Rangers’ Nightmare Week

By on Feb 18, 2012 in Finance, Latest, Scottish Football | 1 comment

This week, Alex Salmond held discussions with David Cameron about the terms of a referendum on independence, and Cameron launched his own pleas in defence of the Union. It’s a story that has been dominating the headlines for weeks in Scotland – not unreasonably – but this week, Cameron was unlucky with his timing. His speech got some cursory coverage, and the rest of the news, as it has been since Monday afternoon, has been wall-to-wall Rangers.

The self-mythologising by which Rangers’ fans have convinced themselves they’re more than just a football club may be nonsense but – however much it might be wished otherwise – it’s undeniably true that they have an influence over Scottish society that goes well beyond sport, and however much we might wish it otherwise, their position within the Scottish game makes this administration quite unlike any of the others have have taken place in British football over the years.

The exact timing and circumstances might have caught people on the hop, but that the club was in such serious trouble has long been known – independently of their primary dispute with HMRC, which has been a bit of a smokescreen. David Murray left the club in the lurch, and Craig Whyte took over in spring last year despite a number of misgivings within the board about his fitness to do so. Nothing that has been revealed about him in the intervening months has increased anyone’s confidence in him. In October, BBC Scotland ran a documentary making a number of fairly serious allegations about his previous business history. Whyte admitted having served a lengthy ban as a company director, but denied the more serious allegations and has promised to sue. He hasn’t done so yet (and probably won’t). But if that’s made other news outlets a bit wary of repeating the allegations, it hasn’t really mattered given the flood of other stories now coming out.

Just last week he lost a court case relating to a previous venture, in which his evidence was described as “wholly unreliable” by the judge. This week a stockbroking company in which he is involved has been banned from further trading by the FSA.  With the media very much smelling blood there will doubtless be more stories to come. The Daily Record ran with this one from a former business associate (and convicted fraudster) discussing Whyte’s modus operandi in salvaging businesses through ‘pre-packaged’ administrations.

This last story, sketchy though it is, may be the most relevant, because the growing suspicion is that for all the grand promises, there’s never been any particular intention on Whyte’s part to keep Rangers out of administration. Whyte, on taking the first step towards administration on Monday, was keen to stress the implications of the long-running tax case concerning the use of offshore trusts to avoid paying tax on wages. The tribunal for this has already been heard and the result is expected fairly shortly – Whyte quoted the potential cost of defeat at £75 million, an even higher figure than any of the others quoted.

But all these possibilities were known to Whyte when he took over, and that this was a red herring was clear by Tuesday, when HMRC themselves applied to put the club in administration, not for this massive potential debt but for another £9 million’s worth of common or garden tax arrears accrued during the nine month’s of Whyte’s ownership. After some toing and froing in the Court of Session on Tuesday afternoon, HMRC eventually agreed to allow Rangers to appoint their own choice of administrators – though even that has been a little controversial because the firm concerned, Duff and Phelps, had already been working for the club as advisors.

Meantime, the revelations continue. It was revealed recently that one of Whyte’s first acts had been to raise a loan of £24 million, mortgaged on the next fours years’ worth of season ticket income. Sadly, not a particularly unusual move in football these days, but one that rather conflicted with his previous statements. And one that leads to further questions about the running of the club in the months since. The administrators admitted in their first press conference that they do not have “visibility” of this money at present – it seems it went to a parent company rather than to a club itself. (There are even some reports suggesting that it may have been this very same money that was used to provide the proof of funds which Whyte needed in order to complete the takeover in the first place.) Between the loan, the money they weren’t paying to their tax bills, the sale of Jelavic to Everton just the other week, as well as their ongoing operating income, the sums don’t seem to stack up. Various investigations are ongoing, and previous owner David Murray has put his oar in, apparently having asked for clarification that various terms of the sale of the club have been complied with. Let’s not forget, however, that it was thanks to the mess Murray had made of the club’s finances that they could not afford to be any more choosy in the first instance.

There is much murky territory here, and doubtless more to come out. But even if everything is above board, it appears there has been precious little effort made to keep Rangers on an even keel in the months since the takeover.

All of which, combined with Whyte’s previous business history, leads people to suspect there must be some sort of grand plan at work, which would allow him to walk off with the assets and leave the debts in his wake. Certainly, whichever way it pans out, there will be some creditors left in the lurch. But fear not, Whyte himself will not be one of them. He’s the principle secure creditor, thanks to the £18 million – howsoever obtained – which he lent to the club to pay off the Lloyds Bank debt as part of the takeover.

There is too little information available at present to be able to know whether there is such a plan, what it is, and what chance it stands of working. The club are yet to hold their annual AGM, they’ve delayed publication of their accounts, and we still await the result of that tribunal of the tax case into the trusts – which may have been a red herring in terms of the fact of administration, but will clearly affect the level of debt and, crucially, whether HMRC will have a large enough share of it to be able to block a CVA.

So it’s hard to know at this stage in what form the club will continue. The club have expressed their hopes of agreeing a CVA – preferably before the end of March deadline to allow them to compete in Europe next season, though this looks a very optimistic timescale. Politicians from all the main parties have been queuing up to demand that some agreement be reached, some of them quite explicitly asking that Rangers be given some sort of special dispensation based on their status within the game. Some of them clearly have not been following events at any previous football administrations. The same goes for the press – “There is no suggestion that HMRC would block a CVA”, said one of the major ‘papers the other day, apparently oblivious to their consistent record in doing just that, in every football insolvency since their protected status as creditors was removed. There’s a remarkably head-in-the-sand attitude to this, and an expectation that Rangers must be saved because, y’know, they’re Rangers.

This has to be resisted. If HMRC do have a large enough share of the debt to block a CVA they will have to do so, both to maintain their credibility in their dealings with the rest of British football, and to avoid any suspicion that any special treatment was in any way linked to the political affiliations with which the club is most associated. This is, after all, the club of God Save The Queen and Rule Britannia.

And if no CVA can be agreed, what then? To be honest, even then it’s hard to see much of a worst case scenario. If the current legal entity ceased to exist, there’d be a new Rangers by the following day. Much as us lower league fans might relish the prospect of life without the Old Firm, it’s not going to happen. They’d start again, they’d be let straight back into the SPL on some flimsy pretext or other – maybe they’d use the excuse of safety issues with potentially large crowds at lower league grounds, but the truth is the SPL’s broadcasting deal relies on the two big clubs.

So maybe this has been Whyte’s plan. The value of Ibrox is unclear – it has probably been massively overvalued in the accounts up to now, but it’s not clear the land would be useable by anyone else, particularly with part of the ground having listed building status. Perhaps the idea is that he takes that in lieu of his secure debt, the old company goes bust with the debts lost in limbo, and there’s a new Rangers up and running in no time. As a new legal entity, they wouldn’t be allowed to play in Europe for thee years, but that’d be a small price to pay for being able to rid themselves of the debts that have threatened to drag them down for much longer.

If the reports are to be believed, it’s exactly the kind of stunt in which Whyte specialises and has pulled off at numerous other companies. This time, though, he might not find it so easy. As already noted, there’s been some unease about the appointment of ‘friendly’ administrators, but they will have to act under such enormous public scrutiny that they will have to play everything by the book. This time, Whyte may have bitten off more than he can chew.

For now, watch this space. You can be sure the club will survive in some form or other, but what that will be is yet unknown. Whichever way it pans out, they’re going to need some co-operation from creditors, and / or from the Scottish football authorities. My own suspicion is that whatever co-operation they need will ultimately be forthcoming – but it might be conditional on Rangers ending up in the hands of a different owner.

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    1 Comment

  1. Three things.

    Firstly BBC Scotland are not the only media outlet that ran stories exposing Craig Whyte’s dubious past. Private Eye had been running similar stories since before Whyte completed his takeover in May 2011. Secondly, i can’t be sure but is it not a huge conflict of interest (and possibly illegal) to appoint your advisors as administrators?

    Thirdly, Whyte’s credibility has been shot amongst the Rangers supporters. If he attempts any of the above, he will be incuring the wrath of Rangers supporters.

    Allan

    February 18, 2012

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