Broken Rangers: Club signals intention to go into administration

Months of speculation and uncertainty about Rangers’ financial future came to a head yesterday when lawyers for the club filed notice at the Court of Session in Edinburgh of its intent to enter administration.

Craig Whyte, the owner, said Rangers had been left with no alternative because of the continuing tax battle with HM Revenue and Customs (HMRC).

The businessman, who bought Rangers for £1 in May and has been shrouded in controversy since the takeover, was heckled by supporters while reading a statement outside Ibrox stadium. However, he insisted there was no “realistic or practical” alternative to yesterday’s action.

He warned the cost of the club losing its battle with HMRC would be “substantially more than the £50 million reported”, which Rangers would be unable to pay.

He later claimed the total bill could be 50 per cent higher – £75m.

Fan reacted with dismay. Rangers Supporters Assembly president Andy Kerr said: “I am shellshocked. Some of us fans had expected that we might face this day but that it has happened so quickly has been shocking.”

The club says it has ten days to decide whether to take the next step and appoint administrators – a move that would see it automatically docked ten points by the Scottish Premier League, dealing a hammer blow to Rangers’ title hopes.

The club says it has already “engaged” specialist restructuring financial adviser Duff and Phelps to “assist in finding a solution to the present position”.

Mr Whyte, director of operations Ali Russell and board member Andrew Ellis, reportedly met manager Ally McCoist yesterday to inform him of the news.

In a Q&A on the club’s website, Rangers made clear that the ball was in HMRC’s court. Asked whether administration could be avoided, Rangers said: “Yes, it is possible. If HMRC were to strike a manageable and mutually acceptable agreement with the club, even at this late stage, that would safeguard the future well-being of Rangers, without any insolvency process.”

However, it indicated the UK government’s tax arm had no plans to ease the pressure.

Mr Whyte said: “HMRC has made it plain to the club that should we be successful in the forthcoming tax tribunal decision, they will ‘appeal, appeal and appeal again’ the decision.

“That would leave the club facing years of uncertainty and also having to pay immediately a range of liabilities to HMRC.

“Even if the club were to succeed in the tax tribunal, it would still face substantial liabilities. Zero liability will not happen.”

The HMRC case centres on the use of employee benefits trusts (EBTs), which were in place before Mr Whyte took over from Sir David Murray.

The demand was reported to be £49m – £35m in tax and £14m in interest and penalties – which is currently being considered by a tribunal.

The club is proposing a Company Voluntary Arrangement (CVA), which it believes would protect it from HMRC. It says, if the tax case continues to hang over the club, it will find it “impossible” to attract investment.

Mr Whyte said: “It is extremely disappointing the club finds itself in this position, but decisions have to be taken to safeguard the long-term survival and prosperity of the club both on and off the field.

“The harsh reality is that this moment has been a long time coming for Rangers and its roots lie in decisions taken many years ago. If we do not take action now the consequences and the risks to the club are too great.”

Rivals Celtic yesterday revealed figures showing a pre-tax profit of £180,000, down from £7m the previous year.

Peter Lawwell, Celtic’s chief executive, said the club did not need its city rival. “The way we would look at it is we don’t need Rangers,” he said. “We have a strategy that we have embarked on that’s independent of Rangers or any other club in Scotland.”

Former Rangers chairman Alastair Johnston said there was a clause in the purchase agreement that would allow Sir David to buy the club back. However, The Scotsman understands the former owner has no intention of launching a takeover bid.

The Rangers board is confident that, if the club does enter administration, it could rise from the ashes more successful and financially stable.

The club insists season tickets for this year and next are safe and the administration move would not mean the club could not play in Europe in 2012-13, although it expects to have to implement a cost-cutting programme, with staffing levels reviewed across all departments.

Even if the club was hit with a ten-point penalty, Rangers would still be nine points clear of Motherwell in the race for second place in the SPL and a Uefa Champions League qualifier. However, if the club does enter administration, it would face a race against time to leave it again by the end of March, in order to be eligible to play in Europe under Uefa rules.

The intention to enter administration was made under the 1986 Insolvency Act. The papers were submitted by law firm Biggart Baillie and it is the latest in a raft of litigation involving the Scottish champions.

Since the boardroom takeover by Mr Whyte, former chief executive Martin Bain and former finance director Donald McIntyre have raised damages claims. Mr Bain is seeking £900,000, and, in a preliminary move, a judge agreed to freeze £480,000 of the club’s assets, which could be used to pay any award he ultimately wins. Lord Hodge said the order was appropriate because of “a real and substantial risk” of insolvency if the taxman won a separate case against Rangers.

Mr McIntyre had £300,000 of assets ringfenced, although he later settled his damages action out of court. The terms were not disclosed.

HMRC has sought £2.8m in a separate case, with £1.4m in interest and penalties.

The club’s former legal adviser, Glasgow law firm Levy & McRae, had to go to court before securing payment of a £35,000 bill.

Scottish sports minister Shona Robison said: “Rangers is a crucial part of Scotland’s national game, and our interest is ensuring that a resolution can be arrived at between HMRC and the club to deliver these vital objectives.”

An SPL spokesman confirmed that a ten-point deduction and a transfer embargo would be put in place only when administration had been confirmed.

He said: “At this point in time, Rangers are not in administration and we await developments.The instant that they are technically in administration, there will be an automatic ten-point deduction and, perhaps of less relevance, an embargo on player registrations.

“If administration is confirmed, as we have done previously, we would be looking to work with the administrators and would be looking for a very early meeting.”

A spokesman for HMRC said: “If there are any outstanding bills as part of a tax debt at Rangers, then they will be accounted in the calculations made by any administrator that’s appointed. The tribunal case is totally separate and we are still awaiting a decision on that, which is believed to be a few weeks away yet.”