whilst RFCL did not acquire liabilities or creditors pursuant to the APA, as a condition to the transfer of the Club’s SFA membership to RFCL, RFCL was required by the Scottish football authorities (SFA, SPL and SFL) to take responsibility for football creditors of RFC 2012 plc pursuant to the 5Way Agreement.
Three of these football creditors remain outstanding and the maximum amount payable by RFCL is approximately £1.7 million). Further uncertainty in relation to potential liabilities may arise from the appointment of the liquidators of RFC 2012 plc and the termination of the office of the administrators of RFC 2012 plc. The Directors consider that the risk of liabilities, other than as may be referred to in this document, has been mitigated by the competitive bidding process as a result of which RFCL acquired the assets and business under the APA, the terms of the APA itself which do not provide for RFCL to assume any liabilities and the fact that RFCL has acted in good faith as a bona fide purchaser on arms length terms. Whilst RFCL cannot be certain that a liquidator or a creditor of RFC 2012 plc would not seek to try to establish grounds under the provisions of the Insolvency Act 1986 to challenge the acts of the administrators of RFC 2012 plc, the Directors consider that all necessary steps have been taken to ensure historic liabilities of RFC 2012 plc remain with RFC 2012 plc and that the APA is valid, binding and enforceable. There remains a risk that any such claim against the RFCL Group or the Rangers Group by a creditor or the liquidator of RFC 2012 plc would result in management time and attention being diverted from the operation of the business.