After the dust has died down as regards the arrestment order granted by Lord Hodge at the Court of Session on 13th September 2011 which allowed Martin Bain’s lawyers to freeze a substantial sum in Rangers’ bank due to fears about the company’s solvency, it is time to look at where the case is, and what is likely to happen from here.
As I have mentioned previously it look as if the case Mr Bain is making, namely that the actions of Rangers and their new owner, Craig Whyte, in suspending him to allow matters to be investigated and then declaring, before the investigation was complete, that he was not getting his job back, is a strong one.
There was nothing wrong with Rangers suspending Mr Bain. In corporate takeovers it is common for executives to go on “gardening leave” whilst the new team familiarise themselves with the running of the business. Normally this would come via the HR department. However here the situation was brought to a head at a board meeting when Mr Bain was absent and it is understood that Mr Whyte himself signed the letter suspending him. This would tie in with what seems to be the personal nature of Mr Whyte’s case against Mr Bain, as mentioned further below.
Rangers’ defence seems to be based on the allegations that Mr Bain is to blame for the problems which Rangers face, especially their debt issues with HMRC, and that in some way he acted inappropriately as regards the committee mentioned below which considered Mr Whyte’s plans.
As is detailed on the Rangers Tax Case Blog there are two HMRC claims facing Rangers. The larger relates to the operation from 2001 of an “Employee Benefit Trust” which HMRC believes illegally reduced tax liabilities at Ibrox. A sum of around £49 million has been mentioned as Rangers’ liability if their appeal, the final part of which is scheduled to be heard in November 2011, fails.
The second relates to a £2.8 million bill in connection with a Discounted Options Scheme, and a disputed £1.4 million in penalties. HMRC have successfully secured the sum of £2.8 million in Rangers’ bank.
Is Mr Bain to Blame for the Tax Cases?
The thrust of Rangers’ defence seems to be that Mr Bain failed in his duties by allowing these potentially fatal bills for the company to come into being.
Can Mr Bain fairly be blamed for either liability? Firstly, any business operating one of these technical and involved “tax reduction” schemes would do so based upon expert accountancy and legal advice. Whilst the executives of a business might have questions to answer if the advice turns out to be wrong, either at the time or in hindsight, it is far more problematic to put the blame on someone who has taken expert counsel. An executive who set up a scheme against advice would be in a far more perilous position.
But , as far as the larger case is concerned, the time line suggests that Mr Bain may well have had little or no involvement in that at all. The publicity suggests that the EBT scheme came into being in 2001. Mr Bain was only appointed as a Director on 6th September 2001. It is therefore highly likely either that the scheme was already in place before he was appointed, or at worst for him, he came into post once all the groundwork had been done and the scheme was ready to go.
Prior to this, and from his joining Rangers in November 1996, Mr Bain had been Commercial Manager. It may be that his job as such involved putting complex tax reduction schemes in place, but I would be very surprised if that was the case. So, on the face of it, Mr Bain can’t be blamed for the “big” tax case.
The same considerations about advice etc apply to the smaller case. If it was shown that, for example, Mr Bain himself invented either or both of these schemes, then that might raise questions about his abilities, but that would be very surprising.
What he did manage to do at Ibrox was to greatly reduce the club’s debt, whilst still being able to fund the team well enough to keep winning trophies, and to reach a first European final in almost 40 years. That, to an outside observer, does not seem a bad record, though I know there are Rangers’ fans who would disagree about that. In addition, as regards his salary as opposed to that of his counterpart at Parkhead, Peter Lawwell, he was paid significantly less than Mr Lawwell’s reputed £700,000 per year. Without being critical of Mr Lawwell, there is an argument for saying Mr Bain has done the better job!
What About the Independent Board Committee?
It is also understood that Mr Bain is under attack for his role in the committee (IBC) appointed by the outgoing board to protect the interests of the minority shareholders in Rangers. This is a standard practice in any corporate takeover of this type and especially as Rangers had around 26,000 minority shareholders, it would have been contrary to good practice, and the directors’ legal duties, if they had not done what they did.
Mr Bain was one of the members of the IBC which issued a statement critical of Mr Whyte’s plans. From the way in which each member of the IBC, with the exception of Ibrox legend John Greig, has been removed from any role at Rangers, it might appear that Mr Whyte took exception to his plans being questioned, and decided to ensure that he was not going to have to work with those who disagreed with him. Mr Greig, as a stalwart of Rangers over many years, would have been a far more difficult man to remove, based on the understandable affection the support still hold for him. To the fans, getting rid of the “money men” was of no great importance, but it seems that, to Mr Whyte, it was.
If, as is understood to be the case, Mr Whyte’s criticisms of Mr Bain include (a) his presence on the IBC at all and (b) his alleged “failure” to carry out his role on the IBC properly, then this would appear to cause similar problems for Mr Whyte to establish blame as with the tax matters above.
Firstly I strongly suspect that the “old board” would have taken thorough and detailed legal advice about their responsibilities in connection with a takeover, to include whether to have this committee at all and who should make up its membership. I do not imagine Mr Bain, for example, rejecting legal advice (and probably very expensive legal advice at that) to insist he sit on the IBC if advised he should not.
What would the IBC have had to do, and how could Mr Bain have gone wrong? Mr Bain’s court papers suggest, laconically, that the committee had “a difficult relationship” with Mr Whyte.
In the IBC’s statement, it was stated “Although the (committee) has no power to block the transaction, following its enquiries, the IBC and Wavetower have differing views on the future revenue generation and cash requirements of the club and the IBC is concerned about a lack of clarity on how future cash requirements would be met, particularly any liability arising from the outstanding HMRC case.”
Is Mr Whyte’s case that Mr Bain was wrong to be part of a committee which was so sceptical about him? Does Mr Whyte consider that, in some way, Mr Bain took account of matters he ought to have ignored, or ignored things he should have considered? Or was it simply that he had been party to a negative statement about Mr Whyte?
What Happens Now and Could Sir David Murray Really Be Called to Give Evidence?
As the court case proceeds, both parties will be preparing for a final showdown. That would take the form of a hearing of evidence in the Court of Session in Edinburgh before a single judge at which witnesses would testify on oath. The battleground seems to relate to (a) whether Mr Bain did his job properly or not and (b) if Rangers broke his contract, how much is he due by way of compensation.
The fact that Rangers have changed lawyers in recent days will not, I am sure, be sufficient to delay proceedings here. I suspect that, on the basis he would like to see some of the money he is due, Mr Bain will be pushing for a conclusion as soon as possible.
Both sides will be gathering their evidence. The rules allow each to try to recover relevant documents from the other. For example, as it seems that Rangers are questioning the activities of Mr Bain on the committee referred to, it may well be that his agents will try to recover full details of what the committee considered and what it did.
One of the areas it may well have looked at is Mr Whyte’s antecedents. It would clearly be a part of the committee’s duty to the small shareholders to determine, for example, if it seemed possible that Mr Whyte was becoming involved with some form of asset-stripping intentions as this would affect the small shareholders significantly. In addition, information given to the committee regarding Mr Whyte and his business interests would be relevant to them in assessing how likely it was that the promises he was making would be fulfilled. For the avoidance of doubt, I am not suggesting that he will not fulfil his promises to Rangers, rather that this was something the committee including Mr Bain had to consider, and, as we have seen, the IBC was not convinced.
Does this case continuing mean that the information given to the committee about Mr Whyte will be disclosed? Will that information, if discussed at length in court, work to his advantage or disadvantage? No-one knows, yet.
As regards witnesses, if I acted for Mr Bain, I would want to bring forward people who could explain to the court the job my client did; the difficulties he faced; and the results he achieved. I do not imagine, for example, that the former board members with whom he worked would be reluctant to speak in praise of him. Indeed, if I was his lawyer, I would be looking to have his former chairmen, Alastair Johnston, John McClelland and Sir David Murray himself, to come to court to speak for their close ally and former Chief Executive.
How would it look for Mr Whyte and the present Rangers directors, if such respected people as those mentioned were to be in the witness box against them? Could Rangers instruct their lawyers to go on the attack and to suggest to all three that Mr Bain was useless? They might have to!
Conclusion (For Now)
This case has the potential to be a circus far exceeding the entertainment value of the Tommy Sheridan trial, if it has to proceed to a full hearing.
From an outside perspective, I would be far happier acting for Mr Bain than for Mr Whyte, especially as Mr Whyte’s repeated public utterances continue to rebound on him and his club.
If I acted for Mr Whyte and Rangers, I suspect I would be telling my client to settle this case, and also to keep quiet in the media till the case was finished, but sometimes clients do not accept their lawyer’s advice.
Written by Paul McConville | scotslawthoughts.wordpress.com