Now That Rangers Are Saved, Part Three

By on May 17, 2012 in Finance, Latest, Scottish Football | 1 comment

Rangers’ spell in administration was best summed up deep in one of Court of Session Judge Lord Hodge’s many Rangers pronouncements over recent months. Paragraph fifty of his directions to administrators Duff & Phelps on the once thorny subject of Ticketus began “Administration has developed as a very flexible procedure to cope with the likely or actual insolvency of a company.” This flexibility was amply demonstrated in Glasgow this past week.

On Sunday, Sheffield United ex-chief executive Charles Green emerged as head of the “mystery consortium” of worldwide investors which will soon own Rangers. And amid his flurry of words at his introductory press conference, he admitted that the consortium had rather circumvented standard administration processes. Rangers fans, fresh from five days of looking on as their club appeared to slowly expire, cared little that co-administrators Paul Clark and David Whitehouse had again misled the public… and other bidders.

As a means to the end of Rangers’ financial woes, disingenuousness towards rival bidder Brian Kennedy was a price worth paying. Indeed, some Rangers fans may have regarded the arrogant Kennedy’s taking down a peg or two as a bonus. Yet the recent behaviour of Rangers’ administrators should be a concern far beyond the anti-Rangers factions almost relying on various authorities to deliver a knock-out blow to the club. The linguistic spat between co-administrator Whitehouse and Blue Knight-lite Kennedy was knockabout stuff for neutrals – one notch above “my dad is bigger than your dad.” But the context was Whitehouse’s “re-imagining” of events since Tennessee tow trucker Bill Miller became “preferred bidder” on May 4th. On May 8th, administrators told us: “as a consequence of Mr Miller’s bid being accepted, three other bidders have come forward to express their interest in buying the club.”

This seemed utter nonsense. And, as Green perhaps inadvertently admitted when he said on Sunday that “I contacted the administrators four or five weeks ago” and “have met regularly with someone from Duff & Phelps,” it was both nonsense and a lie. But Rangers fans can now ask: “so what”? For what seemed like two days solid, Brian Kennedy was quasi-threatening the administrators. “They better have someone good to come in,” he said at last Friday’s press conference announcing the Blue Knights’ exit from the bidding. He added the headline-seeking: “unless the administrators have a cunning masterplan they will have blood on their hands.” And he asked: “where have these bidders been these last three months?” adding the highly-pertinent: “When somebody deliberately misleads, what is their motive?”

These were then genuine questions – one reader of my previous Rangers article rightly posed them too. The answer to all of them wasn’t exactly “someone good.” Instead it was Green and his twenty mystery “individual and family” investors. The questions continue to flow, however, only partly driven by media indignation that Green had nearly bought Rangers before anyone spotted him – “(Duff & Phelps) could not believe nothing had leaked to the press,” Green himself noted. Some need answering when the process is over. Rangers’ near-forgotten creditors might want to ask others now.

Key questions concern due diligence. Only when Miller was named preferred bidder did he get full sight of the club’s “books,” at which point he and his advisers ran a mile. Green, seemingly, had this access without submitting a bid…or has bought Rangers partly sight-unseen. The former suggests the process might never have applied to Green in the way other bidders were forced to follow it – “best and final offers” (by April 4th, ho-ho) and all that guff. Weekend reports said Green “has performed due diligence, unlike Miller before he assumed preferred bidder status.” Green said: “We came in with others ahead of us in the process but they weren’t ahead of us in being able to put cash on the table.” Either way, this “process”, followed with fatal consequences for their bid by the Knights, appeared to crumble in front of this cash.

The latter suggests Green’s investors are taking something of a punt with their money. Yet this might not be much money for some. After all, if 20 investors were bringing significant money to the table, why is only £8.5m of it going to creditors? Green was, he says, “looking at the club on behalf of the consortium since the administrator was appointed” in mid-February. Yet he only felt able to approach the administrators “knowing that we had the financial resource…four or five weeks ago”, after he “spoke to people in the Middle East.” It was lucky, then, that Miller fled. Or Green would have wasted three months. Give that concept any thought – and add another Green admission: “we weren’t in a position to make a bid (when) Bill Miller was named preferred bidder” – and it is little wonder some observers suspect he was “preferred bidder” all along. Again, though, Rangers fans could ask: “So what?”

We have progressed from Miller-time, though. Green’s consortium is more than just preferred bidder and it “has a binding commitment” to not waste May’s second Bank Holiday weekend as Miller wasted the first. Green has “secured, via a substantial financial commitment, a period of exclusivity to complete the purchase of the club.” He can unbind himself at a cost, presumably the afore-mentioned substantial finance. But he only needs to complete a voluntary arrangement with club creditors collectively owed at least 75% of its debt and he is Mr Rangers. However, this is all a far cry from February’s dark days when Rangers needed to find someone to complete a voluntary arrangement with club creditors collectively owed at least 75% of its debt and… ah…

The crucial vote is on June 6th, more to do with Rangers allegedly being skint after May 31st than any nod to “D-day.” Should Green lose, he is “(obliged) to acquire the business and assets of the club on agreed terms, through a newco structure.” ‘Newco’ appears now to be more than merely an abbreviation for ‘new company.’ And in this instance, it appears to serve as a mask for what will be liquidation of the company currently controlling Rangers. The L-word has, though, been conspicuous by its absence from reports of what Whitehouse called Green’s “newco strategy.” In fact, details of this strategy have been absent, beyond the business and assets acquisition. Also absent, despite Whitehouse’s now-traditional efforts to suggest otherwise, is any indication on how major creditors will vote on Green’s proposals. Whitehouse told rangers.co.uk that “having been in discussions with major creditors throughout the process, we believe this represents the best prospect of recovery for creditors.”

This was a rare reference to creditors’ interests, interests they were appointed by a court to serve. (Whitehouse dismissed the Blue Knights partly for providing certain funding only if “we reach the quarter-finals of the Champions League.” which was optimistic as “we’re not going to qualify for Europe next season.” This exposed how club-orientated his focus has become). It was also correct, in that Green’s consortium’s £8.5m is only part of a creditors ‘pot’ containing £3.8m owed to Rangers by other clubs, plus proceeds from Duff and Phelps’ court action against Craig Whyte’s legal representatives during his takeover, Collyer Bristow. And presumably, the latter two sums – effectively the club’s money – could not validly help Green purchase the club’s “business and assets” in a liquidation.

However, the fact that Green’s offer is “the best prospect of recovery for creditors,” is utterly unconnected to “discussions with major creditors” despite Whitehouse deliberately linking the two. I’d say “good try, Dave.” But it wasn’t even that. In fact, the prospects of major creditor HMRC accepting Green’s CVA proposals are currently unaffected by the money Green’s people are offering. Green regurgitated the argument that HMRC would decide “something is better than nothing,” describing this view as “my upbringing in life” – more evidence that “no-nonsense” Yorkshireman is the most ironic regional stereotype. But even he’d just admitted that “we can’t be confident” about his CVA (Whitehouse’s face was a picture when Green said this). The fact remains that HMRC’s stated policy on CVAs in two key aspects of Rangers’ situation is likely opposition. And a businessman such as Green, with considerable personal experience of company failures, would surely know this.

HMRC are “likely to reject” a CVA “where there is evidence of” among many other things, “payment of other creditors whilst withholding sums to the Crown” such as, to pick an example purely at random, £13m PAYE. HMRC will also “support proposals where… they treat all creditors within the same class equally” such as, purely at random again, unsecured creditors like HMRC and football clubs. This is what broadcast and print journalist Roddy Forsyth has said at every opportunity since Rangers went pop – that HMRC would support a CVA which was “fair and equitable – their words, not mine.” However, Rangers must pay clubs such as Rapid Vienna in full, to avoid possible UEFA sanction… there goes “fair and equitable.” And “withholding sums to the Crown” is what has got Rangers into this mess.

HMRC’s blanket opposition to English football club CVAs has been cited for and against Rangers’ CVA prospects. This opposition stems from the “football creditors’ rule,” enforcing full payment of “football debts” – in HMRC’s words, not mine: “evidence of any proposal…that requires debts…to be paid in full…when all other unsecured creditors receive “pennies in the pound.” This rule doesn’t apply in Scotland, so HMRC won’t oppose, say some. Football debts are still being treated inequitably, so HMRC will oppose, say others, offering HMRC’s opposition to Dundee’s CVA last May as a precedent. But Green was brought up believing “something is better than nothing.” So Whitehouse, who claimed HMRC voted for Miler’s proposals, said rejection of the CVA was “an unlikely event.”

Another CVA uncertainty is the omnipresent “big tax case.” The prospect of a CVA completion before its result is revealed looms large (although the result may be out by the time you read this). CVA proposals go to creditors on May 21st. The vote is based on creditors’ claims, and how much of that the administrators believe. HMRC’s claim assumes 100% tax case victory. Do/can the administrators allow this, though? Or do they reduce HMRC’s vote to 2011’s tax debts and the “small tax case,” for which Rangers accept liability? If so, what happens if HMRC wins the tax case after a successful CVA? And it appears even Whitehouse has struggled to spin this as the “red herring” both administrators have long pretended it is.

All may yet be well for Rangers’ by next season. Unfortunately, Green’s takeover hasn’t significantly advanced that cause, even disregarding all the questions being asked about his intentions…his investors…his football track record… his chequered business history… Still, Green has advanced one cause. The SPL can now vote on their financial fair play proposals “without fear or favour.” Can’t they?

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    1 Comment

  1. I’ve really, really tried to follow the Rangers story since it started, but I get more and more confused. It’s not really surprising then that the administrators appear to be the same when you take into consideration that they have the facts (or most of them) at their disposal too. Do they actually know what’s going on? It appears that they don’t after something caught my eye in the article: “This was a rare reference to creditors’ interests, interests they were appointed by a court to serve.”

    It would be nice if the administrators would come out and tell us what the state of play is rather than running around in circles with a bucket on their head trying to appease everyone except the creditors.

    Moo

    May 18, 2012

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