Wings Over Scotland

There’s a famous scene in the first Indiana Jones film where our hero, faced with a swordsman performing an elaborate duelling ritual prior to an anticipated bout of formal combat, simply pulls out a gun and wearily shoots him. (Inspired, no doubt, by the legend of the Gordian Knot.) We’re feeling a bit like that this morning as we peer into the bewildering, constantly-shifting looking-glass that is the affairs of Rangers FC.

Either of yesterday’s events would have been enough to try to untangle by itself, but the two smashed head-on into each other and created a grisly heap of tortured, twisted, smoking metal that’d take half a Scottish fire brigade all day to separate into identifiable components, and with about the same chance of anyone walking away intact. But we’re so stupid we’re going to have a go by ourselves. Read on, if you dare.

Firstly, the CVA. More details slowly emerged throughout the course of the day, and as is now traditional in the kooky cartoon world of Duff & Phelps, they made things less, rather than more, clear. The Scotsman carries a transcript of a press conference with the administrators, and some of the answers in it are startling.

Q: Is the £8.5m from Charles Green’s Sevco consortium a loan rather than an investment?

A: At this moment in time, it could be interpreted that way.

We almost boggled our eyes clean out of their sockets at this one. The qualifiers are entirely unnecessary and misleading – the money proposed by Green’s consortium quite simply IS a loan, due to be paid back with interest by 2020. That much is unequivocally and unambiguously written down in the CVA proposal document, so D&P trying to muddy the waters is as pointless as it is inexplicable.

The next one is the one that really put us in a spin, though.

Q: If you have to go down the Newco route, is the £5.5m deal Charles Green has in that event exclusive, or can others enter the bidding at that point?

A: I think we’ve been through a sufficiently extensive bidding process and, because we were running out of funding, we didn’t feel we could have an option of going back out to the market. Green’s bid was better than all other offers on both CVA and Newco basis. So we’ve structured it so that the CVA is the preferred option. We hope that is concluded on 14 June but, if that doesn’t happen, Green has to force us – and we have to force him – to go the Newco route for £5.5 million. But it is envisaged that the CVA will be successful. If it’s not, there is no option for anyone else to come back in.

(Our emphasis.)

This is simply staggering. If the CVA fails, Green’s £5.5m newco bid will guarantee a zero return for the creditors, because every penny will be swallowed up by Duff & Phelps’ fees, which have been variously described in the media but seem by broad consensus to be around £5m so far, and still accumulating.

But the administrators’ prime legal duty, let’s remember, is to secure the best possible return for the creditors, not for Rangers. It’s their job to produce as much money from the wreckage as it can, not to prioritise the survival of Rangers as a football club. While there are many reasons why a fire-sale of Rangers’ assets wouldn’t deliver the sort of sums onlookers might expect[1], there’s unquestionably a significant possibility it could realise more than the measly sum Green is offering.

(Which is itself conditional on the club receiving a guarantee from the SFA and SPL that it will be allowed to continue playing in the top flight of Scottish football – an outcome that looks less and less likely, but let’s not get ahead of ourselves.)

Technically, the administrators’ reply means that Rangers could end up being bought by nobody at all – if the CVA fails and the SFA guarantee doesn’t materialise, Green is out and D&P have just told us there’s “no option for anyone else to come back in”. That, of course, is plainly NOT the situation – in such an event there would HAVE to be a fire sale, Ibrox couldn’t just be left standing there empty – so it’s hard to conclude anything other than that Duff & Phelps are openly and obviously lying.

Some would suggest that it’s not for the first time. The press are optimistically reporting that the CVA proposal at present offers creditors a likely payment of 8p to 9p in the pound, based on the figures we laid out yesterday but supplemented by £2m in income from transfer fees owed to Rangers (largely, we think, from the sale of Nikica Jelavic to Everton). But there’s another spanner in the financial works, in the form of a whopping £3.6m “administration trading shortfall“, in other words the money the club has continued to lose while it’s been in Duff and Phelps’ hands since mid-February.

The administrators, so far as we can establish, appear to be trying to pull something of a fast one in regard to this hefty chunk of debt, by adding it to the unsecured-creditors list. But – and again, we have to point out that we’re not a lawyer – as far as we can establish companies simply aren’t allowed to be run at a loss in administration. (That being the point of entering administration in the first place.)

Any debts run up during such a period have to be paid in full when the company exits administration, not at a pence-in-the-pound rate from the creditors’ pot. Once again, such a situation would obliterate most if not all of the pot, leaving creditors with zero.

So to cut a long story at least a little bit shorter, it looks like the reality of the “CVA proposal” is that creditors are being asked to blindly accept a pig-in-a-poke deal in advance, based on a document full of unknown or misleading figures, which is almost certain to result in them waiting for months only to then receive nothing at all, or perhaps 1p in the £ at best.

Last night’s TV was full of “experts” asserting that they would do so anyway on the grounds that something is still better than nothing, but such a view is naive to the point of stupidity. The rules of administration are such that only two creditors ultimately matter with regard to the CVA – Ticketus and HMRC. Nobody has a clue what’s going through Ticketus’ mind, so we’ll leave them out for now and focus on HMRC.

HMRC has a much wider field of interest than any other creditor, because the others are concerned solely with the money owed to them by Rangers. HMRC, though, have an entire country full of football clubs and other businesses to consider. Many other clubs are facing similar actual or potential investigations to that of the Rangers “Big Tax Case”. If HMRC are seen to let Rangers off lightly, they’ll be opening the floodgates to every other football club in the land to spend money it doesn’t have, avoid tax, and then just collapse and re-emerge unscathed as a newco when the bills come home to roost.

The Rangers case, then, is absolutely vital to HMRC not as a source of revenue but as a warning to others. The money that would be lost by the Revenue if such an approach were to become widespread dwarfs that owed to it by Rangers.

(In HMRC’s world, the level of tax evasion by Rangers is in fact relatively small – most of the money stacked up in Rangers’ red column is in the form of fines, penalties and interest rather than actual unpaid tax and NI contributions.)

The idea, then, that the Revenue would accept a piddling likely return of as little as £1m-2m (roughly what one of its departments spends on biscuits in a year) on behalf of the taxpayer, rather than forcing Rangers into liquidation pour encourager les autres, and thereby ensuring scores of millions in future tax receipts from hundreds of other football clubs and companies, is – not to put too fine a point on it – sheer delusional fantasy of the most extreme (Orange) order.

The CVA will fail – as all sane commentators have always said it will, and as many people believe it is deliberately designed to. You can quote us on that. Then what?

That brings us neatly and reasonably swiftly to the second aspect of what appears to be the collective death wish of Rangers FC – the appeal to the Court of Session over the transfer embargo. Mindbogglingly, the club appears to be maintaining the position that it thinks it’ll emerge unscathed over the flagrant breaching of both SFA[2] and FIFA[3] rules by taking its case to a civil law court rather than the appropriate sporting authorities. The Herald today reports, for example, that:

“Rangers are optimistic that FIFA will not regard their dispute with the SFA as significantly serious because the club argued only that the sanction of a one-year signing ban was not available to the SFA Judicial Panel which imposed it, not that there should be no punishment.”

This is a spectacularly wishful misinterpretation of the facts. FIFA’s wrath is incurred when a club goes to a civil law court at all, not because of the specifics of individual cases. The organisation is unfailingly infuriated by any attempt to park the tanks of another lawmaking body on its lawn, and it has already stated that it expects the SFA to take “direct action“ against Rangers over the breach.

The SFA therefore has no option but to impose a second separate punishment on Rangers for involving the CoS, on top of a revised punishment for the original offence of bringing the game into disrepute which was the cause of the transfer embargo in the first place. As has already been exhaustively discussed in the media since yesterday, the revised punishment can only be some sort of suspension from SFA competitions, or complete expulsion – a fine has already been deemed inadequate for the seriousness of the offences, and Rangers don’t have any money anyway.

(Also, the SFA will be extremely annoyed that the original fine has just been effectively slashed by the court’s awarding of costs for yesterday’s hearing to Rangers.)

The same applies to the additional punishment that will be required to have a hope of placating FIFA. The absolute least the SFA can impose in either case is a one-season suspension from the Scottish Cup, but that has almost no chance of being seen as sufficient, since it could amount to as little as a one-match ban. (Given that any surviving Rangers will be a greatly weakened side which could easily be dumped out of the Cup at the first time of asking anyway.)

It simply isn’t plausible to see the SFA, however desperately it wants to keep Rangers alive, being able to do less than suspend the club’s membership for at least one full season – it could probably ride out the public fury in Scotland that would accompany a lesser sanction based solely on the Cup, but it’s highly unlikely it would be enough to satisfy FIFA, about whose opinion the SFA is obliged to care a great deal more.

Of course, any suspension completely scuppers both the CVA and Green’s formation of a Newco Rangers. (Remember, both are conditional on Rangers staying in the top division without interruption.) And with the latter having been seen as Green’s (covertly) desired route to making a profit on his investment, the challenge at the Court of Session makes even less sense.

Because the strangest thing of all about the CoS appeal is that the transfer embargo was essentially meaningless for Rangers. In their first post-CVA (or post-liquidation) season, they’d have had no money to pay transfer fees or salaries for star players, and no European football to attract them with. They’d have had to put out a team full of raw youngsters (and whichever journeymen from the current playing staff hadn’t been able to find alternative employment) no matter what, so the embargo in reality cost them nothing. It was the outcome of a very carefully-considered attempt by the SFA to look tough and decisive without actually damaging Rangers in any substantial way.

Going to the CoS all but guaranteed the club would be subject to far more serious sanctions, from either the SFA or FIFA or both. Why it did so anyway will be one of the lasting questions from the entire saga – was it sheer petulance over the original punishment, a deliberate attempt to bring the rest of Scottish football down with it, or some sort of cunning masterplan that nobody’s been clever enough to spot yet?

The only clues to be found in today’s media suggest the former. Andy Kerr of the Rangers Supporters Assembly, for example, reacted – as reported in the Herald – to the CoS judgement with the following words:

“The SFA might be feeling a bit sore, particularly as it has to pay the legal costs, but you would think the attitude of a governing body should be ‘How do we best help a member club to continue to play?'”

The sheer magnitude of the denial and arrogance contained in that sentence is hard to comprehend. Kerr, on behalf of Rangers fans, appears to be both demanding and expecting “help” from a governing body that has just had a coach and horses driven through its rules, with potentially dire consequences for the entire Association and all its members, by a club it was already bending over backwards to accommodate by imposing essentially harmless penalties for extremely grave offences.

On the other hand, the previous public utterances of senior spokesmen within the club seem to support the second conclusion – that Rangers are already resigned to inescapable oblivion, but want to take the rest of Scottish football with them. It doesn’t take a wild leap to imagine that Rangers fans, and some of the club’s officials, would glean considerable comfort in their own destruction if they also knew that by enraging FIFA along the way they were ensuring other teams (but mostly Celtic) would be deprived of the benefits of European competition for years.

As for option 3, only time will tell.

…

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FOOTNOTES
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[1] Many people have been wondering why Ibrox, which is notionally valued in Rangers’ books at over £100m, can’t simply be sold to pay off their debts. The problem there is that that valuation is basically an insurance one, representing the cost to Rangers FC of rebuilding Ibrox if it were to be destroyed in some sort of catastrophe. (To be honest, we’re a little surprised Craig Whyte didn’t torch it before now.)

But in a fire-sale the value of the assets is limited to whatever the new owner can realise from them. Unless they’re prepared to run a football club themselves, all they’ve got is a patch of grass surrounded by useless seating.

The main stand is a listed building and can’t be knocked down, but in theory the site could be redeveloped in much the same way Arsenal’s old stadium at Highbury has been. The issue with that, however, is that Ibrox is in a run-down and deprived area of Glasgow (take a wander round in Google Street View and see for yourself), not a highly desirable location in the middle of London, so the returns on such an investment might be somewhat uncertain, to put it kindly.

(Though it could be argued – cruelly, but not unreasonably – that the dissolution of Rangers would in and of itself make the area much more attractive.)

Also, as far as we understand it, Murray Park has planning permission for football-related use only, so you couldn’t bulldoze it and build houses or a Tesco, which clearly reduces its potential value drastically.

If the club is liquidated the players become free agents (though this, like a great many other things, is a matter of some dispute), so there are no quick bucks to be made there either. Basically, Rangers’ assets are worth a lot less if you want to do anything other than running a football club with them, so it’d be very much a buyer’s market.

[2] SFA Handbook, Article 65.5:

“The fact of membership of the Scottish FA shall constitute an agreement by a member that it, or any body or person interested through such member, shall submit all disputes to the jurisdiction of the Judicial Panel and shall not be permitted to take such differences or questions to a court of law.”

[3] FIFA Statutes, Article 64, part 3:

“The Associations shall insert a clause in their statutes or regulations, stipulating that it is prohibited to take disputes in the Association or disputes affecting Leagues, members of Leagues, clubs, members of clubs, Players, Officials and other Association Officials to ordinary courts of law, unless the FIFA regulations or binding legal provisions specifically provide for or stipulate recourse to ordinary courts of law.”