This post doesn't exactly fit in with the whole 'review' thing, but I feel it best to get all my thoughts on this matter into writing. This is partly to try and rationalise the whole thing and partly because it'll provide some form of distraction from thinking of all sorts of scenarios which may unfold over the coming weeks and months.
The Basics
The facts at the heart of the matter are relatively straightforward. Rangers, in the last few years, had been struggling initially with a debt of around £20m owed to Lloyds Banking Group. It came to the situation when the bank's member on the Rangers board was calling the shots. The club, without any revenue from European football, operates at a deficit between revenue and spend of approximately £10m per annum. With European football, the club would be at the point of breaking even for the year.
In addition to the above issue, the real issue at hand here is Rangers' potential tax liability of around £48m to HMRC. This is in relation to the way many Rangers players (and board members) had been payed by the club over the years in such a way as to avoid paying tax. These were known as Employee Benefit Trusts. The ins and out of this are not what I intend to go into detail on here, so the following summary from BBC Sport will have to do for now.
With EBTs, an employer pays money into a trust and that money is paid out to the beneficiaries in the form of loans. These loans are not subject to income tax or National Insurance. In fact, most of these trusts are based in offshore tax havens so they are hardly taxed at all.
Anyway, these loans are a bit like the ones you would offer a hard-up friend on a night out - here's £20, pay me back when you can but I'm not going to remember this so don't worry about it. Here, however, is the heart of HMRC's case.
For an EBT to stay on the right side of the avoidance/evasion line, these payments cannot be made on a contractual basis, as that would make them wages and therefore subject to the usual deductions. So they should, on occasion, be postponed and even refused by the trustee, who is, in theory, acting independently of the employer anyway.
HMRC says Rangers' EBT did not work like this and was, for all intents and purposes, a tax scam. It also says it has proof of this in the form of documents and emails between Ibrox's top brass and players' agents. So, last year, an angry taxman hit Rangers with a bill for £35m in unpaid tax and interest and £14m in penalties. Rangers, already in debt to their banker and other creditors to the tune of almost £30m, denied the accusation of tax evasion and went to a tribunal in October to argue their case.
Last May, Craig Whyte bought Rangers for £1 and paid Lloyds. This left the outstanding issue of the potentially massive tax liability. There have also been suggestions of Whyte borrowing against future season ticket revenue to the tune of £24million. It is unclear where this money has gone, or what the club's standing is in this deal with Ticketus. Do they have a security? Are they likely to accept a CVA, or stand with HMRC and force liquidation? These questions need answered, but it seems we will now find out the answers very soon.
13 February 2012
What's happened today, then? First thing to say is that Rangers haven't gone into administration yet. This is important, as any penalties from the SPL (10 point deduction) will only take affect on an 'insolvency event'. Stating an intention to go into administration is not the same as going into administration. I may say that I'm going to jump off a cliff, but it doesn't happen until I actually do it.
The reasons cited for the statement today are essentially a rehash of all the troubles that have faced Rangers over the past few years, with Whyte trying his best to sound like this is being done with a heavy heart, when it seems clear that this is actually what he does for a living - take a company in trouble, stick it into administration, then boot it up again with a refreshed balance sheet and then take a cut of the money for his trouble. Of course, we have no evidence this is what will be done in the case of Rangers, but this does, regrettably, seem likely.
One suspects the real reason for this is that Rangers have heard of the result of the Tax tribunal. It has been rumoured that the decisions of the tribunals are circulated to the parties a couple of weeks before they are made public, so stating an intention to go into administration suggests that HMRC may have won the case on a level which Rangers will not be able to pay.
HMRC, on the event of administration, would rank as an unsecured creditor of Rangers. This is highly significant, and perhaps part of Whyte's great plan.Whyte has stated on a number of occasions that he is Rangers' sole secured creditor. Therefore, he would rank first on the insolvency of the club and get his money out first. This may not seem fair, but (for any insolvency n00bs) insolvency isn't fair by its very nature. The outcome of this is that there is little or no money left to pay HMRC.
This leaves two scenarios regarding the tax case:
- Rangers win the tax case and HMRC get nothing.
- Rangers lose the tax case and HMRC get nothing.
Therein lies the problem for the tax authorities. Either way, they get nothing. So, when Craig Whyte was stating today that in the next 10 days it is likely Rangers will go into administration, assuming there isn't a settlement with some creditors, he is playing a game of high stakes poker with HMRC. Ideally, one would assume that Whyte is looking to settle for a sum far less than £48m (or even the £75m figure which he mentioned today) in the hope that HMRC will look to cut their losses and get the best value for the taxpayer, rather than no value at all.
It would not surprise me, even if HMRC settled at an acceptable level, if Rangers still went through the administration process. Whyte has spoken of other debts and liabilities which the club faces, mainly to HMRC it seems, and it is in his nature as a businessman to wipe the slate clean and start again, hopefully with major assets such as Ibrox and the training complex at Auchenhowie remaining in the hands of either Mr Whyte (as Chairman of RFC) or Rangers itself.
It is unwise to speculate further on what the future holds, for it has been so unpredictable recently, but hopefully the above summary may be of assistance.
Dignity
One thing worth mentioning as an aside is the way which the news of Rangers' intention to go into administration has been received by some. Many have spoken with grace and dignity about what is a highly sensitive matter, not just to lifelong fans of the club, but to those outside of the football sphere who would be adversely affected by any 'insolvency event'. However, with others, this hasn't been the case.
The one thing I've always felt was fantastic about football is its ability to unite a nation, and even the world. In recent months and years, there have been other clubs which have faced uncertainty in Scottish football such as Gretna, Dundee, Livingston, Motherwell and, most recently, Hearts who have staved off a number of winding up orders and struggled to pay their players' wages. None of these events have struck me as something to celebrate.
One-upmanship between fans is commonplace in football, mostly under the guise of 'banter'. However, those revelling in the descent into administration of the most successful club in Scottish football ought to consider whether this is really something to celebrate.
The repercussions of today don't stop at Rangers Football Club. People, not just players or fans, will be made redundant as a result of today. These people are not all Rangers fans. Unsecured creditors, not just HMRC, will lose out on thousands of pounds if they are forced to accept a pittance as part of a CVA. Many of these will be small businesses, to whom a few thousand pounds may be the difference between staying afloat or going bust given the tough financial climate. These businesses will not be cheering today's news.
I'm not saying that there ought to be no mention of administration from opposing fans. Far from it. I've heard a few songs and jokes about Rangers' troubles which have made me laugh. What I am saying, is that it would be wise not to celebrate the failure of a club, for the reasons stated above. There is a massive difference between poking fun at a rival club and revelling in its demise. It is perhaps a slender difference, but it is certainly one which ought to be heeded by some.
