Not another article on why Rangers are facing liquidation...
- 14 June 2012
Rangers are facing liquidation for the five reasons below.
- Craig Whyte acquired the Club without the means to fund the purchase or to meet working capital requirements. The Club traded whilst insolvent.
- When formal insolvency became the reality, the unthinkable of liquidation and dissolution was not taken seriously by those close to the Club. In fact it takes a colossal error of judgement on the part of the Administrators to have the CVA proposal rejected 72 hours before the Meeting of Creditors convened to consider it. It is unthinkable that HMRC behaved in a duplicitous, deceitful or deliberately misleading manner.
- The process of Administration has failed to identify a purchaser unquestionably capable of funding a Company Voluntary Arrangement to the satisfaction of creditors. It seems that the fundamentals of planning by the Administrators have been suspect. Extreme care should have been taken to blend the statutory timing requirements of both Administration and approval of a CVA with the prosaic reporting, registration and other requirements of the licensing authorities. A timetable designed to have the Club out of Administration within these constraints should have been set and scrupulously observed, with entry into liquidation as the very real threat to concentrate the minds of potential purchasers. It is fair to question how the Club was marketed and how far soccer industry experts were engaged by the Administrators. Purchasers reportedly became frustrated by a perceived disrespect for confidentiality undertakings
- Various bidders arguably failed to provide leadership to the fan base in a way which mobilised funding. For example, it is doubtful if the Blue Knights were ever legally bound as a consortium. It is inept to have been regarded as potential preferred bidder subject to payment of a preferred bidder fee, and to fail to put together the acquisition finance through recourse to the fan base.
- As agents of the Club, the Administrators have failed to exercise legal powers through court direction to deal with the Craig Whyte shareholding Similarly, they have failed to engage with HMRC as a major creditor or with the SFA or SPL as key licensing authorities within the structures of Scottish football competition. Purchasers did not have a level playing field. The SFA was allowed latitude in formulating charges, punishments and sanctions. The SPL, which has yet to consider a range of matters, has been under no apparent pressure to take a proper commercial view.
A failure to engage with detractors has been the hallmark of Rangers’ fans behaviour in recent years. There’s no point in ignoring the reality of FARE’s influence on UEFA, of riots in Manchester in 2008 or in Barcelona in 1972. There is no point in defiantly claiming “ownership” of the Club when “attachment” is a better definition of the operative relationship. This failure has led to a chasm between brand identity, being what the Club believes itself to be, and brand image, being what the public perception of the Club is. This chasm has left Rangers easy prey for wild and as yet unproven allegations of “cheating” and of attacks on punishment levied within SFA and SPL rules as insufficient. Stemming from this failure, and taking into account the five reasons for facing liquidation in the first place, it is reasonable to ask in what form Rangers can survive.
Whether within a new company or within the existing company having exited Administration through a CVA, the Club survives. The Club was formed in 1872 and began to operate through a limited company in 1899. Businesses continue through transfer from one corporate entity to another all the time. That the Club continues ought not to be a matter of debate. Two consequences seem unarguable.
- The company through which the Club operated will be liquidated, and with its liquidation will pass its liabilities
- The Club continues, and will be subject to sporting penalties to remove any sporting advantage arising from the shedding of its liabilities. By reason of existing UEFA rules, a newco will be excluded from Europe for three years. Although neither lies within the SFA rules as they stand, a transfer embargo constraining registrations to net zero for a period of time and the imposition of financial covenants such as a wage cap at a specified percentage of revenues for a period of time would be fair. These sanctions should be sufficient for wavering Chairs of SPL clubs to agree to the admission of the newco to the SPL
The penultimate burning question is whether any bidder other than Charles Green could have acquired the Club even at this late stage. Perhaps surprisingly, the answer was theoretically “yes” up until the conclusion of the Meeting of Creditors. The key was in the nature of the CVA proposal itself. The CVA proposal which HMRC rejected cannot be withdrawn and substituted by another. However, the Proposal was open to modification within the insolvency rules, including modification during the Meeting itself. If the Nominee in respect of the arrangement (who chairs the Meeting) regarded any modification as not material, the modification could have been voted on at the Meeting, requiring a simple majority of those present or voting by proxy. If the Nominee regarded the modification as material, as Chair he had discretion to adjourn the Meeting for a period not exceeding fourteen days to enable creditors to consider the modification. Therefore were a potential CVA funder to provide necessary proof of funds to support a material increase in the initial contribution to the CVA pot it was theoretically possible to have a creditor propose the appropriate modification which the Nominee would then have been compelled to consider. However, as the CVA failed, the asset sale agreement is binding on Green and the Administrators.
The final burning question is – what will we be discussing next week!
Professor David Kinnon is a chartered accountant and licensed insolvency practitioner, currently based in the British Virgin Islands. Views expressed are entirely personal