Today Rangers Football Club PLC notified the Court of Session of its intention to enter into administration. This gives the company a short period of breathing space in an effort to resolve its problems.
What will happen in the next two weeks?
The official statement from Rangers indicated that a Company Voluntary Arrangement would be proposed to the creditors. This is an offer to pay the creditors an agreed proportion of the sums owed to them, in full settlement of the debt.
For example, a company with unsecured debts of £50 million, and funds of £5 million, might offer creditors 10p in the pound. If accepted, the remaining debt is cleared, and the company continues, debt free.
Administration was created as a device to promote business continuity, and provide an environment more conducive than liquidation or receivership for business to continue.
Rangers however appear to have one major problem – HMRC.
The outcome of Rangers’ appeal against a determination that they should pay around £35 million in unpaid tax and interest is awaited. With penalties on top, this amount could well exceed £50 million, as acknowledged by the official statement from Ibrox today.
If 75% of unsecured creditors vote to approve a CVA then it is put in place, even if there is implacable opposition from the other 25%. This “vote” is based on the amount of the debt owed. Therefore, in our example above, a creditor owed £20 million would have 40% of the votes.
Rangers’ up to date financial position is not known. Its accounts up to year-end 30th June 2011 are long overdue, as is the AGM for shareholders to quiz Mr Whyte. However, taking Rangers’ statement that the HMRC debt may be in excess of £50 million, this suggests that the total amount of unsecured debt would need to exceed £200 million before a HMRC refusal to agree could be negated. Whilst, with the Ticketus deal etc, there might be a substantial sum due by Rangers to its creditors, it would be remarkable, and a scandal, if the debt was so high.
The history of HMRC agreeing to CVA’s in football clubs is not positive. Indeed HMRC fought tooth and nail to overturn the Portsmouth FC CVA. However, none of the grounds which allowed the administrator to move forward with a CVA there exist with Rangers.
Therefore a CVA appears to be a forlorn hope for the Rangers board (consisting as it is of only Mr.Whyte and Mr Ellis).
It is the duty of the administrator to run the team as a going concern and to dispose of it on that basis, if possible. Is it possible to do so with the tax debt hanging over it? It seems unlikely and indeed is recognised as such by the Rangers statement today.
If the company goes into administration, then the SPL will impose a 10-point penalty, and if the administration process is still ongoing next season, then a further 10-point penalty will apply.
In addition, if in administration, the team cannot take part in European football, even if qualified.
The administrator will need money to continue to run the club. Where will that come from? It costs around £300,000, I understand, to stage a match at Ibrox. As most of the tickets are paid for in advance, there is comparatively little “pay at the gate” money. Rangers’ income from catering at Ibrox seems already to have been assigned to Close Leasing Ltd (a company closely connected to Phil Betts, the former director at Ibrox). The transfer window has closed, so player sales are not possible now. Rangers are out of all Cup competitions, so cannot depend on a bumper payday from a cup run.
The administrator cannot magic funds from thin air. Sometimes he would ask the owner to fund the company pending a decision on a CVA or on a sale. Mr Whyte has denied suggestions that he is a billionaire, but perhaps he has other companies in his portfolio which could invest in Rangers to keep it alive.
The administrator will also need to cut costs. Daniel Cousin, for example, even if he has signed his reported £7,500 per week contract, is likely to be back out of the door very quickly. The administrator can effectively rip up players’ contracts where he does not want to keep on their costs. When Motherwell went into administration, Bryan Jackson axed a large number of players and back room staff, and it was the efforts of fans’ groups in turning up and paying at the gate, and rattling cans and buckets to raise money, which saved the Steelmen.
Maybe this would be the time for Rangers fans to dig deep in their pockets to save the team, as the administrator will need a lot of cash to resource the team till the end of the season. In addition, who would be willing to sign up for a season ticket for 2012-2013, not knowing which division the team will be in, or even if there will be a team at all.
Would Rangers players be willing to accept reduced wages from now till the summer, to allow them to be sold to support the team financially? Why should they?
Of the high earning staff at Ibrox, alongside the players, will Ali Russell, Gordon Smith and Ally McCoist be kept on?
Might we see a team of Rangers youth players elevated suddenly to the big team? If so, it could turn out to be the first flower of spring after a hard winter for Rangers.
If administration leads to neither a CVA, a sale or the company being rescued by massive investment, then liquidation would follow. The act of liquidation would terminate all employees contracts, rendering the players free agents.
Someone might buy the “goodwill” and “intellectual property rights” surrounding Rangers, but in that event Rangers 1873 would have gone the way of Third Lanark, Clydebank, Airdrieonians and Gretna.
There remain many more twists and turns in this story, I am sure, but today has seen the most dramatic events for Rangers since Mr Whyte took over, and possibly since Peter and Moses McNeil, Peter Campbell and William McBeath, got together for a kick about and decided to form a football club.
Written by Paul McConville | Scots Law Thoughts