Rangers takeover: D-day for Rangers

RANGERS are essentially hoping creditors will safeguard the club’s past, present and future when they vote on the Company Voluntary Arrangement (CVA) at Ibrox on Thursday morning.

The club’s fate is in the hands of Her Majesty’s Revenue & Customs (HMRC). And a leading insolvency practitioner is struggling to reconcile how the Revenue could preserve both the current Rangers and their own position on CVAs. Ahead of the judgment in the big tax case, which could land the administration-stricken club with another £50million bill, Rangers’ debt is £55m. Ticketus is owed £26.7m and HMRC £21.3m. Charles Green’s £8.5m offer for the Ibrox club, therefore, would mean an 8p in the pound return for creditors. Ticketus is understood to be willing to vote for the CVA simply to avoid any more hassles arising from the season ticket deal it struck with former owner Craig Whyte, who they will now pursue personally. Consequently, HMRC will determine whether Green retains the current club structure or goes down the “newco” route, with creditors representing 75 per cent of the value of the total debt, and 50 per cent of those voting on the resolution, required to approve a CVA for it to be carried. Even allowing for director Dave King’s divisive call for the rejection of Green, most ordinary members are expected to accept.

Maureen Leslie, a partner with insolvency experts MLM Solutions, maintains HMRC cannot be bracketed with ordinary members.

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She points that the Revenue have a stated policy that puts Rangers in “a particularly difficult position”. “We are… likely to reject a voluntary arrangement where there is evidence of evasion of statutory liabilities,” HMRC’s documentation on CVAs reads. And, in view of the failure to submit tax returns, the failure to submit VAT, and the failure to honour a previous agreement as regards the wee tax case – the three elements of the £21.3m debt – Rangers “chronic corporate governance” during Whyte’s ten-month stewardship makes it the identikit of a company with which HMRC would ordinarily take a hardline stance over a CVA. Were an exception to be made, Leslie suggests she any other insolvency practitioners would consider the rules of engagement with the Revenue to have been changed.

“Against the backdrop in which Rangers went into administration, if HMRC, very much in the public eye over this case, were to set aside their normal considerations and accept 7p or 8p in the pound then people like me would go to them with our smaller clients and say ‘we’ll have the same treatment, thank you very much’. If the big tax case judgment finds they have exploited the system then, for that to be accepted by HMRC would lead others to consider they have the right to do so too,” Leslie says. “I don’t mean to come over all doom and gloom but, as a Government body, they have to be even-handed. That is not to say HMRC never agree CVAs with companies who have had poor compliance, or defaulted. Just that nine times out of ten that is the case.”

HMRC votes in favour of CVAs 60 per cent of the time, indeed, Leslie reveals. In the main, they do so when small businesses are plunged into administration through the unexpected loss of a major client, or when a historical debt has been suddenly called in.

The nature of Rangers’ CVA process is not comparable and the manner in which the proposal has been constructed by administrators Duff & Phelps and Green can hardly engender optimism it will appeal to HMRC. However, it must be said that there is no consensus among business analysts over what the outcome of Thursday’s meeting will be. A number believe HMRC will cut a deal.

There is consensus, though, that Rangers’ CVA proposal is highly unusual in that the actual amount available to creditors is unknown. They are therefore required to vote without having a clear idea how much they will receive, or even when they will receive it. That is down to the first tier tribunal having yet to deliver its verdict on the legitimacy of HMRC’s demand for £35m in unpaid tax and interest arising from Rangers’ use of Employee Benefit Trusts between 2001 and 2010. Whatever figure the tribunal returns, and it is expected to be sizeable, it will simply reduce the sum available to creditors from a pot expected to be in the region of £5.5m once they fees of secured creditors Duff & Phelps are deducted.

Of course, Rangers administrators would argue that the legal action they are taking against Whyte’s lawyers Collyer Bristow could add £25m to the creditors’ pot. That case won’t even start until October. “That will take a very long time to unravel and result in substantial legal costs,” says Leslie. Conservatively, it has been estimated that it could be two years before it reaches a conclusion. Only when it does will Rangers’ creditors be paid. Whatever is recovered in damages will also be available to creditors in the event of an asset sale to a “newco”, or liquidation.

It has been posited by some commentators that HMRC will reach agreement on a CVA because Green’s buy-out would remove Whyte from the picture and, with that, the person responsible for the evasion of tax liabilities. Green is blameless for the situation Rangers find themselves in. Another notion floated is that HMRC will not want to bring down a major brand and a Scottish institution when doing so could threaten the stability of top-flight football in this country.

“I don’t think HMRC can, or would, personalise the situation like that,” Leslie says. “Every company can put forward a sob story. I think the high-profile nature of Rangers won’t make them a special case. If anything, the scrutiny it places on a Government body would likely make them more determined to play it absolutely straight down the line.”

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There is a natural cynicism over Duff & Phelps gung-ho efforts to obtain a CVA. A month ago they claimed it was not feasible to go down the route Green is pursuing when throwing their weight behind Bill Miller’s “newco and incubator” plan. Green has said, in response to King’s attack, that whatever happens, he will buy the club on Thursday. If that is not through a CVA, which would require 28-day cooling off period before final acceptance by the creditors, then it will be through an asset purchase. In that sale, stadium, training ground and players will come under a new corporate entity.

Yet, if the CVA cannot take root because the club is buried too deep in debt, Green could be digging a bigger hole for himself by setting up such a newco. Scottish Premier League clubs appear to be hardening their stance on simply welcoming in a new Rangers formed to avoid up to £70m worth of debt to the public purse racked up by the old club. This story without end, as well as Rangers, could this week begin all over again.