31/10/2011 384 Comments
Complex legal contracts do not make for light reading. However, within the boilerplate, information can often be found that will raise eyebrows. The contract between Murray Holdings Limited (MHL- the MIH subsidiary used to hold Rangers’ shares) and Wavetower (the original name for The Rangers FC Group Ltd) is no different. I am told that the Share Purchase Agreement that transferred ownership of Rangers to Craig Whyte’s Wavetower is a treasure trove of interesting details.
For example, the CONSEQUENCES OF BREACH clause states what will happen in the event of Whyte failing to make good on his many promises.
In the event of and upon the Purchaser failing at the required time to satisfy any of its obligations in accordance with Clause 6.3 above the Purchaser (or any person who has been assigned the Total Purchaser Debt pursuant to Clause 6.3) agrees that the Total Purchaser Debt is automatically released or waived or otherwise extinguished in terms to be agreed by the Company, the Purchaser and the Seller.
This means that Sir David Murray, in making good on his promise to only sell Rangers to a responsible custodian capable of taking the club forward, has included a provision that promises that Rangers £18m debt owed to Wavetower will be cleared if Whyte fails to make good on certain specific promises. So what did Whyte promise?
The Shareholder Circular released by Whyte provided some details, but let us summarise what Clause 6.3 actually says:
- It provides for the £18m debt to Wavetower to be extinguished 90 days after the conclusion of The (Big) Tax Case
- It prevents Whyte from charging interest on the debt prior to the tax case being resolved (but interest can be back dated if there is an insolvency event)
- The debt to Wavetower will be capitalised (i.e. converted to shares and the debt written down) 25 days after the completion of any reorganisation that brings the club out of insolvency’
- Whyte will pay in all working capital promised (£5m is specified, but more detail is defined in related contract documents).
So the critical questions is:
Has Whyte paid in all of the working capital promised?
I have been told that he has not. As part of the conclusion of the deal, Whyte’s lawyers, Collier Bristow, provided a letter confirming that they had received £5m in funds from Whyte and that it would be held for Rangers FC to draw upon. However, it is believed that this money has not actually been transferred to Rangers. Whyte can clear up any doubt or uncertainty with an accounting of his working capital cash flow.
Rangers fans seeking to avoid or delay the turmoil of insolvency should be asking for an unambiguous answer from Whyte that all of the working capital investment provisions of the sale agreement have been fulfilled.
If they have not been fulfilled, one man has the power to pressure Whyte: Sir David Murray. Murray was press-ganged by Lloyds Banking Group into signing the deal, but he did insist upon the provisions outlined above. Were they just cosmetic insertions designed to allow him to argue later that he tried to do right by Rangers? Or did he mean them?
If Whyte has not made good on all of the provision of the contract already, Murray can threaten to invoke the CONSEQUENCES OF BREACH clause. This would see Rangers’ debt to Wavetower eliminated and would be a strong incentive for Whyte to make good on any difference between what he has paid into Rangers and what he has promised.
Forcing the debt to be reduced to zero would remove the protection of the floating charge for Whyte. If the debt to Wavetower is extinguished, Rangers could even have a CVA (a Company Voluntary Arrangement) where repayment to HMRC is negotiated and the legal entity which traces its founding to Flesher’s Haugh in Glasgow Green in 1872 would continue with its history intact. The threat of a three-year ban on European competition from UEFA would also be eliminated. If Whyte has not made good on all of his working capital promises, Murray would have a chance to provide Rangers fans with the best possible outcome from the supporters’ perspective. The only “victim” would be someone who would have had to have reneged on promises for this plan to have legal standing.
Mr. Whyte: have you fully implemented all of the obligations of Clause 6.3 of the Share Purchase Agreement? A simple listing of your net payments into The Rangers Football Club plc would answer the question.
Mr. Murray: if Mr. Whyte has not fulfilled all of his obligations, why have you not enforced the provisions you negotiated? It would be the best gift you could give the fans whose club teeters on the brink today?