Friday, 16 March 2012

Administration Or Not? The Latest From Rangers FC

So, is Rangers Football Club in administration or not?  On 9 March, the then administrators returned to the Court of Session seeking an administration order against the company.  But the company had already entered administration on 14 February.  Or had it?

On 9 March, the court issued an order, appointing Mr Clark and Mr Whitehouse of Duff and Phelps, ‘Joint interim managers’ of the club.

So what’s going on?  Are Rangers in administration or not?  You will look in vain on either the club’s website or the interim managers’ website for the answer.  There’s a black hole where information should be.

The interim manager is a strange and unusual beast.  The Court usually makes such an appointment when it has been presented with a petition asking for an administration order but in circumstances when it does not have enough information to allow it to make a decision.  However, the court recognises that if such a petition has been presented, it may be prudent to appoint a person to take control of the company and manage its affairs until such time as the court hears all relevant evidence which will allow it to decide whether an administrator should be appointed.  And people appointed under these circumstances are known as ‘Interim Managers’.

And that’s what Messrs Clark and Whitehouse now are.  However, normally an insolvency practitioner would move from being appointed Interim Manager to being appointed as Administrator.  But Messrs Clark and Whitehouse appear to have gone backwards!

So, in layman’s terms, what on earth does this mean for Rangers Football Club?  It’s difficult to say.

It seems that Rangers Football Club was previously registered with the Financial Services Authority, most likely in connection with the Rangers Credit Card.  If a company is registered with the FSA, it must notify them before it appoints administrators and have the FSA’s agreement to the appointment.  This formality appears to have been overlooked. 

The return to Court of Session by the erstwhile administrators is likely to be an effort to obtain retrospective ratification of their appointment.

But where does that leave them meantime?  In a statement to the press, they say that “It is envisaged that this hearing is a formality and that the process will not impact in any way the progress of the insolvency”.  .In the meantime, they remain interim managers.

The terms of the court order certainly gives them the same powers as administrators but experts in insolvency law take the view that the role of the interim manager is not without its problems. In a text book co-authored by one of Scotland’s foremost insolvency judges, he notes that ‘interim managers are likely to be within the definition of shadow directors……and as such may be exposed to an action for wrongful trading if they allow the company to trade for any significant length of time, given that it is insolvent.’

Shadow directors are defined as people ‘in accordance with whose directions or instructions the directors of the company are accustomed to act’.  So, although they may have the same powers as administrators, and that would include a power to sell the club, it could be argued that they are considerably more exposed than an administrator would be.  There is no doubt Rangers is an insolvent business.  If the interim managers are to sleep easily in their beds, we can only hope that the salary cuts agreed by playing and non-playing staff are enough to stem the losses of £1m per month.  Otherwise, a disgruntled creditor might just decide to argue that the interim managers are acting as shadow directors and not as administrators and to hold them liable for losses in the meantime should the club go into liquidation. 

So, is the club in administration or not?  Arguably not.  Although an administration order was made, it is not valid, or at least, the purported administrators have not been validly appointed.  Does that mean the actions they have taken since February 14 can be challenged?  Probably not, but most insolvency professionals will be breathing a huge sigh of relief that they are not in the centre of this complex web of confusion.

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