The victory by Rangers oldco in the "big tax case" has led to speculation about whether an earlier decision could have saved the company from going out of business.
Rangers chief executive Charles Green claimed on Wednesday that the "big tax case" victory may have meant that the oldco could have survived administration through passing a company voluntary arrangement (CVA).
When the proposals were rejected in June, it forced the administrators to pursue an asset sale to a newco Rangers. As part of the CVA arrangement, Mr Green’s group had agreed to purchase the assets of the club, including Ibrox stadium and the Murray Park training ground, and transfer them to a newco, The Rangers Football Club Ltd.
This £5.5m deal resulted in the newco being unsuccessful in applying to become a member of Scottish Premier League, before being forced to start life in the Third Division while the Scottish Football Association transferred Rangers’ membership to it. It also saw a number of the first team squad refuse to move across to the newco, leaving the new owners unable to secure transfer fees for their departures.
Last week, the much-anticipated First Tier Tax Tribunal reported its findings on the use of employee benefit trusts (EBTs) to pay players and staff at the Ibrox club between 2001 to 2010. A majority of 2-1 of the tribunal found that most of the payments made from the offshore trusts were loans and that the £46.2m liability owed by the oldco and Murray International Holdings would be significantly reduced.
While it is impossible to know whether Sir David Murray would have sold Rangers to Craig Whyte if the "big tax case" had been settled earlier, here STV looks in detail at the questions around Rangers tax case and the CVA:
What is a CVA?
A company voluntary arrangement (CVA) is a pence in the pound repayment deal an insolvent company offers its creditors. Creditors vote on the deal and these votes are proportional to the percentage of total debt owed. Votes representing 75% of the value of the debt is required for the CVA to be successful. So if a company owes £1m, then votes totalling £750,000 of debt would be required.
What was the deal on the table?
In the case of Rangers oldco, RFC 2012 plc (formerly The Rangers Football Club plc), the CVA proposal was to be funded by a £8.3m loan from the consortium led by Mr Green. It would have been used to pay the administrators Duff and Phelps, before £2m of outstanding player transfer fees owed to the company would have been put into the creditors’ pot.
Any damages from still unresolved £25m court actions launched by Duff and Phelps against former owner Mr Whyte and his old lawyers Collyer Bristow would also be put towards those owed cash. According to documents lodged by the administrators, the CVA would have seen around £4.9m being distributed among creditors worth £124m, depending on various claims.
Who voted for and against it?
On June 14, the CVA vote took place, where its defeat was confirmed after HM Revenue and Customs (HMRC), the biggest creditor by size, had announced in the days leading up to it that it would be rejecting the proposed pay-off deal. In the CVA vote, the tax authority was listed as being owed a total of £94.4m. This included a £72.7m debt owed by the oldco in relation to an estimated outcome of the "big tax case".
According to the outcome of the voting, HMRC had a 76% voting share in the CVA. The next largest creditor listed was Ticketus which had a total claim of £27.2m, a 21.9% share of the vote. The ticketing firm, which struck a deal with Mr Whyte for season ticket sales at Ibrox, voted for the CVA proposal, as well as several smaller creditors including the Scottish Sports Council, Arsenal Football Club and the G4S security firm, meaning it was defeated, while there were a small number of abstentions. The vote breakdown in favour of the CVA was 23.6% with 76% against.
What would HMRC’s voting rights have been given the result of the big tax case?
Potentially, according to Mr Green, HMRC's claim in a CVA would have been significantly reduced in the light of the "big tax case" result. Instead it would have consisted of the £18.3m unpaid PAYE and National Insurance following Mr Whyte’s takeover from Sir David Murray, as well as the "small tax case" of around £3m. The small case related to the club’s use of a discounted options scheme to pay players Tore Andre Flo and Ronald De Boer between 2001 and 2003.
Removing the big tax case would have given HMRC a claim of around £21.6m in a total creditors’ pot of £51.4m. This would have given the tax authority a voting share of 42%, which would still be enough to block a CVA deal.
However, even if the big tax case result had returned with the same verdict in May or prior to the CVA proposal, it would not guarantee that HMRC would lose a large share of its voting right as a creditor. The tax authority could, as it is considering currently, appeal the First Tier Tribunal decision. This might have resulted in all or part of its potential £72.7m claim being included in the CVA vote. Even now, we do not know how much HMRC could be owed. It could appeal the decision to the Upper Tribunal and it is still likely that a "reduced" tax figure will still be owed by Rangers oldco. Both aspects of the big tax case result could have impacted upon the tax authority’s position in a CVA vote.
What about Ticketus’ position in the CVA?
According to the figures provided by Duff and Phelps in the chairman’s report on the CVA vote, dated June 14 this year, Ticketus had a total claim of around £27.2m. If the big tax case claim had been removed from the voting by the administrators, this would have given the ticketing firm a 52.9% share of the CVA vote.
The claim by Ticketus as unsecured creditors of Rangers oldco came after Duff and Phelps sought direction from the Court of Session, where Lord Hodge ruled that under Scots law, the firm did not own Ibrox season tickets as it claimed, but only held a licence to sell the tickets, forcing it to go into the pot of £124.2m owed money.
However, in the final progress report to creditors, the administrators stated that the "the advice received is to the effect that there are a number of grounds on which the claims can be disputed in full. Following the legal advice received, the joint administrators consider that the claims made by Ticketus should be rejected in full for voting purposes. Ticketus have been given notice of this decision."
This point could have meant that the voting rights held by the firm may have been contested by other creditors or the administrators in a CVA vote, meaning that it could have been partially or completely discounted in the process.
How would HMRC have voted in the CVA?
HMRC has a publicly-stated policy of rejecting CVA offers where "full reasons for past non-payment of tax and clear explanation of changes made to enable payment" have not been provided, and there is a possibility of "payment of other creditors whilst withholding sums due to the Crown."
If it had voted in line with that policy then the CVA, even without the big tax case debt, would have failed. If HMRC had gone against its policy, and accepted the deal, then the CVA would have been approved, allowing Rangers oldco to exit administration and continue to trade, offering partial repayment to creditors. Whether it would have gone against this policy in the context of losing the big tax case and wanting to 'cut its losses' remains unknown.
If everyone voted the same way, would the reduced CVA be approved?
Based on the voting patterns in the actual proposition, around 43% of creditors would vote against the CVA if the big tax case was discounted, meaning that it would also, like the actual proposal, be unsuccessful. HMRC and other creditors who voted against the CVA, including Italian club Palermo that was owed money for the transfer of Dorin Goian, would have enough to defeat the pence in the pound offer. This is in contrast to what Mr Green claimed in an interview on Rangers’ official online TV channel this week, where he stated: "When you look at the numbers now, Ticketus would have been the single biggest creditor and they were inclined to support the CVA so things could have been substantially different."
Even with the support of Ticketus as the biggest creditor in a CVA vote where the big tax case was removed from the picture, only 56.9% of those owed money would opt for the proposal based on the voting patterns in the actual deal, which would not have been enough to secure it. Even if the big tax case result had come back prior to the CVA proposal and it left HMRC with a reduced voting right, any pence in the pound deal would have still required the support of the tax authority for it to be a successful route out of administration.
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