Rangers administration: Easy to get lost in moral maze
Are Rangers heading for liquidation or rescue? Even the experts can’t agree, discovers Andrew Smith
RANGERS’ prospects of preserving their 140-year history have boiled down to the ability of the club’s administrators Duff & Phelps to obtain a Company Voluntary Agreement (CVA). And a spot of channel-hopping the other night illustrated precisely the extraordinary difficulties in arriving at any conclusion on the likelihood of that.
On Thursday evening, on STV’s Scotland Tonight, David Hillier, a professor of finance at Strathclyde University, presented a wholly optimistic rendering of Rangers’ position. The club wouldn’t owe as much as the headline figure of £134 million announced in the creditors’ report. Owner Craig Whyte would agree to a transfer of his 85 per cent shareholding to avoid liquidation, because the end of the current Rangers as a going concern would put him under scrutiny from financial authorities who have previously banned him from holding a directorship. And HMRC would do a pence-in-the-pound deal because it is not in the habit of putting football clubs out of business, generating no return for the taxpayer.
Hardly had Hillier concluded his musings, when, over on BBC2, Newsnight Scotland carried an interview with Maureen Leslie, a partner with insolvency firm MLM Solutions. Her take was practically a riposte to the professor. The situation was grave because the administrators were not in a position to sell Rangers as a going concern because they had no agreement from Whyte to sell his shares to anyone. Moreover, she produced documentation from HMRC in which the tax department stated it was its policy to reject CVAs if there had been an evasion of tax liabilities from the company seeking this – exactly how HMRC views the Employee Benefit Trusts, which are the subject of a tribunal decision which could potentially cost Rangers £75m. On this matter, it seems you speak to your expert and take your choice.
The choices for bidders will very much depend on the tribunal outcome and Whyte’s amenability to strike a deal for a company in which he represents the only secured creditor, which means he would need to be satisfied to the tune of £25m before any other creditors received a penny in the event of liquidation. Can he be coaxed into accepting a far smaller return?
And what of HMRC? The man fronting the “Singapore bid”, Bill Ng, has said that he believes his £12m offer for the creditors’ pot will return 20p in the pound to creditors. For that to be true, Rangers would need to win the big tax case, since its known liabilities are £60m. Ng’s position is fanciful. Yet, it is likely his purchaser’s fee is at least the equal of the other bidders, the Blue Knights headed by Paul Murray, and Bill Miller’s American consortium.
Where Hillier and Leslie were in broad agreement was the sum that would make a CVA attractive to creditors – or “commercially viable” as David Whitehouse of Duff & Phelps called it. Both put a figure of around £25m on that. Whitehouse has said the CVA is in the “gift” of bidders. It is not a gift they seem prepared to give. And this is where this attempted sale of the club, as with the last one, has demolished the myth that there are wealthy Rangers supporters out there who would never let the club go to the wall. They are letting this happen because all the bidders appear to be looking at, best case, a 12p-in-the-pound return to creditors. That is where HMRC, and the game, could be lost.
Even if, as appears reasonable, the tribunal brings a tax demand closer to £50m for Rangers’ EBT illegality, that would still mean HMRC being owed nearly £65m. That would make it by far the club’s greatest creditor, and essentially able to block or carry the CVA – which needs those owed 75 per cent of the debt to vote for it to be carried.
Now, if HMRC settled for only £7m, that could be seen to provide a “tax cheat’s charter”. In that scenario, it would raise more from putting Rangers into liquidation, and thus putting the frighteners on other potentially tax-shirking clubs.
In 2010, HMRC turned down a £10m settlement offer from Rangers for the EBT case, which is all about £24m tax underpayment, the headline figure of £75m being arrived at through interest and penalties. Since that rejected offer, the club has withheld a further £14m in tax returns – principally from PAYE and national insurance contributions – in the past year. That is a huge no-no for HMRC. Could it really afford to go so soft on Rangers as to accept only a fifth of what the Ibrox club should have paid in tax? Could it afford not to if the alternative was losing out on future tax revenues and liquidating a brand and a huge Scottish institution? That question is what Leslie and others have called the “moral hazard”.
The only adjunct to that point concerns whether a new owner would be prepared to agree a repayment plan for more of the potential £65m bill. These have been put in place at other clubs, with the repayment schedule ranging from two to five years. However, HMRC will be well aware of the case of Portsmouth, which came out of administration two years ago, agreeing to stagger a tax debt, and are now back in administration having paid back nothing of that.
Suppose, though, that around £25m was in the purchaser’s pot. That would provide HMRC with around £15m, more than it turned down two years ago, and more than was racked up under Whyte. It would serve the taxpayers’ interests to accept a CVA that returned them that. The £25m bid, the saving bid, just isn’t there, though.
No-one with the right financial clout seems to value Rangers’ history that much.
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