Martin Bain v Rangers – Settlement Agreed? All Friends Again?

News broke yesterday which rather surprised me.

“Martin Bain Drops damages action against Rangers” stated the BBC.

I wonder if the settlement of this case, as I discuss below, is a prelude to Mr Bain throwing his hat into the ring with one of the bidders, perhaps with the Blue Knights?

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Mr Bain’s statement, issued through his lawyers, Levy & McRae, included the following:-

“Everyone close to Rangers Football Club knows that I am, and always have been, totally committed to the club and that remains my position. As chief executive and part of the independent board, our job was to assess and highlight to all stakeholders if we believed there was uncertainty over the future financial viability of the club under new ownership.

“Unfortunately, the independent board had no legal power to block the transaction and Sir David Murray made it plain that he wanted to sell.

“I strongly recommended on more than one occasion that Craig Whyte should not be allowed to buy the club. Unfortunately that forceful representation was not accepted and when he took over I was suspended and my contract ripped up.

“With what has subsequently transpired, it is quite obvious why he disposed of me in the manner he did. I was further vilified in the press and continue to be subjected to endless rumours and attacks.

“I had no option but to pursue a claim based on Craig Whyte’s actions – the litigation was a response to his actions and not those of Rangers Football Club.

“I firmly believed it was important to make sure he would have to explain everything he did in a court of law.

“Because of the legal process it has not been possible or appropriate to make public comment, which has been extremely hard given the flow of misinformation and falsehoods both myself and the club had been subjected to.

“In light of the club’s current position I instructed my lawyers to advise the administrators that I am willing to discontinue the legal action. Subject to recovering the costs associated as a result of this action, I will give over to the administrators the remainder of the money that was arrested as part of my case in an effort to help the club.

“I always have done, and will continue to do, everything I can to help the club in these difficult times.”

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Rangers’ Administrators Want to Rescue the Club with a Share Issue – Why It Won’t Work

On Friday Lord Hodge issued his decision in the application by D&P for “Directions” in connection with their handling of the Rangers administration.

Put very simply (and with due respect to the 63 paragraphs of the decision), he decided:-

A             that any rights Ticketus hold in Ibrox Stadium, the season tickets for the stadium and the proceeds of future tickets sakes are personal contractual rights. This means that Ticketus can only enforce their agreement against Rangers Football Club PLC, and they would have no rights against any other party who acquired Ibrox Stadium for use as a football ground during the currency of the Ticketus agreement, which ends after season 2014-2015.

An excellent analysis of that aspect of the decision can be found here, and I commend it to my readers.

B             that he was not wiling, standing the information he had been given, to make any order or give any guidance to D&P permitting them to break the Ticketus contract with impunity.

 

D&P, as stated to the court, see two ways of achieving the purposes of administration. As you may recall, the primary goal is to rescue the company as a “going concern” which failing to achieve for the generality of creditors a better result through administration that through insolvent liquidation.

Their two ways of doing so are as follows: a share issue and sale of the majority stake in the company; or a sale of the assets of the business. In either case this would be accompanied by a CVA.

I will look at both in more detail now, with reference to the Ticketus scenario. (For fans of large thrillers, doesn’t “The Ticketus Scenario” sound like a Robert Ludlum title? I digress.)

 

The Share Issue Option

The Rangers Debt Situation

Rangers Football Club PLC is in a dreadful financial mess. It presently owes at least £9 million to HMRC in connection with unpaid taxes accruing since May 2011, as stated by counsel for D&P in the Court of Session. That figure may be as high as £15 million.

Rangers owe the Debenture holders who contributed some years ago to ground improvements around £8-9 million, the Debentures becoming due and payable upon the company entering administration.

Rangers owe HMRC in relation to the “Big Tax Case”. Whilst the case awaits a decision from the Tax Tribunal, HMRC cannot enforce payment, but they will move to do so as soon as they have a judgment. The determinations under appeal by Rangers date back to February 2008. The appeal was commenced in 2009. HMRC will have lodged a claim with D&P for the full sum it is seeking, together with interest and penalties. This liability was described by Craig Whyte as possibly running to £75 million!

Rangers’ Administration – Lord Hodge’s Decision re Ticketus – Part 1 – New Information

 

Yesterday Lord Hodge issued his decision in the application by D&P for “Directions” in connection with their handling of the Rangers administration – [2012] CSOH 55.

 

New or Extra Information from the Case

 

1                     Rangers Football Club PLC (Rangers) was and remains unable to pay its bills as they fall due.

 

2                     The application for the Administration Order referred to a £9 million liability to HMRC.

 

3                     The administrators (D&P) want either to rescue Rangers with a share issue, or to sell off the assets of the company, in either event with a CVA.

 

4                     D&P wanted the court to give them carte blanche to breach the Ticketus deal, without fear of legal action by Ticketus.

 

5                     D&P based their original sale prospectus on the Ticketus deal being void, but had to amend this to include the possibility of it staying in place.

 

6                     “Ticketus” is a combination of two Limited Liability Partnerships, Ticketus LLP and Ticketus 2 LLP, both consisting of a large number of companies under the Ticketus umbrella.

 

7                     The Ticketus agreement was with Rangers, not with Rangers FC Group Ltd (Group) or anyone else.

 

8                     The agreement was signed, and first payment of £20 million made, on 9th May, 3 days after the takeover.

 

9                     It was proposed that Rangers would lend Group £16 million.

 

10                 A second payment of £5 million was made six days after Martin Bain was granted a court order freezing sums in the Rangers accounts.

 

11                 Notwithstanding any other argument D&P have, they are trying to have the Ticketus deal declared unenforceable on “financial assistance” grounds.

 

I aim to discuss the new information revealed in this case below in more detail.

In later posts I want to explain some of the implications of the case for Rangers’ future and potential sale of the Club.

Finally, it is also the case that the decision could have serious consequences for the Scottish finance sector, which I will try to address. As always, I am happy to be educated and corrected by those wiser than me.

 

Do We Learn Anything New From The Decision?

Yes.

This case and Lord Hodge’s decision are the first public acknowledgement of many issues which have been causing confusion since the Rangers situation started to deteriorate.

The relevant, and in some cases, newly revealed facts are as follows:-

Rangers Insolvency

As we know D&P had to go back to the court on the basis that their original appointment by Rangers was defective, because of a failure to notify the FSA. When Mr Sellar (D&P’s QC) asked the court to grant an administration order backdated to 14^th February, this confirmed (a) that Rangers accepted that it had been insolvent as at 14^th February and (b) that D&P accepted that Rangers remained so on 19^th March when the retrospective administration was dealt with.

Mr Sellar referred the court to a debt of over £9 million to HMRC. That is assumed to relate to the unpaid VAT and Income Tax accrued by Rangers whilst under the control of Mr Whyte, or more correctly of his companies.

 

How Do D&P Aim to Get Rangers out of Administration?

D&P have come up with two alternative ways of achieving the purposes of administration. They are laid down in the Administration Rules. The primary purposes are, in order, to rescue Rangers as a going concern, which failing, to achieve a better result for the creditors as a whole than if it was wound up without first being in administration.

D&P have identified, and told the court, that they see two realistic options.

Option one is a “subscription of new shares in Rangers and a sale of the present majority shareholding combined with a Company Voluntary Arrangement (CVA) between Rangers and its creditors”.

The alternative is “a sale of the business and assets of Rangers, again combined with a CVA”.

I will come back to these later.

“Charity Begins At Home” – But Is the Rangers Charity Foundation in Breach of the Law?

The Rangers Charity Foundation (RCF), established in 2002, has since then a proud record of helping many charitable causes.

The charity’s own website details many of these admirable activities.

The Scottish Charity Register entry for the RCF records the object and purposes of the charity.

Its object is as follows:-

“The Trustees shall hold the Trust Fund and the income of it to pay and apply the same to or for the benefit of or in furtherance of such purposes, objects or institutions charitable in law and in such proportions and manner as the Trustees shall think fit. In exercising their discretion in terms of this Clause the Trustees shall give primary consideration to the wishes of those persons who gift or lend funds to the Foundation but this proviso shall impose no binding obligation on the Trustees.”

According to the RCF website, the Trustees are Craig Whyte, Martin Bain, John Greig and Jacqueline Gourlay. The website may not be up to date. Mr Bain is of course suing Rangers for breach of contract caused by Mr Whyte’s ill-guarded public comments. Mr Greig resigned as a Director of the football club, complaining about a lack of involvement and transparency. Any meetings of the Trustees might have had just a touch of an unpleasant atmosphere, although I am sure the professionals round the table would put personal differences aside for the goals of the charity.

These issues have not stopped the RCF continuing to support its purposes, which are, as recorded in the Register and on the RCF website:-

• Prevention or Relief of Poverty
• Advancement of Education
• Advancement of Health
• Advancement of Citizenship or Community Development
• Promotion of Equality and Diversity
• Relief of Those in Need By Reason of Age, Ill Health, Disability, Financial Hardship or Other Disadvantage

Over the last seven years, the RCF’s income has totalled in excess of £1.9 million, much of which has gone out to support a whole range of worthy and deserving projects, both in the local area surrounding Ibrox, and wider afield too.

As the RCF website records:-

“The Rangers Charity Foundation (Scottish Charity Number SC033287) exists to bring Club, supporters, staff and players together in a unique way to help make the world of difference to thousands of lives through a range of charitable work.  Being a champion of charitable giving is our goal, and since our creation in 2002 we have donated over £910,000 in cash awards and over £1,423,000 of in-kind support to hundreds of groups and individuals, making a combined total of over £2.3 million.”

For this season the RCF’s focus is as follows:-

“For Season 2011/12 the Rangers Charity Foundation worked with Community Partner Erskine, National Charity Partner The Prostate Cancer Charity and International Partner, UNICEF to deliver significant projects that provide a lasting legacy and make a real difference where support is needed most.   For the Foundation, working with each organisation to really understand and support their key aims and objectives is as important as fundraising and handing over a cheque at the end of the relationship.”

The Rangers Charity Foundation is a very good thing, which has done many good works.

Craig Whyte – The Notice of Appointment of Duff & Phelps – Could it be Invalid? + Other Questions

Since 13^th February, when Rangers lodged with the Court of Session their notice of intention to appoint an administrator, there has been a flurry of activity, often too much for a humble blogger to keep up with!

One thing I initially missed was the publication of the Notice of Appointment of the Administrators.

It can be found here.

The Administrators, Messrs Whitehouse and Clark from Duff and Phelps (and who I will refer to as “D&P” from now on) have now a part on the front page of the Rangers website linking to a page where formal notices, like this, can be found.

We know that Mr Whyte has an unfortunate history with official paperwork, as highlighted by his various different addresses, names and dates of birth in Companies House, for example.

There could be various pitfalls, some of which are as follows.

Have the statutory requirements in Schedule B1 been fulfilled?

Was the floating charge holder notified in time?

Did the floating charge holder consent?

Who is the floating charge holder?

Have there been valid board meetings to appoint the administrators?

How does the declaration of being unable to pay debts tie in with issues of “wrongful trading”?

What if D&P are not validly appointed?

Has Mr Whyte has his name and address correctly recorded?

What happens if the information given to D&P pre-appointment was wrong?

However, I am sure that all will be in order with this one – shall we look and see?

The Notice of Appointment by the Directors

What we are looking at is pages 2 and 3, being the “application form”. The relevant sections of the application are as noted below.

Paragraph 1 indicates that the appointment is by the “directors of the company” rather than by “the company”. Either the directors or the company can appoint an administrator under Schedule B1 of the Insolvency Act 1986.

Messrs Whitehouse and Clark of D&P are named as administrators.

Paragraph 5 states that the appointment is in accordance with the rules of Schedule B1.

Paragraph 9 states that the appointor has given “at least five business days’ written notice of the intention to appoint…and that a copy of that notice was lodged in the Court of Session on 13 February 2012”.

Paragraph 10 states “I(e)Craig Thomas Whyte of 4 Bedford Row, London WC1R 4DF director, for and on behalf of the directors of the Company do solemnly and sincerely declare that – (i) the information provided in this notice; and (ii) the statement made and information given in the notice of intention to appoint, are, and remain, to the best of my knowledge and belief, true.”

The whole notice is stated to be made “conscientiously believing the same to be true and by virtue of the provisions of the Statutory Declarations Act 1835.”

Finally the declaration is made by Mr Whyte on 14^th February, and was lodged at the court at 14.45 that day.

Where Might There Be Problems?

I have detailed the full requirements at the bottom of the article regarding Schedule B1 but, read short, they are as follows.

Schedule B1 Requirements

A company or the directors can appoint an administrator if there is no winding up or administration petition pending; there is no administrative receiver in place; and at least five business days’ written notice has been given to any floating charge holder.

In addition, a notice of intention to appoint and administrator needs to be lodged with the court along with a sworn declaration that the company cannot pay its debts, or is unlikely to be able to do so.

The appointment cannot be granted unless the five business day’s notice is given, or the floating charge holder has consented in writing.

The “appointor” must lodge with a court a sworn declaration that the facts as in the earlier notice remain the same as at time of application.

Notice to the Floating Charge Holder

Therefore, to be valid, Rangers must have given written notice to the floating charge holder of the intention to appoint an administrator by Monday 6^th February at the latest, or else the floating charge holder was prevailed upon to provide consent to the appointment within the five day period.

As there seems to be some public mystery about who holds the benefit of the floating charge, it should be simple to ascertain this.

The administrators must know on whom notice was served, and if within the five days, who consented to the appointment. Was it Rangers FC Group Ltd? Was it Ticketus? Was it Liberty Capital Ltd?

Maybe someone could ask D&P for confirmation.

Presumably the floating charge holder is not a body independent of Mr Whyte, as it is likely that, in those circumstances, it would seek to appoint its own administrator, or else, due to this being a pre-2003 floating charge, its own receiver.

As one of the duties of an administrator is, in the absence of a rescue as a going concern or settlement of all the debts, is to satisfy the security holder, then there would be much less to lose should the floating charge holder be linked to Mr Whyte.