Will Craig Whyte and Other Directors of Rangers Face Disqualification for £14,000,000 Unpaid Tax?

In which I comment on the Directors of Rangers Football Club PLC over the last year, and in light of a recent case decided by Lord Hodge, have a look to see if any of them might be at risk of disqualification for the non-payment of PAYE, NIC and VAT.

————————————

One of the consequences of the decision of HMRC, of which I will write elsewhere, is that the liquidators, BDO, will be obliged to carry out a formal inquiry into the circumstances of the insolvency of Rangers Football Club PLC. This includes the actions of present and past directors and can lead to various possible outcomes. These are not mutually exclusive.

There can be criminal prosecutions of office holders, if there is evidence of criminal conduct (not an allegation which has yet been made by any official body); the parties investigated can be pursued in the civil courts for losses caused to the now insolvent company, where they have failed in their legal duties; and the Secretary of State for Business Innovation and Skills can initiate proceedings to disqualify the directors from holding such positions. Section 6 of the Company Directors Disqualification Act 1986 applies here, and is shown at the foot of this article.

It is also the case that shareholders of an insolvent company can, in certain circumstances, bring civil proceedings for damages against officers of the company, alleging that breach of duty has caused them losses. On the basis tough that shares in Rangers were seen as financially worthless when Mr Whyte took over the company last year, it is hard to see how even a shareholder like Mr King, owning 10% of the shares, can claim to have suffered a loss.

Advertisement

Craig Whyte, Gold Dealer + LeaveBritain.com or “The Tale of a Suave Bullionaire”

I must thank, as I start, the extraordinarily diligent Billybhoy68 for his fantastic and thorough research on this and the following piece. The raw material and much of the analysis is down to him – I have merely inserted some extra verbiage in what is, at the very least, a very ironic tale, and at worst, could be …. Well, who knows!

Mr Whyte, as we all now know, was disqualified for seven years in 2000 from being a company director in the UK. The Sunday Herald yesterday raised questions about his company, Liberty Capital Ltd, registered in the British Virgin Islands, doing business in the UK during that period. Even though that is perfectly legal, it does seem to raise questions about the efficacy of the company disqualification laws, where they could be circumvented by means of an offshore company (although it is not suggested that Mr Whyte indulged in any such doubtfully legal behaviour).

Billybhoy68 was also intrigued by this period in Mr Whyte’s life. Did Mr Whyte, he wondered, devote all his time and energy to running his BVI operations from his home in the playground of the rich and famous in Monaco?

The detective work which follows is worthy of Sherlock at his very best!

LeaveBritain.com

We start with the above domain which was registered on 15^th April 2004. It is an interesting and either a nostalgic or precient domain name, to say the least.

It becomes more so when we see, as shown below, the email address of the “Administrative contact”. (If, like me, the eyesight is not as good as it was, click on each image to enlarge.)

That is a Mr David Smith, whose email address is given as ctw@libertycapital.biz. Now, do we know of anyone with the initials CTW and a connection with a company called Liberty Capital? Yes, I think we do!

Sadly “David Smith” is such a common name that we have not been able to locate him. It would be wrong to make any accusation that this was a name created by Mr Whyte for the occasion. It is almost certainly one of his hapless admin staff who, as we know, are dreadful at keeping track of the official paperwork. Mr Whyte would therefore be quite justified in making sure that his underling’s email went to him personally.

You will also notice the phone number listed under the Florida address “3054338101”.

That leads us on to the next part of the story.

Rangers and Administration – How Likely is a CVA to be Approved? Nae Chance!

Following the announcement today that Rangers Football Club PLC has filed a notice of intent to enter administration, there is a lot to digest.

According to the Q & A posted on the official website, the “escape route” is via a CVA or Company Voluntary Arrangement.

The official statement from Rangers indicated that a Company Voluntary Arrangement would be proposed to the creditors. This is an offer to pay the creditors an agreed proportion of the sums owed to them, in full settlement of the debt.

For example, a company with unsecured debts of £50 million, and funds of £5 million, might offer creditors 10p in the pound. If accepted, the remaining debt is cleared, and the company continues, debt free.

Rangers however appear to have one major problem with a CVA – HMRC.

The outcome of Rangers’ appeal against a determination that they should pay around £35 million in unpaid tax and interest is awaited. With penalties on top, this amount could well exceed £50 million, as acknowledged by the official statement from Ibrox today.

If 75% of unsecured creditors vote to approve a CVA then it is put in place, even if there is implacable opposition from the other 25%. This “vote” is based on the amount of the debt owed. Therefore, in our example above, a creditor owed £20 million would have 40% of the votes.

Rangers’ up to date financial position is not known. Its accounts up to year-end 30^th June 2011 are long overdue, as is the AGM for shareholders to quiz Mr Whyte. However, taking Rangers’ statement that the HMRC debt may be in excess of £50 million, this suggests that the total amount of unsecured debt would need to exceed £200 million before a HMRC refusal to agree could be negated. Whilst, with the Ticketus deal etc, there might be a substantial sum due by Rangers to its creditors, it would be remarkable, and a scandal, if the debt was so high.

The history of HMRC agreeing to CVA’s in football clubs is not positive. Indeed HMRC fought tooth and nail to overturn the Portsmouth FC CVA. However, none of the grounds which allowed the administrator to move forward with a CVA there exist with Rangers.

The Rangers approach is detailed as follows:-

“f it is decided to go ahead with the application to appoint administrators, an administrator will be appointed who is likely to instigate a review and cost-cutting programme across all departments of the Club. The Club has engaged Duff and Phelps, a specialist restructuring practice, to assist in finding a solution to the present position. In the meantime, and in accordance with advice, it has been decided to seek the protection of a moratorium from HMRC action while a Company Voluntary Arrangement (CVA) proposal is made to creditors. This, if approved by creditors within a month, would minimise any points deduction and allow the Club to participate in European football.”

Mr Whyte’s own statement includes the masterplan as regards HMRC:-

“If HMRC were to agree, even at this late stage, a manageable agreement with the Club, then a formal insolvency procedure could yet be averted. It goes without saying that would be our preferred outcome.”

Is there any guidance about how HMRC might approach a CVA application, and whether or not it might agree to it?

Helpfully there is!

In November 2011 HMRC issued the fact sheet accessible on this link.

Here are some edited highlights. The reader can judge as we go along how likely HMRC is to go along with a Rangers CVA.

 

“We consider voluntary arrangements on an individual basis, and will vote to support proposals where:

• debtors are honest in their financial disclosure
• an optimised and achievable offer is made to creditors
• provision is made for payment of all future debts on time
• they treat all creditors within the same class equally
• there are no exceptional reasons for rejection.

 

However, we will not support debtors (individual or corporate) who do not allay our concerns about their proposals.”

Have there been any questions about Rangers or Mr Whyte being “honest in their financial disclosure”?

Is provision being made for all future tax debts to be paid on time, against a backcloth of rumoured arrears of VAT in connection with Ticketus, VAT generally and PAYE?

 

“We depend on you to deliver the most appropriate solution and confirm to creditors:

• the debtor’s true position with regard to assets and liabilities
• that the open market value of assets is not materially different from the proposal
• that values being placed upon liabilities are not materially different from the proposal
• that the proposal has a real prospect of working.”

 

How easy is it for Mr Whyte to deliver the true position of assets and liabilities? In the long lost to history case of Vital UK, for which Mr Whyte received his 7 year director’s ban, the company claimed to have over £650,000 of bills due to it, but this turned out to be far less, assets allegedly having been removed from the company to the detriment of creditors. The biggest creditor of Vital UK was HMRC. The taxman has a long memory.

What “open market” value will be placed on Ibrox or Murray Park? Can the stadium be sold and leased back? Who would be willing to buy it? Perhaps as an investment, with a football team guaranteed to be playing there, some body with millions of pounds could buy it and rent it back for a multi million rental?

As regards liabilities, HMRC will want to see their position recognised to the fullest, and not “written down” by Rangers to fix the figures.

So far, it is not looking good, I think. Lets see if things improve.

 

“We will not support a commercial offer unless there is full and honest financial disclosure. As a minimum we expect to see:

• a detailed business cash flow forecast and a projection for at least the first 12 months of the proposed arrangement
• reliable or professional valuations
• a statement of business assets and liabilities (including all taxes)
• that all previously overdue tax returns have been submitted
•  full reasons for past nonpayment of tax and clear explanation of changes made to enable payment of post approval Crown liabilities as well as VA contributions.

 

If we do not have the above information it is likely that we will decide to vote against the proposal. If the information is later received we cannot guarantee to revisit the original decision.”

 

Will all overdue tax returns be submitted? The full PAYE returns are what will make it clear how much is still owing, if any. The same applies with VAT returns. The £5 million VAT which Mr Whyte denied was owed in connection with the Ticketus “sale” would also need to be accounted for and admitted as due.

The “full reasons for non-payment” would be a very interesting document to read.

HMRC are not happy to be told that the money was used for other things. As far as PAYE and VAT goes, it is HMRC’s view that that is not the company’s money. There is little or no excise therefore for a company not paying these liabilities, and using the funds for other purposes.

For example, HMRC might not look kindly on Rangers signing a new player to a £7,500 per week contract, when pleading poverty and seeking the protection of a CVA.

 

“We are also likely to reject a voluntary arrangement where there is evidence of:

• evasion of statutory liabilities or past association with contrived insolvency
• payment of other creditors whilst withholding sums due to the Crown.
• any proposal that requires sale of HMRC debt or does not provide cash dividends
• failure to meet any obligations under a prior voluntary arrangement
• exclusion of creditors who are entitled to receive the same treatment as all others within their class
• a purchaser assuming responsibility for payment of some of the debtor’s debts in consideration for the purchase of the debtor’s assets
• any proposal by any member of any organisation that requires debts owed to its members, to be paid in full, whether inside or outside of the arrangement or before or after the completion of the arrangement when all other unsecured creditors will become bound to accept a compromise of their debt. Here ‘members’ includes any prescribed associate(s) or other creditor(s) specified by the organisation.”

 

The first line here might pose a problem. “Evasion of statutory liabilities or past association with contrived insolvency”. If Duff and Phelps can manage to persuade HMRC that Mr Whyte, with his history of disqualification, insolvency, unpaid taxes, and persistent failure to abide by statutory requirements regarding his companies, is not so bad as to justify refusal of the CVA, then they will be worth to him whatever fee they are charging (and which one assumes they have been paid up front).

 

If there has been the rumoured failures to pay the sums due for VAT and PAYE, then this will trigger the second paragraph too. What has Mr Whyte been spending Rangers’ money on, if not the tax bills?

 

The final paragraph mentioned is unlikely to be relevant here, but it is the HMRC embodiment of how it intends top deal with the “football creditors rule”. It does not apply in Scotland anyway, and as we know there is an ongoing court case where HMRC seek to have it rules ineffective.

 

Taking all the above into account, how likely is it that HMRC will approve a CVA for Rangers?

 

Put it this way, there is more chance of me winning the Olympic 100 metres than there is of HMRC going for this.

 

Some Rangers fans seem to be banking on the likelihood that a CVA might lead to HMRC getting more than in a liquidation. However, the “moral hazard” argument would prevent HMRC, even if it wanted to, from signing up to a “cosy deal” with Rangers. Otherwise any company in financial trouble would be able to bounce HMRC into accepting less tax than was due.

 

Therefore a CVA appears to be a forlorn hope for the Rangers board (consisting as it is of only Mr Whyte and Mr Ellis).

If the CVA fails, then Rangers would be headed at full speed towards liquidation, which I will address in a later post.

Craig Whyte or is it Craig White and Pelcroft Ltd – Yes, Another Clerical Error in the Official Records

 

 

According to the BBC website, Vital UK Ltd, the company which led to Mr Whyte getting a 7 year disqualification, transferred assets to keep them out of the hands of creditors. These assets went to Pelcroft Ltd.

As per Companies House, the details are as follows:-

 

Name & Registered Office:
PELCROFT LIMITED
11 TABER GROVE
WIMBLEDON
LONDON
SW19 4EB
Company No. 02994144

Status: Dissolved
Date of Incorporation: 24/11/1994

Country of Origin: United Kingdom

Case Number: 1 (of 1 cases)

Case Type: Compulsory Liquidation

Order to Wind Up: 05/02/1997

Petition Date: 14/11/1996

 

Mr Brendan Earley, a name familiar to readers of my blog, was Company Secretary at one time. There is a familiar name as a director too – Craig WHITE born January 1969!!!

He was a director there from 30^th November 1994 to 1^st November 1995, conveniently just around the time Vital UK Ltd bit the dust.

From my own look at Companies House, we have had Craig Thomas Whyte, born January 1969, Craig Thomas Whyte, born January 1971, Craig Thomas White, born January 1971 and now Craig White, born January 1969.

Mr Whyte, in the Tixway case, told the court that he could not recall the reason for his disqualification without paperwork in front of him.

Perhaps he should have his birth certificate in front of him whenever filling out Companies House documentation, as there seem to be numerous mix ups.

Craig Whyte and Vital UK Ltd – The BBC About to Jog his Memory regarding his Disqualification?

Newsnight Scotland on 6^th February 2012 will show more about Mr Whyte, unless his lawyers manage to stop the programme.

The programme will include a piece by Mark Daly, whose Inside Story in October brought threats of immediate court action upon the BBC from Mr Whyte (although no action has yet been raised.)

According to the BBC website, they have obtained a transcript of the judgement by which Mr Whyte was banned for seven years from holding a post as a company director.

This has been unobtainable up to now, although it is believed that it was being sought by lawyers acting for One Stop Roofing Supplies in its case against Tixway UK Ltd, a company where Mr Whyte is the sole director.

The BBC report quotes an exchange between Mr Whyte and the QC for One Stop, Alastair Clark.

“In court, he said: “This is going back to matters some time ago. I don’t have any recollection of what it was about just now.”

He was then asked: “You can’t remember why you were banned for seven years?”

Mr Whyte replied: “Well, I’m not going to say in open court and get it wrong.”

The Rangers owner was then asked: “Was it anything to do with the treatment of creditors?”

He replied: “No.”

The decision of Registrar John Simmonds regarding the disqualification was handed down on 13 June 2000.

In it, Registrar Simmonds is stated as having said “the assets of the company (Vital UK) were put out of the reach of the creditors on a somewhat dubious delayed basis”.

The ruling continued: “Shortly after that Mr Whyte put the company into a members’ liquidation disclosing promissory notes as an asset. This seems to me to be a self-seeking action with regard to the company. If this is too harsh, then the degree of recklessness shows Mr Whyte to be thoroughly unfit to be a director.”

Registrar Simmonds’ ruling concluded: “I have heard mitigation from Mr Whyte’s counsel that he is a young man and that some voluntary recompense has been made. There is nothing that I have heard that the self-seeking behaviour and deliberately placing of assets beyond the liquidators that would not make this a middle bracket case and I consider seven years the correct order and I so order.”

I have been trying to get to the bottom of this issue, and have been hugely helped by BillyBhoy68, but alas, we do not have the resources of the BBC.

It is interesting though to look at the paperwork I have been able to find regarding Vital UK Ltd.

I wrote about it here in December. As I wrote then and I apologise for quoting myself extensively:-

Vital UK Limited was incorporated on 15^th April 1994 as Vital (UK) Ltd. The name changed to Vital UK Ltd (the brackets having been removed) on 31^st August 1994.

On 27^th October 1995, the company passed a special resolution (Vital Spec Res) resolving that it should be wound up. The resolution was signed by a “David Anderson”. This was a voluntary liquidation by the members of the company, and as such a Declaration of Solvency (a Form 4.70) had to be completed. The Declaration must:-

• be based on a full inquiry into the company’s affairs;
• state that all debts and interest can be paid within 12 months;
• include an up-to-date statement of the company’s assets and liabilities; and
• be made by the majority of directors of a company no more than five weeks before the passing of a resolution for voluntary winding-up of a company.

It is a criminal offence to make a declaration of solvency without reasonable grounds.

I have not been able to access the Declaration of Solvency. (But now see below!)

The liquidator was appointed with immediate effect and the relevant papers were received at Companies House on the 2^nd November 1995.

The London Gazette of 7^th November 1995 reported the appointment of the liquidator. The company was described as a “Dealer in all goods”. The same edition of the Gazette also reported the passing of the Special Resolution.

Vital UK Ltd (in liquidation) then lingered on for far longer than it had existed as a solvent company. The liquidation continued until, finally, the Company was dissolved in 2003.

The liquidator prepared a statement of affairs (Vital Statement of Affairs) detailing the financial position of the company as at 25^th October 1996 and produced the statement on 6^th November 1996. The liquidator noted that the company would not, despite the terms of the Declaration of Solvency, pay its debts within the required period of one year (which was by this point about to expire).

This disclosed the following:-

The only assets were Bills Receivable with a Book Value of £649,139 but an estimated sum recoverable of only £100,000.

The preferential creditors were as follows; VAT £33,039; PAYE + NIC £279,976.

The estimated trade creditors totalled £66,674.

There was £2 of issued share capital and therefore an estimated shortfall for members of £279,691.

Listed in the creditors is a balance of £40,042 owed to Custom Cleaning Services of Wishart Street in Glasgow. A quick search of Companies House shows that “Custom Cleaning Services Ltd” changed its name in 1996 to CCS 1996 Ltd. This company was wound up in 1998. Amongst its directors were David Anderson, who had signed the Special Resolution to wind up Vital UK Ltd, Craig Whyte and Kenneth McLeod.

Vital UK Ltd had a liquidator appointed on the basis that it could pay its debts. The directors, or at least a majority thereof, put their names to the Declaration of Solvency.

However, once the liquidator discovered that less than one sixth of the bills receivable were likely to be recovered, this made it clear that the debts would not be paid. At that stage the tax man was a preferential creditor, but even he was not getting anything near what he was due.

In fact, bearing in mind the length of the liquidation (and subject to looking at the liquidator’s income and expenditure accounts) I suspect the tax man got back little or nothing. The cost of a liquidation running nearly 7 years would be enormous normally.

On the information available therefore the issues seem to be (a) was the Declaration of Insolvency filled in falsely and (b) why were the bills receivable in the books so far above what the liquidator thought could be recovered.

One wonders too how a cleaning business based in Glasgow came to be owed £40,000 by a company based in Essex. Could there have been an issue here which brought the attention of the Insolvency Service to bear?

—————————-

To bring matters up to speed, I now have a copy of the Declaration of Solvency (thanks BillyBhoy68!)

You can see it here – VitalDeclaration.

It is completed only by the same Mr Anderson who signed the Special Resolution.

Page 3 of the form lists the Company’s assets and liabilities. Interestingly, though I am sure just a clerical error, the declaration states that a statement of affairs up to 31^st August, being the latest date practicable, is attached. The statement of affairs is dated 23^rd October.

The Company seems to have had little variety of material available to it. The only asset listed is £649,139 of “Bills Receivable”. There are no other assets of any kind listed. This perhaps is what Registrar Simmonds is referring to when he talks about assets being pout out of reach. The only liabilities disclosed are Bills Payable of £56,266 and “Other Liabilities” of £537,503, leaving a surplus of £55,410.

As I detailed above, the recovery from the surprisingly precise figure of “Bills Receivable” was far less, and, according to the BBC, involved the liquidator pursuing “Pelcroft”, stated to be another of Mr Whyte’s companies. (Which is the subject of my next post).

We shall see what the BBC has to add to this – the judgment of the Court sounds damning, ironically as Rangers and Mr Whyte await decisions from the Tax Tribunal and from Sheriff Ross in the Tixway case.

The story has a long way to go before it ends, I feel.