Rangers run into the ground as furious HMRC battles to claw back tax
RANGERS and Her Majesty’s Revenue and Customs (HMRC) are locked in a furious battle that will define the future of the iconic Glasgow football club.
The two institutions traded blows at the Court of Session in Edinburgh yesterday before the club was finally plunged into administration.
Rangers, which will be docked ten points in the Scottish Premier League, did manage to secure their chosen administrators, Paul Clark and David Whitehouse of Duff & Phelps – a company that has previously advised the club.
But negotiations with HMRC are far from over, as Rangers seek a quick agreement for a company voluntary arrangement (CVA), that would stave off the threat of liquidation and allow the club to compete in Europe next season.
In an indication of what is now at stake for Rangers, Strathclyde Police warned it would not commit resources to future games without a guarantee it would be paid. Such a move would force the club to postpone games or play them behind closed doors – with the loss of ticket revenue, one of its biggest sources of income.
The Scotsman understands that within minutes of Strathclyde Police issuing that statement, Duff & Phelps was on the phone to the force. About an hour later, Strathclyde confirmed it would police this weekend’s fixtures, but gave no assurances about future games.
A spokeswoman said: “We have had a positive meeting with the administrators and received assurances about payment for the provision of police services at this weekend’s match.
“We are working with the club and planning for the game as normal.”
Sources at HMRC say they were “acutely frustrated” by Rangers’ actions, while the club is aggrieved at being bounced into administration earlier than planned by the taxman’s decision to launch its own court action. It is understood HMRC believes the dispute over Rangers’ use of employee benefits trusts (EBTs) – which club chairman Craig Whyte has said could cost them £75 million and is currently being decided by a first-tier tax tribunal – has been used as “a smokescreen”.
On Monday, Mr Whyte said there was “no realistic or practical alternative” to administration because HMRC had made it clear that even if Rangers won the tribunal decision it would “appeal, appeal and appeal again”.
However, as Duff & Phelps later admitted in a statement, HMRC’s petition to the Court of Session was on a different tax matter, “the non-payment of circa £9m PAYE and VAT following the takeover of the club in May 2011”.
A HMRC spokesman said: “We can’t discuss specific cases for legal reasons, but tax that has been deducted at source from the wages of players and support staff such as groundkeepers and physios, must be paid over to HMRC.
“Any business that fails to meet that basic legal requirement puts the survival of the business at risk.”
Experts say Rangers will need HMRC’s approval of any repayment plan in order to secure a CVA. This is because the £75m it potentially owes would be listed as a contingent liability debt, making HMRC one of the club’s biggest creditors, and therefore one of the ones that would be required to approve the CVA.
While there is no suggestion that the HMRC would block the CVA, it will be in a position to drive a hard bargain on behalf of the taxpayers it represents.
Margaret Curran, MP for Glasgow East, is so concerned about the situation that she has written to David Gauke, Exchequer Secretary to the Treasury, asking him to ensure HMRC acts in a “reasonable” way.
“The on-going discussions between HMRC and Rangers are key to reaching a sustainable outcome for the club,” the shadow Scottish secretary wrote.
“It is of course right that HMRC does its job and collects tax that is due. I would, however, ask that you, as the minister responsible, ensure that this is done in a reasonable way, focused on the best outcome for the club and taxpayer.”
The Scottish Government has also expressed concern.
Shona Robison, minister for Commonwealth Games and sport, said: “Football is our national game and it is now for the administrators to take forward the process of assessing the business and securing an outcome in the best interests of the club, its staff, supporters and the game of football as a whole in Scotland.”
Mr Whyte described yesterday’s development as “painful” and made it clear he believed the HMRC had forced Rangers’ hand. “As a consequence of court proceedings instigated this morning by HMRC, the board of directors has regrettably taken the decision to appoint administrators with immediate effect,” he said yesterday.
“The club did not want nor anticipate having to take this course of action today, but had no option.
“We had hoped that continued dialogue with HMRC would mean that a decision on administration would not have to be taken for ten days while all other avenues were explored.”
Mr Whyte said the club faced financial challenges beyond the discussions taking place with the HMRC. “Due to its cost structure, the club has been loss-making for many months,” he added.
“This situation has resulted in increasing liabilities and the club has been in discussion with HMRC regarding these liabilities.
“These liabilities, combined with the threat of the outcome of the first-tier tax tribunal, left the club no option but to formally restructure its financial affairs.
“It goes without saying that administrators will work towards a solution that will be in the interests of the club and its creditors. At no stage has a solution been sought where my personal interests were put before the club’s. The club and our supporters come first.”
In the Court of Session earlier, David Thomson, counsel for HMRC, urged the court to appoint its own administrators.
He said: “It is the position of HMRC that it is appropriate that this company be brought under the independent control of some person with no prior involvement with this company.
“The proposed administrators nominated by directors of the club [specialist restructuring financial adviser Duff & Phelps] have been advising the club for six months or more.”
Roddy Dunlop, QC, for Rangers, responded: “If they have any well-vouched fear regarding the capability or independence of Duff & Phelps, and I have to say I strongly doubt it, they can bring it back to court.”
Former Rangers chairman Sir David Murray, who sold his majority shareholding to Mr Whyte for £1 in May, said that contrary to recent reports, there was no legal mechanism for him to re-acquire the club.
“Words cannot express how hugely disappointed I am with news of today’s appointment of administrators to the Rangers Football Club,” he said.
Paul Clark, partner in Duff & Phelps, attempted to reach out to Rangers fans horrified by events at Ibrox.
He said: “We are working together with management and its major creditors including HMRC to achieve a solution to the financial problems which will ensure the ongoing survival of the business, which is of paramount importance to all concerned.
“We would like to take the opportunity of thanking the fans for all their past and present support and hope we can rely on them in the future.
“Rangers has a long and proud sporting tradition – one we all wish to see continue.
“All stakeholders are working hard to ensure the long-term future of this national institution. We will be making a further statement later in the week.”
The men who will take day-to-day charge of Rangers are joint administrators Paul Clark and David Whitehouse, both of Duff & Phelps, the New York-based corporate financial advisory firm and investment bank.
The firm was the preferred choice of Craig Whyte who hired David Grier, a UK partner, as his adviser on the Rangers acquisition.
Mr Grier is a former head of client relations at Royal Bank of Scotland and operations director at Bank of Scotland.
Duff & Phelps, which can trace its roots to 1932, works across all sectors and has a presence around the world.
It is a listed company with more than 1,000 employees and last year expanded its interests in Europe with the acquisition of MCR, a £21 million-revenue business with 150 staff that worked on a number of high profile retail administrations including Borders UK, MFI and Ethel Austin.
Noah Gottdiener, chief executive of Duff & Phelps, said MRC would bring “impressive scale” to its European expansion.
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