Are Rangers Appealing the “Wee Tax Bill”? A Triumph for Mr Whyte, and a Death Knell for Rangers?

The Rangers Tax Case Blog has reported that, apparently, Rangers are launching a late appeal in connection with the “wee tax bill”.

For all then comment that Mr Whyte has looked all at sea in recent weeks, this may well be a master stroke by him, if he wants (a) to keep the arrested sums available to the administrator/receiver (b) survive long enough to generate cash from sales in January and (c) trigger an Insolvency Event prior to the relevant court or tribunal rejecting the efforts to recover the money by him.

I explain, in some detail, below how this might work but there are options open to Mr Whyte to allow him to put off transfer of the money till the end of January anyway. However, despite the brilliance of the stratagem, it will do nothing to assist his general reputation and would be seen as a most blatant attempt to thwart the taxman getting his money.

I think such a move, if correct, is the best proof possible that his plan is to take the club down and extract as much cash from the carcass, before leaving the joys of establishing a “Rangers 2012” to someone else, whilst Mr Whyte sits on the Monaco sea front reading his Rangers Annuals from the late 70’s.

Such a move, if followed though, might be a devastating blow in favour of Mr Whyte, but at the same time, many more nails knocked into the Rangers coffin lid. It will be interesting to see how this one plays out

 

The Story So Far  

The sum of £2.3 million had previously been arrested by HMRC in connection with that bill. In terms of the Debtors (Scotland) Act 1985 s73J inserted by the Bankruptcy and Diligence (Scotland) Act 2007 that sum was about to reach a total period of 14 weeks since it was arrested. Under s73J on the expiry of 14 weeks, the sum arrested would be remitted by the bank holding it to HMRC.

Some wise people (and me) had speculated that, as soon as HMRC got its hands on that money, there would then be aggressive efforts to obtain payment of anything else which was outstanding and not subject of an appeal. It has been noted that HMRC have not been reluctant to lodge winding up petitions in connection with Hearts and it has been asked why not with Rangers too? I think that the prospect of getting £2.3 million made it worthwhile to hold off till the 14 weeks passed; otherwise Rangers entering insolvency beforehand might have left HMRC with little or nothing.

It seemed odd that, once those funds were trapped, Rangers did not simply hand them over the HMRC. This led some to speculate that the insolvency event would take place before the 14 week deadline, to keep the funds available to an administrator/receiver, and under the floating charge assigned to the former “Wavetower”, the company through which Craig Whyte bought Rangers, the funds would be heading to Mr Whyte’s castle rather than the tax man.

No one thought that the bill itself, of which £500,000 has already been paid, would be subject of an appeal as (a) Rangers had formally accepted the liability prior to the takeover and (b) Mr Whyte’s Circular to shareholders at the takeover committed Wavetower (effectively Mr Whyte) to pay this bill.

How on earth can (a) he appeal now, (b) does this help with the funds and (c) what happens now?

I think he will need to be instructing agents to carry out various actions as soon as courts open on Monday. What I suggest below might actually be more procedure than is needed, but it would be the “belt and braces” approach.

 

Raise an Action of Suspension, Interdict and Reduction?

There are two ways of stopping an arrestment resulting in an automatic transfer of funds under s73J.

The first would be to obtain an interim interdict from the Court of Session preventing HMRC acting on one of the constituent parts of the process, namely (a) the summary warrant under which the sum was adjudged to be due to HMRC (b) the formal agreement between Rangers and HMRC if registered “for preservation and execution” (c) the “charge for payment” or (d) the arrestment itself. As well as the interim interdict, there would be a crave for a decree suspending the relevant part of the process then “reducing” or quashing it and thus preventing HMRC completing their diligence. The big problem Mr Whyte would have with this is as follows.

If Rangers apply for an interim interdict against HMRC, then this would not be granted without HMRC having a chance to object. At any such interim hearing, counsel for HMRC would, I suggest, drive a bus through any argument Rangers could put up. The bill has been agreed, part payment made, and the new owner has been in place for seven months. The arrestment was effected almost 14 weeks ago. It is well nigh impossible to see what substantive argument would get round the factors that (a) Mr Whyte has known about this for some time and (b) he has had the opportunity for a lengthy period to take the best legal and accountancy advice about the bill. Even if he had received an opinuion now that the bill was not in fact due, then frankly the court would consider that he has long since missed the boat, and even if he did have an argument available to him, he should have pursued this some time ago.

Of course, it might be that there is some fundamental flaw in the documents mentioned above which would render the process invalid, in which case his waiting to the last minute effectively buys him another 14 weeks. I find that hard to imagine though. And if, for example, the Sheriff Officers have erred leading ultimately to HMRC not getting its money then the Sheriff Officers will be on the phone to their indemnity insurers immediately.

The risk for Rangers is that, if they seek an interdict and fail, they might be seen as having “shot their bolt”.

If Rangers’ argument is simply that the bill itself is wrong, then I think it would be very hard for the judge to grant an interim interdict. The position would be that they were coming to court far too late. Of course, if Rangers were prepared to lodge £2.3 million as caution for the sum arrested, then the court would be more kindly disposed to an interdict, but Mr Whyte won’t want to put up another £2.3 million if he can void it (and if indeed he has it!)

 

Make an Application under s73M(1) or s73Q(2) of the Debtors (Scotland) Act at Glasgow Sheriff Court?

S73L states that automatic transfer cannot take place where an application is made under either of the above sections.

S73M relates to the lodging of a “note of objection” to the arrestment. This can been done by the debtor (Rangers), the arrestee (the bank) or a third party. The grounds for objecting are as follows:-

(a)the warrant in execution of which the arrestment was executed is invalid;

(b)the arrestment has been executed incompetently or irregularly;

(c)the funds attached are due to the third party solely or in common with the debtor.

It is unlikely, though not impossible, for grounds a or b to exist. I see no argument regards c.

The application must be lodged “before the expiry of the period of 4 weeks beginning with the date of service of a copy of the final decree under section 73C(2) of this Act or, as the case may be, the date of service of the schedule of arrestment.”

The 4 week period is long past. But there is an inherent jurisdiction allowing a party to apply to the court out of time. Grounds for a late application being late can cover various matters, but wilful disregard for the rules is not one of them.

As long as the application includes a request that it be allowed to be received although late, the Sheriff Clerk cannot simply reject it. That is a decision for a Sheriff.

S73N (1) specifies that “before the expiry of the period of 8 weeks beginning with the day on which an application by notice of objection is made under section 73M(1) of this Act, the sheriff shall hold a hearing to determine the objection.”

Therefore if the application is lodged on Monday, there would have to be a hearing by 30^th January 2012. Of course, the 8 week period is a maximum and, in theory, a hearing could be fixed for the following week (or even day!). How likely is it that HMRC could get the case accelerated up the court lists?

If therefore there is an allegation however spurious, that any of the three factors mentioned above is there, the automatic transfer would be delayed (For the avoidance of doubt, I do not mean to suggest that any such application lodged by agents for Rangers would be done by them in the knowledge that it was spurious.)

The fact that the bill is subject to a late appeal to the FTT would NOT be a ground for an application under s73M.

 

S73Q can be dealt with more quickly. This covers applications by the debtor where it is stated that the arrestment is unduly harsh. S73R gives the procedure. If the Sheriff is satisfied that the arrestment is unduly harsh to the debtor (Rangers) he may recall it in whole or in part. There is no time limit for lodging such an application, nor any for the court to deal with it.

 

The lodging of either application would prevent the funds being automatically transferred until the matter was dealt with. The application would NOT release the funds, but if insolvency struck before the matter was dealt with, then the funds would probably revert to the administrator/receiver.

 

Neither of the Sheriff Court applications are connected however with a late appeal to HMRC. That can only relate to the Court of Session proceedings.

 

The Late Tax Appeal

The Taxes Management Act 1970 s49 tells us the rues for tax appeals. An appeal should be lodged with HMRC and thereafter with the FTT within 30 days of the decision or assessment to be appealed. Applications after that date are out of time.

Here the application should be at least one year, and probably more, late. However, if HMRC refuses to accept the appeal out of time, the taxpayer can ask the FTT to accept the appeal on that basis anyway.

The FTT needs to be satisfied that satisfied that

• there was a reasonable `excuse’ for the lateness of the appeal or postponement application
• the application has been made `without unreasonable delay’ after the expiration of the time limit.

The HMRC Handbook refers to “reasonable excuse” as encompassing “`absence, sickness or other reasonable cause`. Moreover, it may cover not only the absence or sickness of the appellant himself but also that of his agent. However, the reasonable excuse has to be personal to the appellant: so a late appeal should not be agreed where for instance a new decision of the Courts, unconnected to the instant case, has made an appeal more viable. In that case the remedy, if there is one, is by reason of an error or mistake claim, TMA70 Section 33.”

Malcolm Gammie wrote in the British Tax Journal in 2010 that “the Tribunal’s discretion in these matters is not limited in any way and it can accept late appeals if it believes that it would be in the interests of justice to do so.”

I find it well nigh impossible that, in these circumstances, either HMRC or the FTT would accept the appeal out of time. The cases show a reluctance on the part of the FTT to do so. For example, in Ogedegbe v The Commissioners for Her Majesty’s Revenue and Customs [2009] UKFTT 364 (TC) the Tribunal said “While this Tribunal has got power to extend the time for making an appeal, this will only be granted exceptionally. Moreover, there must be at least an arguable case for making the appeal. In the present circumstances I cannot see that the Appellant has even an arguable case. He has at no time provided evidence of any taxable supplies during the period to which the tax assessment relates. He has shown no grounds for a conclusion that the expenditure, to which the input tax related, was incurred for the purpose of making taxable supplies. The combination of the facts that the appeal was lodged many months late and that the appeal had no realistic chance of success persuade me that the Appellant’s application for an extension of time should be refused.”

Even if Rangers’ position now is that their advisers, or former advisers, erred in their advice, then the FTT would view this as something to be taken up between Rangers and those advises, or their insurers.

However the application would still need to be made and rejected. This will buy some time.

 

What Happens Now?

 

If Rangers succeed in stopping the automatic transfer of funds, then I expect HMRC to look to proceed full steam ahead with a winding up petition for anything owed to then now which is not under appeal. To contest this, they are going to need deep pockets to pay the solicitors, counsel and advisers they will employ. However, if “Wavetower” pay these costs for Rangers, then I imagine that they would demand return of the costs with interest and additional “management fees” from the insolvency. Thus Mr Whyte has a great reason to keep the arrested funds out of the taxman’s hands – 2.3 million reasons + interest and fees to be precise!

Whilst the steps above look to be the acts of a desperate man clutching at straws, as long as the flimsiest of cases can be put forward, then the professionals involved will be able to act within their ethical boundaries. Whether lodging a spurious appeal or applications makes Mr Whyte more of a fit and proper person is for the SPL and SFA to judge!

Mr Whyte might not pursue all of these options, but the scatter gun approach gives the best chance of stopping the loss of that money. I wonder if his advisers might have told him that they would be prepared to lodge the application or applications, but that they would not be prepared to stand up and argue the points?

When I think that there no more legal novelties to come, Mr Whyte pulls another one out of the hat!

 

 

 

18th October – Is the Rangers End-Game Approaching? Bain, McIntyre, Arrestments and HMRC

There is an increasing spiral of activity regarding the finances of Rangers FC Ltd. As discussed before, the courts are being asked to consider issues about Rangers regularly. The BBC is poised to show a documentary about the takeover, and has already discussed the issues on Newsnight Scotland and online. Gerry Braiden in the Herald has written informed and insightful pieces as regards developments.

After lots of hard and interesting work by, inter alia, the Rangers Tax Case Blog and Phil Mac Ghiolla Bhain, the story of the possibly imminent demise of one of the two giants of Scottish football has come into the public eye.

Mr Mac Ghiolla Bhain indeed views his work on this issue as complete – http://www.philmacgiollabhain.ie/job-done/

If some observers are correct, it is not just the crest, but the whole Club poised to shatter

But there are still many twists and turns to go, so I thought I’d try to offer some thoughts re the legal aspects of matters presently arising.

 

McIntyre v Rangers

Why were Rangers not represented today (18^th October) at court? Good question! I have various thoughts but it cannot be as simple as them having run out of money to pay their lawyers, can it? If that is the case, then there would be far more serious consequences should they fail to appear on Friday when Mr Bain’s case calls again.

It might simply be the case that Rangers’ counsel viewed the motion by Mr McIntyre as being impossible to oppose successfully. In that event, why spend extra money on having counsel and solicitor attend court? But, as I mention above, I cannot imagine things are so bad that Rangers could not fund an appearance re this today.

The former Finance Director at Rangers, Donald McIntyre

Might they have decided that opposition to the application would lead to the exposure of more dirty linen? After all, from all reports, Mr McIntyre’s counsel had stated his case at length last week. Therefore, in the absence of opposition, Lord Hodge simply had to consider the same issues as he had in dealing with Mr Bain’s application – firstly, whether Mr McIntyre had a prima facie case, secondly whether there was a real and substantial risk that enforcement of any decree which might be obtained in the action would be defeated or prejudiced by reason of Rangers being insolvent or verging on insolvency, if the court did not grant warrant for diligence on the dependence and thirdly, whether it was reasonable in all the circumstances to grant a warrant, including the effect which that grant may have on any person having an interest.

The non-appearance by Rangers can be seen as an implied admission regarding the three parts of the equation. Of most importance is the implicit admission that he has a prima facie case, and this time not one with a counterclaim against it (at least so far).

It also seems to confirm that, despite strident comment from Rangers that the decision of Lord Hodge in the Bain arrestment would be appealed, in fact this has not and is not happening.

Mr McIntyre’s case, if it follows a similar route to that of Mr Bain, is unlikely to reach a full hearing before next summer. Clearly his hope is that his arrestment will be in place long enough to provide him with some protection, as I will look at below.

 

The Arrestments By Mr Bain and by Mr McIntyre

Arrestments – an arrestment only catches funds in an account when the arrestment is lodged. If an account has £1 million in it today – nothing tomorrow – and £1 million the next day, then if the Sheriff Officers serve the arrestment today, there is success, but if tomorrow, it fails. That is the creditor’s hard luck, and a debtor would often be advised to take steps to put funds beyond the reach of an arrestment, if possible. There is no “punishment” for the debtor for their cupboard being bare when the Sheriff Officers come knocking!

Sheriff Officers visiting Ibrox Stadium earlier this year

One wonders if the Sheriff Officers might pitch up at Rangers’ bank tomorrow (19^th October), once the cash takings from tonight’s friendly against Liverpool, are banked. Better to hit the account after those funds are deposited. Alternatively, it might be advisable to wait till just before pay day, when there should be funds in the account.

Mr McIntyre is likely to have a good grasp on his former employer’s cash flows, and should be able to advise his lawyers as to the best day to go for the arrestment.

In addition, the arrestment could be served upon someone due to pay Rangers money. For example, a TV company or sponsor, could have the funds they are due to pay Rangers frozen before they are paid to the recipient.

The Bain and McIntyre arrestments (the latter if successful) are “diligence on the dependence” of ongoing actions, not final decrees, so unlike the HMRC position mentioned below, there is no automatic transfer of those funds possible till after the conclusion of the relevant cases. These actions by the former directors are intended to ring fence funds to meet their claims, if successful.

The position about the “ring fencing” has been subject to some discussion.

As far as I understand, the position is as follows.

S61 of the Insolvency Act 1986 deals with the power of a receiver to dispose of property. I have assumed a receiver would be appointed first by “Group” under the floating charge assigned from Lloyds TSB to Craig Whyte’s Group when he acquired the Club. Subsection 1 states “Where the receiver … is desirous of selling or disposing, of any property or interest in property of the company which is subject to the floating charge by virtue of which the receiver was appointed and which is…(b) property or an interest in property affected or attached by effectual diligence executed by any person, and the receiver is unable to obtain the consent of such creditor … the receiver may apply to the court for authority to sell or dispose of the property or interest in property free of such … diligence.”

The question is, what is “effectual diligence”?

S61 (1) (1B), as inserted by S14 of Schedule 5 to the Bankruptcy and Diligence etc. (Scotland) Act 2007 states “For the purposes of subsection (1) above, an arrestment is an effectual diligence only where it is executed before the floating charge, by virtue of which the receiver was appointed, attaches to the property comprised in the company’s property and undertaking”.

This refers to the date of crystallisation of the floating charge, rather than the date of its creation. It crystallises, effectively, when it is enforced, by which method the receiver would be appointed. Therefore, as these arrestments have been put in place prior to the floating charge crystallising, the receiver would need the permission of the court to interfere with the arrested funds.

Subsection 3 provides that the court should not grant such authorisation “unless it is satisfied that the sale or disposal would be like to provide a more advantageous realisation of the company’s assets than would otherwise be effected.”

So, on one view, the arrestments are useful for Messrs Bain and McIntyre.

If a liquidator is appointed however, the arrestments could lose their effectiveness, at least as regards benefiting the claimants.

S185 (1) of the Insolvency Act states “In the winding up of a company registered in Scotland, the following provisions of the Bankruptcy (Scotland) Act 1985—(a)subsections (1) to (6) of section 37 (effect of sequestration on diligence) … apply so far as consistent with this Act, in like manner as they apply in the sequestration of a debtor’s estate…”

Turning to s37 of the Bankruptcy (Scotland) Act 1985  we see at ss4 “No arrestment … of the estate of the debtor… executed—(a)within the period of 60 days before the date of sequestration and whether or not subsisting at that date; … shall be effectual to create a preference for the arrester…; and the estate so arrested …, or the proceeds of sale thereof, shall be handed over to the permanent trustee.”

So, if the there is a winding up (i.e. liquidation) within 60 days of the arrestment being lodged, then it gives the arrester no advantage. In that case, the funds go into the general pot, and are distributed to creditors.

In respect of Mr Bain therefore, if Rangers survive liquidation until 12^th November, he has secured a substantial part of any award which might finally be due to him.

Can the gates of Ibrox repel the tide of financial attackers?

 

 

The HMRC Arrestment re the Small Tax Case

If, as has been discussed and assumed, HMRC succeeded in trapping £2.3 million, then this will automatically be paid to HMRC by the bank 14 weeks after the arrestment was carried out.

As I get bored with stating, Rangers could agree to let HMRC get their hands on those arrested funds. They are not obliged to wait the 14 weeks. Whilst the sum remains unpaid, interest will be accruing on the debt.

Why might they delay paying? It could be to annoy HMRC, but that is never a good idea. Otherwise it can only reasonably be that Rangers think they can defeat the HMRC claim by entering receivership and then liquidation quickly enough to render the arrestment ineffective, but as we have seen, 60 days gives the arrestment effective force against the liquidator.

If the company is wound up before the 60 days expire (at the end of this month) then the funds go back into the pot for creditors, and defeat the HMRC preferential claim.

From a PR point of view, and in the interests of getting HMRC onside to any extent, one would think they would be willing to hand that amount over. Clearly they have no intention of doing so.

 

What Comes Next?

Mr Bain is in court on Friday and we may hear more about potential witnesses. I understand that amongst the witnesses for Mr Bain it is likely that Messrs Murray, McLelland and Johnston would be called. That would be three heavyweight witnesses, who, one would suspect, might be less than enthusiastic about Craig Whyte bearing in mind his treatment of them and their colleagues.

The 60 day period for the HMRC arrestment runs out on 27^th or 28^th October. Will things happen before then?

Will Rangers try to interdict the BBC from showing this documentary on Thursday? If not, their PR barrage has already annoyed many, as they arrogantly bar co-operation with the BBC.

I might not get my detailed thoughts about freedom of speech and prior restraint down on paper before the programme goes out, but generally, unless the issue is one to do with national security, the courts are reluctant to block programmes before transmission. The remedy for actionable wrongs in such a broadcast is not to stop the show, but to allow an action for damages for defamation.