Rushden & Diamonds case and Rangers

“the IBC (Independent Board Committee) is concerned about a lack of clarity on how future cash requirements would be met, especially any liability arising from the outstanding HMRC case……….the IBC has insisted that the acquirer issues a document to all shareholders setting out the full terms of the transaction, comprehensive details on the acquirer and the sources of its funding.”

 Independent Board Committee of The Rangers Football Club PLC on 6 May 2011

“Based on information provided by the club, it is clear that it has significant financial problems. The Board has no confidence in the club’s ability to pay its creditors or as to its ongoing viability or its ability to meet its obligations in the forthcoming season, and in order to preserve the integrity of the competition it was with regret that the board considered it had no alternative but to expel Rushden & Diamonds FC.”

Board of Football Conference on 13 June 2011

IF THE AIM OF THE circular that Craig Whyte issued 6 June 2011 was to provide assurances on the matters that concerned the IBC at Rangers then it must be considered a singular failure.

Indeed the only reference in the circular to what might happen in the event of an adverse verdict in the HMRC case is more likely to engender alarm than provide comfort. Also noticeable by its absence is any detail on the sources of finance that Whyte paid to climb the marble staircase.

More of that later. On the positive side we now know who really owns Rangers. Or at least 85.3% of Rangers. On 6 May 2011 a company called Wavetower acquired 85.3% of the shares of The Rangers Football Club PLC from Murray International Holdings. Six days later Wavetower changed its name to The Rangers FC Group (RFCG). RFCG is wholly owned by Liberty Capital Limited.

Two things are worth knowing about Liberty Capital Limited. Firstly – and perhaps ironically in view of the recent publicity about the relationship between Rangers and HMRC – it is incorporated in the British Virgin Islands. Secondly it is wholly owned by Craig Whyte. So, despite considerable speculation to the contrary, Craig Whyte alone owns 85.3% of Rangers Football Club PLC.

And his relationship with the club founded at Fleshers’ Haugh in 1873 doesn’t end there. In a separate transaction RFCG has acquired the debt formerly held by Lloyd’s Bank PLC, estimated to be worth £18m.

In addition to these details the circular contains what appears at first sight to be good news for Rangers fans. In recent times we have read in the tabloids of the largesse that will be shown by the new owners in the event of a successful takeover. And it’s all there in this document. We have promises of: 

1. £5m for investment in the playing squad;
2. £20m procured or invested in the playing squad by 2016;
3. £1.7m to improve the kitchens and the public address system;
4. £2.7m (estimate in last set of interim accounts) to meet any liability to HMRC in relation to a discounted option scheme; and
5. £5m in what is described as “additional working capital facilities to the club”.

So good news all round for the club and its army of fans? Well not quite. For, as we are rapidly learning with Rangers new owner, the more we find out the less we know.

The main concern remains that raised by the IBC about what might happen in the event of a thumbs down from HMRC. In Section 1 (a) of Part III of Whyte´s June 6 circular we learn what will happen if all goes well. If, 90 days after the verdict from HMRC, Rangers have not suffered “an insolvency event” then Whyte will waive the outstanding debt.

But what will become of the club should there be an insolvency event?

Here the news is less reassuring for Rangers fans. Section 2 of Part III makes it clear that if that should happen then the debt will be increased by the amounts specified at 1, 3, and 4 above. In other words to the estimated £18m once owed to Lloyds (now owed to Whyte), we can add up to £9.4m for new players, new kitchens and the other tax bill.

Total indebtedness then of up to £28m. And this on top of the estimated £24m in tax, £12m in estimated interest and an amount of penalties yet to be determined but reckoned to be (on the excellent rangerstaxcase blog) in the region of £15m. Therefore should HMRC win Rangers will be looking at total debt which is not far short of £80m.

What does the new owner say about his strategy for the club in this event? Put simply it’s zero, nada, zip, zilch, nothing.

So, to recap, the owner of 85.3% of Rangers FC, Scotland’s champion club and putative representative in next season’s UEFA Champions League, has openly acknowledged in a statement to his fellow shareholders the possibility of insolvency. In that event all monies provided by his company to the football club will be treated as a secured loan presumably to facilitate its recovery.

And, should this come to pass, the best information available suggests that the club will face a bill of £51m from HMRC. Yet, despite being directly challenged by a committee which includes former chairman John McClelland and club legend John Greig, nothing has been explained about how this contingency will be managed.

This ought to be where all of us – whether we support Rangers or not – give thanks for free and independent media organisations at liberty to ask the most awkward and challenging questions that they can devise. These would include as a minimum: 

• You have made provision to protect your own position in the event of the club becoming insolvent. What is the probability of an insolvency event following a final determination by HMRC?
• If an insolvency event does take place is it likely to come about during the 2011/12 season?
• If insolvency becomes reality in the season which commences next month what contingency plans do you have in place to ensure that your club can fulfil its domestic fixtures?
• If the Scottish Football Association agrees to nominate you to participate in European competition in 2011/12 will you indemnify the Scottish Football Association for any losses that occur as a consequence of an insolvency event which results in your club not being able to fulfil its European fixtures?

And I am sure there are more. Many many more.

Our footballing authorities do not have to look far for an example to follow. The courageous and decisive action taken by England’s Football Conference in response to the financial crisis at Rushden and Diamonds FC is an example of a business-like governing body which is prepared to put collective good above the interests of individual members.

It may be that the SFA has carried out its own due diligence and has satisfied itself that there is no threat to the integrity of the season about to commence and there are no issues raised by the participation in European competition of a club threatened by insolvency. But what if it hasn’t? Where does that leave the rest of Scottish football?

This is an issue that appears to be of no interest whatsoever to the Scottish media.

The days since the release of Whyte’s circular have seen a blizzard of coverage on the planned changes to the governance of the SFA. Yet no-one has seen fit to explore with the CEO and the new President (an ex-Rangers director) what the new governance arrangements might mean for the apparently precarious financial position of Scotland’s champions.

Also the coverage of the affairs of Rangers FC has continued unabated with speculation about new signings from Aston Villa, Crystal Palace and Israel. But are there really no questions to be raised about the practicalities and even the ethics of a club trying to sign new players while it has the tax bill of Damocles suspended over its head?

Given this country’s huge interest in football in general and Rangers in particular is it not surprising that not one (as the song goes “no not one”) mainstream media outlet has seen fit to invest in the services of an insolvency expert to illuminate the issues for the benefit of its readers and listeners?

Instead it’s been left to the blogosphere – the redoubtable Phil Mac Giolla Bain and the outstanding rangerstaxcase – to try to shed some light as to the nature of the issues and the likely range of outcomes. Recently the Sunday Herald devoted a whole page to the “crisis” at Aston Villa and yet not a syllable to the potential insolvency on its doorstep.

It may be of course that this is much ado about nothing. Success in the case of HMRC vs Rangers Football Club PLC will lift the cloud of potential insolvency and leave the club facing a debt free future. But the portents don’t look good and well informed sources speak of at least two attempts by the club to settle being rebuffed by an increasingly confident HMRC.

The issues raised in the case of HMRC vs The Rangers Football Club PLC extend well beyond the interests of either of these two organisations. As football fans we all have an interest in determining whether reasonable precautions have been taken to minimise the risks to next season’s fixtures. As tax payers we are entitled to know what has happened to bring one of Scotland’s best known institutions into conflict with the UK’s tax collectors.

But, perhaps above all we should know the answer to this. If someone is intent on taking a liberty with Rangers why don’t the media and the football authorities have something to say about it?

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