Is exit from Administration in sight for Rangers FC?

As Rangers enter the 11th week of administration, we offer some thoughts on how the process has been conducted to date.

The overriding duty of an administrator is to exercise responsible care for the company whose property has been entrusted to him.  To do this, he has some wide ranging powers which include the power to carry on the business of a company,  to establish a subsidiary of the company and to transfer to any subsidiaries ‘the whole or any part of the business and property of the company’ (Schedule 1, Insolvency Act 1986).  We’ll return to that a little later in this blog.

This overriding duty does not mean that the administrator has to save the company at any cost.

There are 3 objectives of administration:

1. Rescuing the company as a going concern
2. Achieving a better result for the creditors as a whole than would be likely if the company were wound up (without first being in administration)
3. Realising property in order to make a distribution to one or more secured or preferential creditors.

These purposes are hierarchical, so you can only move to purpose 2 if it becomes clear that saving the company is not practicable.  The report published by Duff and Phelps on 5 April specifically refers to these purposes in Section 6.

Although saving the company is the first purpose of administration, this cannot be pursued at any cost.  Administrators have a statutory duty to perform their function in the interests of creditors as a whole. (1)

Administrators are further limited in how they may exercise their powers by the proposals approved by creditors at the meeting called to consider them.

In the case of Rangers, the administrators published their proposals on 5 April.  They indicated that the meeting of creditors would be conducted by correspondence and they invited creditors to vote on 5 resolutions before 20 April.

These resolutions, simply stated, were as follows:

1. That Duff and Phelps continue the administration process until that process comes to an end and that they exercise the powers of an administrator as they see fit in order to achieve the purpose of the administration
2. That they be allowed to propose a Company Voluntary Arrangement 
3. That they be empowered to take steps to put the company into liquidation “when it is anticipated that no better realisations will be made in the Administration than would be available in a winding up”
4. That their fees should be determined with reference to the time spent on the case
5. That the proposals should be approved without modification


What does all this mean for Rangers?

There are 2 offers on the table for Rangers FC this morning.  The Blue Knights’ bid appears to require a transfer of shares from Craig Whyte and exit via a CVA.  Bill Miller’s bid seems to propose a newco route.  Can one of these bids now be ‘preferred’ and the process of due diligence commence?

The Blue Knights bid clearly envisages the survival of The Rangers Football Club plc.  If successful, the first purpose of administration would be achieved, that is, the survival of the company as a going concern.  However, the stumbling blocks for the Blue Knights’ bid remain the problem of Craig Whyte’s shareholding and the probability of a CVA being accepted.  As we understand it, the Blue Knights’ bid proposes that Rangers’ bondholders will forego their claims in the CVA, presumably in the expectation that the Knights will honour the club’s obligations to them.

This creates a problem for HMRC whose guidelines suggest they will reject an arrangement which excludes creditors “who are entitled to receive the same treatment as all others within their class.”  If you are interested, you can read the guidelines in full by following the link at (2) below.

The other outstanding issue for a CVA is the quantification of the liability to HMRC – that is, the outcome of the tax case.

Bill Miller’s bid of £11.5m seems to offer more to creditors than the Knights’ bid.  As we’ve seen, the administrators have a statutory duty to take that into account.  Although he himself described the detail in a rather colourful way, it seems to involve the creation of some kind of subsidiary of Rangers FC plc, followed by a transfer of the business and assets to that subsidiary and a remerger with Rangers FC at some point in the future once a CVA has been agreed and completed.  However, failure to agree a CVA would not seem to be a significant impediment to his bid, although it would mean a move from purpose 1 to purpose 2 of the administration.

As we’ve seen, administrators have the power to create subsidiary companies and to transfer the whole or any part of the business and assets of the company in administration to that newly created subsidiary.  The stumbling block may be the ban on transfers imposed by the SFA last week, although today’s decision by the SPL to delay discussion of new Financial Fair Play rules must surely be helpful.  The SPL has confirmed that any application by a newco would be heard under existing provisions.

Perhaps it’s time for Rangers’ administrators to take some decisive action to break free of the present impasse and to provide some certainty for fans, players and employees of Rangers FC alike?  We’ll be online tomorrow lunchtime and will be happy to try to answer your questions about the operation of the insolvency process and how these might be used to facilitate either of the bids.

Join us here for our live Q&A session tomorrow from 12pm until 2pm

(1) Para 3 (2) Schedule B1 Insolvency Act 1986
(2) http://www.hmrc.gov.uk/helpsheets/vas-factsheet.pdf

Rangers FC - where next?

In a day of dramatic developments, Rangers FC seem to be left with a single bidder, the American Bill Miller.  At 5am this morning, the Press Association wires reported an ‘impasse’ at Ibrox.  Duff and Phelps said they needed an ‘unconditional offer’ before they could award preferred bidder status.  Apparently, Brian Kennedy’s offer had been rejected.  In the last few minutes, Bill Ng has withdrawn his bid saying that the bidding process has become ‘untenable’.  He has said he has ‘serious concerns’ about the deliverability of the shares on offer.

So where does that leave Rangers and the much discussed CVA?  

Remember, as recently as 4 April when the administrators published their proposals, they stated that they still believed that a sale “would result in an exit from the administration via a Company Voluntary Arrangement or Scheme of Arrangement”.  This would allow the company – the legal entity which is Rangers Football Club, to survive. 

However, to do this, a purchaser would have to acquire substantially the whole of the shareholding in the club, which brings us back to Craig Whyte.  Nothing has been said in public which suggests that he has agreed any deal to sell his shares.  So how could a bidder make an ‘unconditional offer’ to purchase the club when they don’t know if the shareholder will sell?

It seems that Mr Ng agrees.  Duff and Phelps cannot deliver Rangers Football Club plc to anyone without Craig Whyte’s agreement. 

However, the question of the shareholding is not the only barrier to an ‘unconditional offer’.  An unconditional offer for the company would involve some degree of certainty regarding how the company’s debt will be handled.  That is, some degree of certainty around the terms upon which a CVA might be agreed.  However, the level of debt is not yet quantified.  We don’t know how much HMRC is owed.  And we don’t know the value of Craig Whyte’s security.  In the same report from the administrators earlier this month, they advise that they are seeking to clarify how much, if anything is owed to RFC Group.  Again, this is a fairly fundamental point if you’re looking for ‘unconditional offers’.

And then there’s Ticketus.  Earlier this week, their involvement with the Blue Knights group apparently came to an end.  Last Friday, it looked like Paul Murray’s group would emerge as preferred bidders and enter a period of exclusivity.  Duff and Phelps reportedly demanded £500,000 in the form of a non-refundable deposit to proceed with the bid.  Ticketus, we are told, would not put up the money.

Asking for an up front, non-returnable deposit would be an entirely normal way to proceed.  Payment demonstrates good faith and gives the seller comfort in relation to the purchaser’s ability to fund the deal.  The sum Duff and Phelps asked for was not unreasonable or unusual in the context of a transaction of this size.  So why did Ticketus back off?  Hard to say.  But they face a loss of somewhere around £15m, depending on the precise terms of the deal with the Blue Knights.  Is it perhaps understandable that they did not want to throw another half a million into the pot?  Probably. 

Or did Ticketus simply defect to the Singaporean, Mr Ng because he put a better deal on the table?  It looks like it but Bill Ng has now expressed his frustration with Ticketus who appear to be applying increasing pressure to improve the outcome for themselves. 

If we think back to a couple of weeks ago, the administrators went to court to ask for guidance on the circumstances which might justify them breaching the Ticketus contract.  The Judge’s view was that the law says an administrator has to act in the best interests of the company’s creditors as a whole.  He added that there would be circumstances where an administrator would have to breach a contract (or decline to perform it) if performing the contract would conflict with that overriding duty to act in the best interests of the creditors as a whole. 

If Ticketus are holding prospective purchasers over a barrel, Duff and Phelps might have to move closer to walking away from this contract.  Which means Ticketus would have to claim in a CVA, increasing the level of creditors by over £25m and diluting the return.  And perhaps open up the prospect of further litigation.

Which brings us to the final development this week which was the intimation of legal proceedings against Collyer Bristow, the solicitors who acted for Craig Whyte in the acquisition of Rangers, by the administrators. 

One of the questions which has to be asked when considering a CVA is whether the company is engaged in litigation or has litigation pending. 

Although administrators do not enter litigation unless they are confident of their position, the outcome can never be certain.  What IS certain is that it will take a long time and will cost a lot of money.  And that’s another barrier to an ‘unconditional offer’.  Who will pick up the costs of the case if Duff and Phelps lose?  Why should a purchaser, who is only interested in the future of the club, pick up liability for fighting old battles?

The odds against the administrators being able to deliver a CVA are stacking up.  Are Duff and Phelps moving to the second purpose of administration which is the sale of the business and assets?  Developments over the next few days may prove crucial.


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Rangers FC - The issues facing the administrators as the closing date for bids looms

Today is the closing date for offers for Rangers FC plc. Duff and Phelps say they expect to have 4 or possibly 5 bids which they will consider before announcing their preferred candidate and entering a more intensive period of negotiation. So how will they choose between the bidders?

They have said their preferred exit route from administration would be via a CVA but they must ensure that a company voluntary arrangement will deliver a better outcome for creditors than they might expect if the company were to go into liquidation.

So how can they assess this?Press reports suggest that the bids on the table range from around £25m to around £8m.The largest bidder seems to favour a ‘newco’ scenario in which the business and assets of Rangers FC will be sold to a new company, the administration will come to an end and Rangers FC will go into liquidation.Other bidders prefer the survival of the original football club and an exit from administration via CVA.One of the bidders is reported to have secured a deal whereby one of the largest creditors, Ticketus, would be taken out of the picture and form part of the group which would acquire the majority shareholding in the club.

On the face of it, that seems to be an attractive proposition but a very rough draft of the numbers gives an indication of the difficulties the administrators might face if they were to accept it.  

However, there are significant variables which could switch the outcome in this very complex case.  

The calculation shown takes no account of potential liabilities following the outcome of the tax case.  If the decision were to go against Rangers,that would not bode well for a CVA as the sums owed by the club would increase substantially, even taking into account the deal with Ticketus which would take them out of the picture.  

Current estimates suggest that losing the tax case could increase the club’s liabilities by around £50m. Reports suggest that the level of bids which support an exit by CVA stand somewhere around the £8m level. Distributing almost £7m among creditors of £25m provides a decent outcome as the statement above shows.However, if the same amount has to be shared among £75m of creditors, they will get less than 10p in £.

In a newco scenario, with £25m on the table and with Ticketus claiming £25m, creditors would still get around 29p in £.  

And then there’s the issue of whether Rangers Group Limited will either sell its shareholding for a nominal sum or not. A liquidator need not concern himself with a shareholder but if Rangers FC is to survive in its current form, Craig Whyte needs to agree.

Finally, there’s the question of what value the securities held by the holding company actually has. If they have value, then they need to be dealt with before the interests of ordinary creditors (including Ticketus and HMRC) can be acknowledged.The securities confer a priority to Group over ordinary creditors.Technically, Group might insist they are worth £18m, which is the sum Group paid to the bank and in return for which Group received an assignation of the securities held by the bank.However, that could be challengeable.  

Today the administrators have to weigh up the bids on the table and they have to give notice of their proposals by next Wednesday.Their proposals must deliver the best outcome for creditors generally.Given the huge uncertainties still surrounding the club, they have an unenviable task.  And as we speak, Club 9 Sports seem to be putting themselves out of the running.The roller coaster for fans continues.  

(Please note – the figures we have used are for illustrative purposes only.We have no inside knowledge on the state of Rangers’ finances and no indication of how much the club actually owes.We have only used the known liabilities to HMRC and to Ticketus to provide an example of how bids could be assessed.Equally, we have no knowledge of how the bids are framed nor of what they actually contain.We have used publically available information for the purpose of putting clarity around the decision making process.)

Maureen Leslie from MLM Solutions will be appearing on Newsnight Scotland this evening at 11pm to discuss all of today's events. 


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