Rangers' liquidation Q&A
Liquidation for Rangers Football Club plc will be a stunning blow for what has been a world-renowned sports brand and a pillar of Scottish life. That's what looks inevitable after Thursday's meeting of creditors.
But the football goes on at Ibrox. The tax authorities even say it could be a fresh start, without debts or litigation dragging on the club's recovery.Q: Why has it come to this?
Rangers has been carrying big debts to fund its ambitions, and while it was reducing those, under pressure from the Bank of Scotland, it ran into a lot of tax trouble. Much of this came from its payment of players and managers through offshore Employee Benefit Trusts, on which tax wasn't paid. At least £49m of back-tax could be owed, if Rangers loses a tax tribunal it's been fighting with HM Revenue and Customs.
After Sir David Murray was pressured by Bank of Scotland into selling his 85% stake, Craig Whyte took over the controlling interest and chairmanship in May 2011. He simply stopped paying PAYE tax, despite deducting it from payroll. He had funded the purchase of the bank's £18m debt by selling finance house Ticketus the rights to proceeds from three years of season ticket sales. In February, running out of cash and under pressure from HMRC, he put Rangers into administration. Since then, it's been kept trading by insolvency firm Duff and Phelps, which has had the task of trying to find a buyer.
This Thursday, a meeting of creditors is due to vote on a Company Voluntary Arrangement, which would allocate the price paid by a new owner of Rangers roughly in proportion to money owed. With HMRC the biggest creditor, it announced on Tuesday that it's going to vote against the CVA. With a lot more than 25% of the debt, it has a blocking vote.Why is HMRC blocking the CVA?
The tax authority says the alternative, liquidation, provides the best opportunity to protect taxpayers, allowing far greater investigation powers into what went wrong at Ibrox in recent years. And it stresses that either way, the sale goes on and Rangers, the team, does too.
The delay in HMRC telling the administrators that it's blocking a CVA on policy grounds (as opposed to a lack of money in the pot) has clearly angered Charles Green, who is leading the buying consortium.
It was being argued by Mr Green, as well as Duff and Phelps, that taxpayers would do better from a share of the £8.5m that came with a CVA, added to the tax on earnings from Rangers staying at the top flight in Scottish football and having access to European competition.
But the policy issue seems to have more to with putting down a marker that HMRC will go after those in football and elsewhere who don't pay their tax. The liquidation announcement came on the same day the Treasury announced plans to give HMRC powers to tackle "artificial and abusive" tax avoidance by requiring tax affairs to be rearranged. With austerity biting across the country, Ibrox is being hit by a broader political appetite to go after those with clever accountants who have not been paying their dues.
Insolvency experts say liquidation is the more usual route to take, particularly in Scotland. The CVA was much more attractive to Rangers fans because it avoided football sanctions.What will the liquidators now do?
It's unlikely there's much more money to pursue, though liquidators will surely continue the £25m legal claim against Craig Whyte's law firm in London. HMRC's interest is more likely to be in the people involved. It's not saying who it wants to investigate, or for what.
But Craig Whyte is sure to be top of the list it is handing to forensic accountants BDO. Some of the powers reach back to the time when Sir David Murray called the shots. The liquidator can also ask questions of the way in which Duff and Phelps did its job since Rangers' administration began in February.
BDO will have extensive powers to see company accounts and records, and can get court action to enforce that. It can look into fraud, unlawful trading, giving away assets when it knew it was in trouble, and it can report back on the suitability of individuals to be company directors. Twelve years ago, Craig Whyte was given a seven-year ban as a company director, which he kept secret when he took over the club last year.
The liquidator can also require information from third parties linked to Rangers, such as Murray International Holdings, which used to be the vehicle through which Sir David Murray's held his stake.What happens to Rangers' assets?
Following the CVA defeat, it seems inevitable that Rangers Football Club plc will be put into liquidation, meaning its assets will be removed from the company that has controlled them. Duff and Phelps has agreed with the Charles Green consortium that if the CVA fails, he can have the liquidated assets for £5.5m. They would then belong to a new company, or newco.
That money will be used by liquidators to pay the cost of running the club while in administration, after which it goes to pay Duff and Phelps' fee, and then to secured creditors. Craig Whyte may claim to have that priority status, but it's open to legal dispute because of the way he secured it. The pot of money then meets any redundancy costs, and finally it's shared between ordinary creditors. Shares, held by 26,000 Rangers fans, will be worthless.
What that then means is a team, probably using the Rangers brand, taking to the field at Ibrox, though it's not so clear who they'll be playing next season. Players and other staff will transfer to the new employer on the same pay and conditions they've had, but they all have a right to refuse the transfer, so Rangers could lose players.
Given that the club has been deficit funded with around £10m per year, redundancies may be necessary, which would be for the owner of the newco to decide. Mr Green could also choose to sell the training ground, Murray Park, as a valuable asset that's not essential to the club. It's possible the terms of the asset sale could see some of the proceeds clawed back by liquidators.
If that plan goes ahead, Mr Green and his consortium can run the club without the debt and litigation. He could still face bills from other football clubs which have not been paid for player transfers. Their debts are different because these creditors have leverage over the new Rangers through football regulations.
Those sanctions from Scottish and European sport regulators are now the main challenge at Ibrox, as they mean Rangers can't qualify for Europe for three years, and it will have to reapply to join the Scottish Premier League, no doubt with conditions attached. If that fails, it faces relegation to the Third Division.Why is Charles Green's bid worth only £5.5m?
You might think Rangers' assets are worth more when they don't have the litigation hanging over the old company, so the liquidation price could be higher than the CVA. However, the lower price seems to reflect the reduced value of assets that are out of Europe for three seasons, with the risk of reduced income from TV rights while getting low gate receipts in the Third Division.
Creditors could challenge the legal deal between Charles Green and Duff and Phelps, and ask for the bidding for the liquidated assets to be opened up to others. Insolvency experts don't expect that to happen, not least because it risks Charles Green walking away, with even less money being made available.
The new owner will also require working capital to keep the club ticking over, and to invest and grow it. Charles Green hasn't detailed how much he's planning to make available, or where it's coming from. But I'm told the new management is already sounding out small-scale investors through Independent Financial Advisers in Glasgow.