Monday, 30 April 2012

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

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