Rangers takeover: Fundamental flaw in Kennedy plan

ASIDE from the profound “quantum” issues, the Blue Knights and Brian Kennedy bid for Rangers contained one fundamental, but overlooked, flaw that surely would have resulted in its ultimate failure

The group were intent on obtaining Company Voluntary Arrangement (CVA) in order to preserve the club’s current structure and heritage. A CVA proposal needs to be accepted by creditors who represent more than 75 per cent of the money owed. Even before the result of the big tax case that could land Rangers with a £60 million bill for the misuse of the Employee Benefit Scheme is known, the Revenue is owed £14m – more than 25 per cent of the club’s current debt. HMRC then needs to vote in favour of any CVA in order that it is passed.

It has been widely quoted that the Revenue will look favourably on a CVA if any settlement is equitable. By that it means that it is treated exactly the same as all other creditors, which is in line with its policy and legal statutes. In England, HMRC votes against CVAs sought by football clubs because of the football creditors’ rule, whereby all debts in the game are satisfied ahead of any others. This does not exist in Scotland, hence the theory oft-expounded that Rangers can obtain the agreement of HMRC for a CVA.

However, Kennedy said the other day that Rangers would pay all their football debts, which amount to around £3.5m, and include a £1.1m settlement to Rapid Vienna for Nikica Jelavic. To do otherwise would leave them open to a long-term transfer ban from UEFA. Immediately, then, in football debts being set aside from other debts and paid in full, while other creditors would receive only 5p in the pound, the CVA settlement by Kennedy and the Blue Knights would not be equitable. And HMRC simply does not vote for inequitable CVA settlements at Scottish football clubs.

Ask Dundee. When they were seeking to exit administration last year, they took sacked players and staff out of their creditors’ list and settled with them separately to avoid further sanctions from the SFL. HMRC therefore voted against a CVA but Dundee managed to scrape through with 76 per cent of creditors in favour.

Rangers, though, need HMRC backing for any deal so any inequitable CVA is doomed to failure.