SFA have Rangers’ Interim Report…

According to Phil MacGiollabhain’s blog (www.philmacgiollabhain.com), the SFA have confirmed that they have received Rangers interim report. We don’t know if it is complete, signed off, or meets all of the SFA requirements, but they have passed over a hurdle that would have prevented the SFA from issuing Rangers with a UEFA license to play in European competitions next season.

The events surrounding the alleged takeover and failure to release the interim results by today at 5pm makes this situation take on an increasingly surreal appearance. Whatever is going on within Ibrox as we speak can only be explained by some extremely unusual occurences. The interim results normally have no bearing on any takeover- the buyer will presumably already know all of the contents of such a report in a friendly takeover. It makes me wonder if Grant Thornton are wanting to apply a ‘going concern warning’ to the report. Could the fakeover all be an elaborate charade to convince Grant Thornton that the tax risk had been underwritten by a third party and therefore did not constitute a risk any longer?

Who knows, but for sure the events of recent days will only be explained by a story that will read like a Jeffrey Archer novel.

This extract from the PLUS Market regulations makes clear that Rangers were required to release the Interim Results today.

47 An issuer must release financial information in accordance with the following timetable:
(a) interim results in respect of the first half of each financial year (beginning with the six month period following the end of the last period for which audited accounts have been published on admission) must be announced as soon as possible and in any event not later than three months after the end of the relevant period;
Source: PLUS Market Rules for “Quote” companies:
PLUS Market Rules for Quoted Issuers
Rangers operate a 1 July to 30 June financial year. So the half year ends on 31 Dec. Three months to the day after 31 December is today, 31 March.
So the interim report is no longer “delayed” or “later than normal”. They are officially “late”.

Rangers: fakeover or takeover?

Today’s SKY Sports reports that Lloyds have cleared the way for Craig Whyte to complete his takeover of Rangers is interesting.

As others have noted, is this finally the Messiah or is it yet another round of PR headgames?

When it comes to media manipulation and Rangers FC it is hard to be too extreme.  We have seen decades of Sir David Murray’s spin-machine at work.  Now that it is about serious issues, we have seen some incredible stuff in the media.

So what is it?  Fakeover or takeover?  I have seen nothing that indicates that Craig Whyte has the wealth necessary to conclude such a deal with or without the taxcase. (I have looked).  A trail of shell companies with a very poor track record of compliance with Companies House filing requirements and transactions that never seem to be much more than a few hundred thousand pounds.  Let us not forget that he was recently taken to court over a measly £80k for building materials.  (Odd that I did not find any companies in his portfolio that resold building materials.  Anyone know the outcome of this case?)
But let us just suspend disbelief and go with the idea that Whyte does have some money.  I would question the sanity of anyone who was willing to meet the stated price for Rangers.  So I refuse to believe the story as it has been spun, a  £33m purchase that would clear the debt and give MIH a nice consolation prize. Even if sold for a much lower price or just given away, that is not the end of the issue.

For Rangers’ problems to go away, he needs to have deep enough pockets to be able to pay off the tax bill. Stories that someone else will guarantee this are incredible. Any guarantee that does not include £60m in cash going into escrow is not worth the paper it is written on. For when HMRC call, they will not care for pieces of paper and promises. If not paid on time, it will still be Rangers FC who are forced into administration. It could take a couple of years for Rangers’ new owner to force a guarantor to pay up. His shares in his company would be long gone by then. Whyte’s legal recourse would be to take the guarantor to court. If that guarantor is Sir David Murray, I would advise caution. Companies House records show that Sir David has been moving at least some of his assets into offshore trusts.

The guarantee of a man who may not have any or many assets in his own name is not worth much at all.

A summation of the first few days…

In just 2-1/2 days, this site has received over 10,000 visits.  I am new to the world of blogging.  Having read the musings of others and seen that most blogs sit idle for years without a comment or any sign that anyone ever read them,  I thought that it would take a long time to build momentum and traffic for this site.  My gut feeling that there was a thirst for information on this subject has been proven wrong only by the degree to which I underestimated the level of interest. Most of all I have been overwhelmed by the quality of discussion which you, the readers, have contributed. Thank you!

Aside from the numbers and quality of debate, a few other items have taken me aback.

Firstly, the number of others working away in dark recesses of the internet to uncover the truth about Rangers’ tax predicament has been a surprise.  Some are very well-informed. Others seem to have turned to this material having exhausted the Kennedy assassinations and 9/11.  I welcome all of your messages, but if the discussion starts to veer too far off course forgive me if I delete posts to keep matters in the practical realm.  There are enough other venues for the more speculative theories.

The other thing that was surprising was the speed with which the metaphorical ‘horse’s head in the bed’ arrived.  I had always expected hacking attempts and a few threatening messages.  However, the posts on yesterday’s blog from “Me” were very interesting.  I am not usually prone to conspiracy theories, but I suspect that this blog is getting to some people who want to keep this story in its rumour and innuendo stages.  The true identity of “Me” is unknown, but I would not be shocked to learn that he is a PR enforcer for interests close to Rangers’ executives and those whom they feed.  Is this the routine behaviour that has kept this story canned for so long?  Intimidation.  Scare stories.  Quiet words about legal consequences of publication?  How many good stories are left on the cutting board in the face of veiled threats of legal action from more senior journalists with relationships to protect?

Well this is the blogosphere.  You are going to have to earn your pieces of silver to silence me.  To paraphrase Bill Struth, “I welcome the chase!”

Rangers fans should be wary of those purporting to represent their interests.  While Celtic fans might enjoy a temporary giggle over the current situation, only journalists with decades worth of friendships to protect and those who have driven the club to the precipice can benefit from keeping this story quiet.  The sooner you are told the truth by those whose wages you pay (Rangers’ executives and journalists), the sooner this nightmare ends and a new broom can sweep clean.

Lies, damned lies, and Scottish football journalism

Being privy to many of the facts related to Rangers’ tax ordeal, the last year has been a revelation to me.  I find it hard to believe that every journalist in Scotland is naive enough to believe the nonsense being fed to them.  In their hurry to publish, they shamelessly rush from fax machine (or whatever PR firms use these days) to the press without editing or critical thought.  In short, readers are paying to read PR-fluff written and produced by people with agendas.

Then there are a number of hacks who surely cannot claim, after all of these years, to have simply been hoodwinked by purveyors of succulent lamb?  Some Scottish journalists’ track record of doing the bidding of the country’s more media savvy businessmen goes back to a time where a simple loyalty to their favourite football team cannot explain everything.  This has the odour of  “bought and paid for” reporting.  A passionate and diehard Rangers fan could not go along with this fakery. Only the most naive or corrupt of journalists could continue to do the bidding of people whose interests are diametrically opposed to Scottish football as a whole, and most specifically, Rangers FC.  Yet Rangers fans are fed this diet of regurgitated lamb and foolishly lap it up like it is a kebab at closing time.  It seems that any bearers of bad news, regardless of allegiance, are dismissed as troublemakers (and worse).

That brings us to today’s topic.  We will take a quick look some of the myths and lies that our national media have helped weave into the popular debate on the subject of Rangers’ financial and legal woes.

We can see in the link below as fine of an example of journalistic creativity as you will ever find.  It is clear that even Graham Speirs- Scotland’s most erudite sports journalist- can resort to just filling his pages with a collection of random ‘facts’ with no relevance to the actual story:

http://www.timesonline.co.uk/tol/sport/football/scotland/article7110036.ece

Let’s put a few of these myths to rest:

Image Rights:  Absolutely nothing in the case against Rangers has anything to do with image rights.  The hacks must have just picked up some detritus from stories about  English clubs.  This is completely irrelevant to the matter at hand.

“The tax bill is a matter for MIH”:  Rangers’ Chairman, Alistair Johnston, started this myth with some artfully worded statements. It is pretty obvious that he was trying to be “economical with the truth”.   However, the Laptop Loyal took his inferences and fed them to the masses.  Today, a large number of Rangers fans still believe that the tax bill will be paid by the parent company, MIH.  Let me state without fear of contradiction, the tax assessments (bills) are addressed to: “The Rangers Football Club plc”.  Rangers FC are responsible for these bills.  If they cannot pay them, no one else is obligated to contribute: not MIH; not Lloyds Banking Group; and not Sir David Murray (more on this later).

“No one has been accused of doing anything illegal”: Yes they have.  Rangers FC have been accused of breaking UK tax law.  The First Tier Tribunal process is a civil matter, and there is no current criminal case against anyone.  However, that is at the discretion of HMRC and it will remain at the discretion of HMRC whether to bring criminal charges in the future.  In cases not involving lawyers or financial professionals, it is unusual to go down the criminal path as the burden of proof is much higher.  Depending on how things turn out, and how much of the bill is actually extracted from Rangers, it is not impossible that individuals could be pursued.  However, that would be quite some way down the road- if it ever happens at all.

“Murray / Lloyds will guarantee the tax bill to facilitate the sale of Rangers”: Let me also give my opinion on the notion that someone will underwrite a tax bill which could be up to £60m.  It is absurd in the extreme and just laughably stupid.  As things stand, no one else has to pay this bill.  If Rangers cannot pay it, they will end up filing for insolvency.  The creditors, which would include Lloyds, HMRC, and holders of The Rangers Bond, would carve up the proceeds of a sale of the club.   If it does not cover all of the bills, then tough.  No one else pays.  (I will discuss some potential risks to the personal wealth of Sir David Murray and other directors in a future post).

By what financial alchemy can someone create a logical argument for Lloyds, MIH, or Murray accepting this liability?  Even if the numbers being touted for a Rangers sale were true (which I don’t believe for a second), £33m would be divided between bank debt (about £20m just now) and money for Murray (£13m). I am laughing as I type because the idea of anyone paying this price is hilarious!  It is not unusual in corporate transactions for sellers to provide guarantees of accounts receivable and tax liabilities.  However, these are made when there are no known issues or where the risk represents a tiny fraction of the total deal.  In Rangers’ case, the tax bill is almost the entire deal.

We are supposed to believe that Lloyds, who would probably recover the full value of their loans to Rangers through the administration process, would accept this risk and have nothing to gain?  We are supposed to swallow the idea that Murray would, even if he received the fabulous sum of £13m, run the risk  of having to pay £60m?

Murray might want to give away ‘his’ shares just now, but they are not his to give away.  85% of Rangers’ shares are held by MIH.  MIH is a vassal company for Murray.  Lloyds own MIH in everything but name.

So where are the members of the Fourth Estate to bring sanity to this madness?  Why has every Scottish media outlet: print; radio; and TV, lined up to give this story credibility?

No story about Rangers’ financial position is credible without a discussion of the tax case.  Until the tax case is resolved, the equity in Rangers FC is worth nothing.  Without the tax case, Rangers’ current financial position would be quite healthy.  All of the problems being blamed on bankers (with foreign sounding names) and “enemies within” really just begin and end with Rangers’ attempts to gain a financial advantage through a tax dodge.  Rangers’ fans could put their energies to better use planning for the worst case scenarios.  It would do all of Scottish football some good if they ensure that the individuals who brought their club to the brink do not duck the blame for their own incompetence and maladministration.

What is Rangers’ tax case all about?

Unfortunately, any discussion of tax law is unlikely to become a best-seller, and this will be no different.  In the interests of making this article readable, I will brush over a few technicalities.  If anyone wishes to discuss these, please post a comment and we can explore these issues in more detail outside of the article.  There are also a few more details which are critical to the case.   I will not be discussing or disclosing these until after the First Tier Tribunal returns a result.

Rangers’ tax problem goes back to the 2000-2001 financial year.  A tax plan was purchased from the Baxendale-Walker law firm and Rangers dipped their toes  in the waters of a tax scheme which would, a decade later, place a cloud over the solvency of the club.

The scheme, an Employee Benefits Trust (EBT), can be operated legally.  So let us look at how an EBT is supposed to be operated.  Then we shall look at what Rangers FC have done.

When money is transferred to an EBT, it is no longer the property of the employer.  It is the legal property of the trustee.  A business owner can legally deposit large amounts of his company’s profits in the trust and then apply to the trustee for a loan.  In practice, the loan never gets repaid, and the business owner or senior employee pays only a nominal interest rate on the loan (or tax on the benefit in kind).  This is a fraction of the amount of money the loan recipient would have paid had he received the money as salary or a bonus which would be subject to PAYE and National Insurance Contributions.  It may seem like a transparent scam to you and me- and it was- but HMRC failed to prove that the loans were not loans and that these schemes were just sham transactions.  (See “Dextra” case).

So far, so good for Rangers FC.  However, there were conditions behind the decisions that established case-law.  Most importantly, such payments cannot be tied to contractual obligations e.g. salaries, appearance money, win bonuses, etc.  EBTs worked for entrepreneurs who did not need to write down how much they wanted to withdraw from their businesses.  A few senior directors who trusted the company could also join in with this legal loophole, so long as they did not insist that there was a documented promise of what they would receive.

The administrators (usually specialist law firms) are also required to exhibit independence from the company which is depositing money with the trust.  So a few requests for loans need to be rejected and some amounts modified.  Again, all fine if you are an entrepreneur who understands how the game is played and that everything will work out in the end.

The problems for Rangers started with the fact that footballers and their agents would never be so daft as to trust a ‘nod and a wink’ from a football club executive.  Amounts for salaries, bonuses, appearance fees- are all the subject of written contracts.  These contracts (which are routinely available during tax investigations) provide the Rosetta Stone for tax investigators.  I cannot discuss some of the other evidence against Rangers FC, but I understand that at least some of Rangers FC executives were aware that what they were doing was illegal.  These executives appear to have been overly diligent in their record keeping!  (You will hear a lot more about this after the case is complete).

So facing a documentation trail that proves that the payments to the EBT were for contractual payments which would normally be subject to PAYE and NIC and that Rangers FC was aware that what they were doing was illegal (and far from the scheme which they purchased from Baxendale-Walker), Rangers’ lawyer, Andrew Thornhill QC, faces a monumental task.   I can only hope for Rangers’ sake that they were not so stupid as to provide written guarantees for players saying that they did not need to repay these loans!

So how much could Rangers owe?  The listing below shows Rangers’ annual contributions to the EBT (data from Rangers’ Annual Reports):

2010	£      1.36m
2009	£       2.36m
2008	£       2.29m
2007	£       4.99m
2006	£       9.19m
2005	£       7.24m
2004	£       7.25m
2003	£       6.79m
2002	£       5.18m
2001	£       1.01m
Total:	£   47.66m

So a total of about £48m has been paid into the trusts.  The amount of tax due is actually open to debate.  Some argue that this money should be treated as “post-tax” earnings.  In such a case, Rangers would owe approx £32m in tax + £10m in NIC (Total of £42m).  If this amount is treated as pre-tax earnings, the amount owed would be about £19m in PAYE and approx £5m in NIC (Total of £24m).  My personal view is that this will be ruled as being “pre-tax” earnings and that the core bill payable will be about £24m.

In a case which goes back to 2001, the power of compound interest will work against Rangers.  Interest charges are likely to be £10-12m on top of the £24m.

If Rangers lose this case, a separate process will begin to determine the amount of penalty to be applied.  As discussed above, the extent of documentation on Rangers’ awareness of what they were doing is unlikely to bode well for any penalty payment.  This would likely be 75-100% of the core underpayment amount.  That could add another £18-24m to the bill.

In the next posting, we will review some of the myths and rubbish published on this subject.