To follow on from my portmanteau post of a couple of days ago, I wanted to look at a point mentioned by one of my commenters, Steve.
As I say, I am always happy to be educated! Steve said:-
“Something not mentioned that I’ve seen over the last few weeks – could another possible problem for a Newco be that they’d have to exist for 3 years before they can compete in Europe?”
Steve is referring to Article 12.2 (Page 12) of the UEFA Club Licensing and Financial Fair Play Regulations Edition 2010.
Article 12 states in full:-
“Article 12 – Definition of licence applicant
1 A licence applicant may only be a football club, i.e. a legal entity fully responsible
for a football team participating in national and international competitions which
a) is a registered member of a UEFA member association and/or its affiliated
league (hereinafter: registered member); or
b) has a contractual relationship with a registered member (hereinafter: football
2 The membership and the contractual relationship (if any) must have lasted – at
the start of the licence season – for at least three consecutive years. Any
alteration to the club’s legal form or company structure (including, for example,
changing its headquarters, name or club colours, or transferring stakeholdings
between different clubs) during this period in order to facilitate its qualification on
sporting merit and/or its receipt of a licence to the detriment of the integrity of a
competition is deemed as an interruption of membership or contractual
relationship (if any) within the meaning of this provision.”
Let’s get clear, quickly, the possible outcomes for Rangers and how this might affect them. I am not looking for now at the requirements to obtain the licence from the national association, in this case the SFA, simply UEFA’s Article 12. For the purpose of this illustration, I am ignoring the Club entering receivership, as that is solely designed to deal with the secured creditor, and after receivership, liquidation or administration appear inevitable.
A Rangers survive without suffering any Insolvency Event (as defined in the SPL Rules Section I on page 79). No problem here – the Club remains and Article 12 has no bearing on them.
B Rangers enter administration and come back out of it by way of a Company Voluntary Arrangement (CVA). In this case, the company owning Rangers directly would be the same, although ownership might have changed hands. Here too, and subject of course to other issues regarding finances which are not part of this post, Rangers would be unaffected by Article 12. Interestingly the Daily Record splashed yesterday with a story about likely penalties for Rangers in the event of administration, and as Craig Whyte replied to a question from Tom English in the Scotsman last week “It’s hard to say at the moment because there are different ways to restructure a business. People talk about administration as one option and that might well be one of them.”
C The assets of Rangers Football Club are bought over be a new company (hereafter referred to as “newco”) out of administration or liquidation, whether by a sale during the insolvency process or by way of a “Pre-pack Administration”. This option, and the next, are the ones upon which Article 12 has a bearing.
D A newco buys another Scottish team, and, having acquired Ibrox Stadium from a liquidator, seeks to move the team there and to change its name and colours to those of the erstwhile Rangers.
The “licence” referred to is that which permits a club to take part in European competition. The licence application itself is dealt with, for Scottish teams, by the SFA. However, teams must satisfy the UEFA requirements.
Let us assume, for this purpose, that a newco has taken over Rangers’ assets as per outcome C (I offer no prediction as to how likely any of the four outcomes suggested above might be). Let’s also assume that the newco has satisfied any requirements placed upon it by the SFA/SPL/SFL and therefore is entitled, under Article 12.1 to seek a place in European competition.
The newco would need to fulfil the requirement I emphasised in Article 12.2 above, namely to have had a contractual relationship with the team for at least three years. Even therefore if the newco was a company formed over three years previously, unless there was a connection to the football club for that period, it would not be eligible to have the club it owned play in Europe.
In outcome D, at first sight matters look simpler. Let’s say that, for example, newco took over a hypothetical SPL team, the East Kilbride Taxmen (EKT) and moved them from their home to Ibrox, changing their pinstripe strips to “Rangers Blue”. If EKT had existed for over three years, and newco had acquired the company owning the club, in the same way as Craig Whyte’s company acquired Rangers, there would not be any problem, except for the move of the club and change of colours.
Such steps would be seen as an interruption of the club’s membership, so, ignoring all the other issues which such a scenario would mean a three year bar from European competition as well.
Is There a Way Round This?
Rangers’ fans need not despair however. It is not inevitable that, in the event of outcomes C or D, that a three year ban would apply.
Annex 1 to the UEFA rules provides details of the areas where UEFA may permit what are known as “exceptions” to their rules. It was, for example, by way of an “exception” that Liverpool qualified for the Champions’ League in 2005-2006.
The relevant part of Annex 1 reads as follows:-
“A.1 The UEFA administration may, in accordance with Article 4, grant exceptions on the flowing matters:-
(d) Non-applicability of the three year rule as defined in Article 12(2) in case of change of legal form or company structure of the licence applicant on a case-by-case basis.”
Article 4 reads:-
“The UEFA administration may grant an exception to the provisions set out in part II
within the limits set out in Annex I.”
Annex 1 continues :-
“Exceptions related to item d) are granted to the individual club that
applies for a licence” and “An exception is granted for a period of one season. Under specific
circumstances this period may be extended…”
Annex 1.B deals with the process. The relevant parts are noted below.
“1. The UEFA administration acts as the first instance decision-making body on exception requests.
2. An exception request must be in writing, clear and well founded…
4. Exceptions related to the item defined under A(1)(d) can be submitted at any time. A licensor notified of the reorganisation or restructuring of an affiliated club (e.g. change of legal form, merger of clubs, split of club, liquidation or bankruptcy) is responsible for notifying the UEFA administration accordingly as soon as it becomes aware of it.
5. The UEFA administration uses the necessary discretion to grant any exception
within the limits of these regulations.
6. The status and situation of football within the territory of the UEFA member
association will be taken into account when granting an exception. This
encompasses, for example:
a) size of the territory, population, geography, economic background;
b) size of the UEFA member association (number of clubs, number of registered
players and teams, size and quality of the administration of the association,
c) the level of football (professional, semi-professional or amateur clubs);
d) status of football as a sport within the territory and its market potential
(average attendance, TV market, sponsorship, revenue potential, etc.);
e) UEFA coefficient (association and its clubs) and FIFA ranking;
f) stadium ownership situation (club, city/community, etc.) within the
g) support (financial and other) from the national, regional and local authorities,
including the national sports ministry.
7. The decision will be communicated to the UEFA member association. The
decision must be in writing and state the reasoning. The UEFA member
association must then communicate it to all licence applicants concerned.
8. Appeals can be lodged against decisions made by the UEFA administration or, if
applicable, the UEFA Executive Committee in writing before the Court of
Arbitration for Sport (CAS) in accordance with the relevant provisions laid down
in the UEFA Statutes.”
So, in the event that an event I have described as outcome C or D takes place, then Rangers, or indeed any other team looking to play in Europe which experiences a similar insolvency event, will have to do the following.
1 Apply clearly and in writing to UEFA. The application must also be “well founded”.
2 The SFA, as licensor, has a duty, as soon as it is aware of the “reorganisation or restructuring of an affiliated club”, to notify UEFA.
3 The decision is entirely one at the discretion of UEFA, taking account, where relevant, the factors in paragraph 6.
4 The decision is communicated in writing to the SFA who then pass it on to the club.
5 A right of appeal exists to the Court of Arbitration for Sport (CAS).
The newco would require, in the event of outcomes C and D, to benefit from a waiver of the rules to allow them to stay in the SPL, which needs a vote of at least 10-1 in their favour even before getting to the stage of a UEFA application.
The newco would then need to benefit from a favourable decision from UEFA. If refused, then an appeal could be taken to CAS, but that would take time, and could knock out one season, at least, of eligibility for European competition by the date it concludes.
If Rangers suffer an Insolvency Event, then whoever “rescues” them, especially from outcomes C and D, would want, I assume, to have the chance of bringing income from European competition. It appears to me that a pre-emptive application could be made – “Exceptions related to the item defined under A(1)(d) can be submitted at any time”.
This would potentially leave the position of the newco purchasing the assets akin to a developer looking to buy land, but conditional upon receiving planning consent. If planning permission is not granted, the deal does not go through. In the same way, especially if a “pre-pack” arrangement is planned, one would suggest that newco make the necessary application as soon as possible.
UEFA is notoriously Byzantine in its structures and processes. How likely would it be that the relevant administration would decide to find in favour of a newco seeking to keep alive a lengthy, historic and proud tradition? Might any decision be influenced by Rangers’ recent troubles with UEFA regarding the behaviour of a minority of its fans?
It would be ironic if, as a result of UEFA’s decisions about Rangers’ supporters, the required permission was not granted.
The bottom line is that, in the event of an Insolvency Event leading to outcomes C or D, whoever funds the newco would be taking a huge gamble if they proceeded with the purchase of assets, either of oldco or a new team, without this exception already in place.
We have seen, with Rangers, Celtic and notoriously Leeds, what can happen where an expected stream of Euro income is suddenly shut off. Is Mr Whyte, or anyone else for that matter, prepared to take what seems a monumental gamble? I find it hard to imagine that, especially of successful in having a newco admitted directly to the SPL, the new owner would be prepared to budget for three years without Euro income.
As I say, all this is hypothetical, and may not occur, but when Mr Whyte himself has discussed administration and insolvency as real possibilities, then I think a look at the issues can do observers no harm.
Finally, as always, I am happy to be told that my understanding is wrong. I never object to additional education!