Monday, 18 June 2012

Some good questions and answers on Rangers Collapse

Courtesy of and Maureen Leslie of MLM solutions

Why did Duff & Phelps, HMRC, Ticketus and other creditors allow RFC assets to be sold for just £5.5m, when surely they would have fetched a lot more in the open market?

This is answered in the CVA proposal released on 29 May. In the Estimated Outcome Statement, it shows the breakup value as £4,590,214. Note 4 to that Statement confirms that this amount is the independent valuation of these assets. Administrators always engage independent valuers for this purpose.

When can we see the breakdown of the valuation of RFC assets? As it looks as if someone has mis-calculated.

Administrators are not obliged to put the valuations into the public domain. In fact, it is normal for the values not to be disclosed at all, on the grounds of “commercial sensitivity” – which means if you tell someone what they are worth, they are likely to bid lower.

Why was the valuation of the assets so low?

It is astonishing that the assets are valued at £143 million, but only at circa £5m on a break-up basis. As stated above, the administrators have obtained independent valuations. If the independent values were higher, the administrator would have had a duty to sell those assets on a break-up basis.

Who were the independent valuers of RFC’s assets? Is another body monitoring Duff & Phelps?

I think the original proposals (the 5 April ones) disclose the identity of the valuers. Lambert Smith Hampton valued Ibrox Stadium and Murray Park and Sweeney Kincaid valued the fixtures and fittings – all the assets except land and property. D&P are regulated by the Insolvency Practitioners Association.

How much money will creditors get?

The Estimated Outcome Statement in the CVA proposal dated 29 May, estimates that unsecured creditors (inc. HMRC) will share £953,284. The administrator has sold the club, and they will pass the surplus funds to the liquidator, who will then distribute it amongs the creditors.

What if Charles Green quickly sold Ibrox to another company (Tesco for example) for a large profit having only paid £5.5 million, would there be any liability, and if so who would be liable?

There’s nothing to stop Green selling it on. He’ll keep the profit unless there is anything written into the deal he has with D&P which would allow some form of clawback or share in an uplift.

Can creditors oppose the valuation if they feel it’s suspect?

This is quite a difficult question. The main thing to note is the importance of the proposals published by the administrators on 5 April for which they sought (and obtained) creditor approval. These govern the conduct of the administration. The proposals as approved allow D&P to sell the business and assets on such terms as they see fit and that’s what they’ve done.
The valuations on which the sale was based would have been done by an independent, specialist valuer and supplied to the administrators. The duty of care relationship is therefore between D&P and the valuer. However, creditors can challenge the conduct of the administration if they feel they have been unfairly harmed by it.

If a property developer offered £10M for Ibrox and the adjoining car park, would [liquidators] BDO be obliged to sell it to that developer?

BDO stated yesterday that they could not give any guarantees on whether they will challenge the sale, but that really is a holding statement because it is very early days in terms of their involvement.

At this time, it is clear that the deal between the Administrators and Charles Green to sell the business and assets to a newco has concluded. The business has been substantially marketed and there have been a number of closing dates for offers. Unless there has been an abuse of the process, it is very difficult to see how creditors can challenge the sale to Charles Green.

In summary, it is unlikely that the sale can be undone. That is not to say that Charles Green could not sell to another party.

Is there any possible redress at all for creditors who feel that the assets of the club have been suspiciously undervalued in the sale to Green, and that no other bids were permitted?

Creditors could challenge the sale on the grounds that they had been ‘unfairly harmed’ by the transaction. The proposals published by the administrators on 5 April – and agreed by creditors subject to the modifications proposd by HMRC – dictate how the process works. Creditors agreed to allow D&P to sell the assets on such terms as they saw fit. Unfair Harm is a difficult case to argue.
Alternatively, the challenge could be made under section 242 – Gratuitous Alienation. Any creditor could raise a Gratuitous Alienation action against the Administrators on the basis that the sold the assets at undervalue. A word of warning – it is a very expensive action to raise.

What would be the outcome in practice were a Gratuitous Alienation action to succeed? Would Charles Green have to compensate creditors? Or would Duff & Phelps have to? Or would the sale be revoked and the assets placed on the market? Or would there just be slapped wrists and fines and Rangers would continue under Green unaffected?

The Court would have the following options open to it:


The most likely outcome is that the Newco would have to compensate, or if it chose not to the Court could unwind the sale entirely.

Why was the bid from Charles Green accepted when the bid from the Blue Knights was higher?

Based on what we know, TBK’s bid was structured around a CVA being achieved, with no fall back plan in the event that the CVA was rejected. Our analysis is clear – the company was never in a position to meet HMRC’s criteria for a CVA. Therefore, the TBK bid had no realistic prospect of being achieved.

Why do you think Duff and Phelps tried the CVA route with a negligible (after their own expenses) payout to creditors? Do you think it had even a remote chance of being accepted by HMRC?

Our analysis is here. In summary, it was never likely that the Company would meet HMRC’s conditions for a CVA, but the purchaser made it a condition of his offer, therefore they were obliged to try. As I said in my blog, there were clearly significant benefits (sanctions) in attempting a CVA.

What are Walter Smith’s options? Is it a done deal with Charles Green or does Smith still have a chance to step in and clinch the deal?

Green is suggesting the deal is done. It seems to have been completed yesterday. He incorporated Sevco Scotland Ltd at the end of May. It looks like Smith would have to buy the company from Green rather than administrators.

Have Duff & Phelps followed standard procedures for administrators of football clubs in your opinion? I’m referring particularly to the timing.

This has been an exceptional administration, taking into account the mistruths from Mr Whyte and the public profile of the company in administrations, amongst other matters. In summary, they have dealt with a high number of complex issues (Ticketus, Whyte’s security, ingather funds via legal actions, complexities of employment law etc).
However, there are questions to answer. The are questions surrounding D&Ps perceived conflict of interest in acting as administrators in the first instance, and also perhaps the routes they have gone down and the lack of cost cutting measures.

As Duff & Phelps were a party to Craig Whyte’s initial takeover bid, should the administrators not have been ‘independent’ so as to protect the creditors?

 I set out the things insolvency practitioners have to take into account when accepting an appointment. The issue at stake, in technical terms, is how significant the relationship between Grier and Whyte actually was – the depth of that relationship, if you like – and there’s only a limited amount of information on this subject in the public domain. However, there is also an issue of perception – even if D&P thought there was no conflict, they ought to have taken account of how it would be seen by others (Article 48 of the Ethical Code).

Would you expect the liquidators to investigate the actions of Duff and Phelps, especially as regards possible conflicts of interest re: David Grier? Are they acting under instructions from HMRC? Would their investigations normally only entail the period prior to administration?

Part of a liquidator’s remit is to review the actions of an administrator, so it looks likely that this will happen here.

Do you think Duff & Phelps acted in best interest of creditors? They seemed to be more interested in the company, and keeping it trading.

When a company goes into admin, it has to do so for one of three purposes and these are hierarchical. The first purpose is the survival of the company as a going concern, and only if that can’t be achieved can they move to the second, which is the sale of the business and assets. Sometimes you can rule out Purpose 1 at the outset but D&P did not, so they acted properly in trying to save the company. However, they do also have an overarching duty to creditors.

Is around £500 per hour a usual fee for insolvency practitioners to charge while acting as administrators?

Fees charged by adminstrators vary a lot. D&P are a big London-based firm and their rates reflect this. However, creditors have a say in how much administrators are paid. They can form a Creditors Committee, which is the best way to go about it. Or they can raise objections when the request for remuneration is made to the creditors. Interestingly, HMRC proposed a modification to the original proposal and specifically inserted a right to challenge fees in their response to the 5 April proposals.

Do you think it would have been better for creditors if HMRC appointed the administrators, rather than D&P who clearly had a conflict of interest?

HMRC did raise a challenge to D&P appointment but Lord Hodge appeared satisfied. Allowing the HMRC nomination to proceed would have avoided the problem.

Much has been made of D&P’s management of this affair, but it seems to me that much of their difficulty stemmed from their imposition of a 31st May deadline for exit, on the grounds that this was the date agreed with the players regarding wage reductions, following which the company would be unable to continue trading. Had they instead taken a longer term view, cut costs in other areas, and looked towards gains on disposal during the transfer window, they could have ensured that the club was playing in the SPL next season still in administration, but with a substantial cash position from player sales for creditor distribution. Would this view have been permitted technically? Was there a legislative obstacle to taking a 15 month view rather than a 3 month view? Thanks.

Great question. Admin lasts for 12 months max, but can be extended with the consent of the court. It would have been perfectly possible to proceed as you suggest.

If you were appointed administrators is there anythng you would have done majorly different from what D&P have done?

I’m honestly quite pleased not to be the administrator of RFC! However, the previous post about an alternative strategy is a good one, and illustrates one way this could have been done differently.

Why will it take weeks before the liquidators take over? Duff & Phelps were in the door on the first night of administration, will this permit some form of cover-up?

D&P have said they expect to be in office for 8 to 10 weeks, but Resolution 3 in their 5 April proposals clearly states that “the joint administrators take the necessary steps to put the company into either CVL or compulsory liquidation” once they anticipate that no better realisations will be made in the administration than would be available in a winding up. It is now clear that this is the case. However they too have an obligation to report on directors to the DTI, so they may have some technical functions to complete before they can exit.

Why will there not be criminal charges brought against RFC directors past and present, and most importantly Craig Whyte, for keeping the PAYE and NI of employees?

A liquidator has the power (and an obligation) to report suspected criminal offences to the Lord Advocate under s 218 of the Insolvency Act. It would then be up to the PF to decide whether to prosecute. At this time, it’s too early to say what proceedings, if any, may be brought. Withholding tax is not however a criminal offence. It will be taken into account when reporting on the conduct of the directors of the club and may lead to their being banned from acting as company directors for a period of time.

What’s the most severe punishment David Murray and Craig Whyte could face if they are pursued by HMRC/BDO, and how can some of the money be recouped for the creditors?

The liquidators have powers to investigate the conduct of those who have been officers of the company (which covers directors and the administrators) in the last three years from the date of administration ie 14th Feb. If any officer is found guilty, they can face disqualification of acting as a director for a period between 2 and 15 years.

There are also specific actions the liquidators can raise to recover monies including -

1. Gratuitous Alienations
 2. Unfair preferences
 3. Misfeasance

These actions are available to a liquidator where an individual has benefited personally from the Company, and by doing so, the have prejudiced the position of the company’s creditors.

If Whyte, Murray etc are found to have acted wrongly, could their assets, such as Castle Grant and wherever the succulent lamb was on offer, be seized on behalf of the taxpayer?

There are various provisions in the Insolvency Act which allow directors to be pursued for a contribution to the company. Section 212 deals with Misfeasance – misapplication of company money or breaches of fiduciary duty. Section 214 deals with wrongful trading – where trading was continued beyond the point when directors should have seen that liquidation was unavoidable.
If the case is proven, they can be called upon to make a cash reparation to the company. But they would not make that contribution in the form of a specific asset like a property.

Why did HMRC allow the PAYE non-payment to go on so long, considering they were already investigating Rangers for the Big Tax Case? When Hearts missed payments they were ready to wind them up for a lesser amount.

Good question. The D&P report published in April states they were in dialogue with HMRC throughout the period. They seem to suggest they were in negotiation about some form of settlement of the Wee Tax Case and some form of payment plan. But you’re right, for most businesses HMRC are quick to chase any form of non-payment.

Does anyone know the situation with the floating charge?

In the CVA proposal dated 29 May, it confirms under point 4.29 that there is a valid floating charge in respect of Whyte’s companies. However, there is a nugget of information at the bottom of Schedule 7, which states “Group has confirmed that no debt is secured”.

This all suggests that there is a valid floating charge and that Whyte has confirmed there is no funding attached to that security. This appears to be definitive.

Was it legal for the “assets” to be sold to Charles Green if Craig Whyte has a floating charge over them and owned them?

The administrators have the powers to sell the business and assets without any necessity to consult creditors (inc. the floating charge creditor).

When will the Big Tax Case be decided?

No idea, and no idea why it’s taken so long. It’s really important to HMRC, though – there is a much bigger picture about the use of EBTs by thousands of other companies.

How much of a name change will the newco have to have, ie could they call themselves Govan Rangers?

It is possible that there will be the exact same corporate name i.e. The Rangers Football Club. There are restrictions on the re-use of company names, but they usually apply where the same directors commence a new company and use a similar name. That does not apply in these circumstances, as we know it.

If the new Rangers are buying the badge, they’re keeping the same strip and almost the same name, why aren’t HMRC chasing them about starting a phoenix company/club?

It is not illegal to “phoenix” a company. People have their views on this, but it’s not against the law. Sometimes there’s a good argument for doing so – sale of the business and assets can preserve jobs etc. In this case, newco has no directors in common with oldco so it’s not strictly a phoenix.

So will Rangers as we know it today resume trading without the debts?

If it was a normal business, I would confidently say yes. However, there are so many potential anomalies here: SFA sanctions, SPL re-entry, Div 3, impact on income, outcome regards players contracts. It really is impossible to indicate at the moment what the final analysis will be.

Once the decision has been taken to liquidate a company how long does it usually take before the company is defunct? This is important as while the oldco exists they hold their SPL share and can vote to allow the newco back into the SPL.

Liquidation can take a very long time – in this case, there is the matter of the litigation commenced by D&P against Collyer Bristow, which is likely to be continued by the liquidators. Civil litigation can go on for ages.

After the liquidation/death of Rangers FC PLC and the creation of a brand new legal entity, when can/does the new company become a new club?

As of yesterday, the new company operates the club. Of course, it does not yet have membership of either the SPL or SFL, which is an essential rquirement for any professional football club.

If D&P win the case against Collyer Bristow, who gets that money?

It will now be BDO that pursues Collyer Bristow, and that is a positive move for creditors, considering the percieved conflict of interest created by David Grier’s involvement with the company before administration. If BDO are successful, hopefully there will be a significant benefit for creditors.

Is there any chance a court will pursue the newco for the the oldco’s debts and liabilities? If the new company is calling itself Rangers, purporting to be Rangers, claiming the history of Rangers, would a court not decide that it is in fact Rangers and newco is a sham? After all courts in England “will look to the substance not the form”?

The way corporate & insolvency law is designed in the UK, the Courts cannot pursue the new company, within the context of RFC.

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