Rangers Knew About Other Tax Bill
06/04/2011 139 Comments
On 1 April, Rangers’ Chairman, Alastair Johnston, presented his club’s Interim Results for the six month period ending 31 December 2011. A bit of a fuss followed his revelation that Rangers had taken a charge of £2.8m for a tax bill relating to a Discounted Options Scheme used to compensate players between 1999-2003. This is a second, and entirely separate, tax case from the much larger one related to Rangers’ use of Employee Benefits Trusts (EBTs). This smaller bill has been seized by the creative PR staff spinning the on-going “takeover” saga involving Craig Whyte as a snag holding up a deal to sell the club. However, it was Johnston’s claims that this bill “came out of left field” that struck me as strange. So I did some digging.
If Johnston is claiming that no one at Rangers FC knew about this bill, he is either ignorant of the facts or is deliberately misleading his shareholders. It is possible that Johnston and other board members did not know about this bill, but my research reveals that staff at Rangers FC have been aware of this issue for at least two years. Contrary to speculation, this issue was not discovered during Craig Whyte’s (or anyone else’s) due diligence. Back-office staff at Rangers have been corresponding with HMRC on the matter for all of this time, and cannot claim that this was any kind of surprise. After many months of discussion and correspondence, HMRC finally sent an assessment in recent weeks.
If Alastair Johnston’s claims of executive surprise are true, it is indicative of an organizational and leadership vacuum at the club. Certainly, Martin Bain, as Chief Executive charged with day-to-day management of the business, should have been fully aware of this issue. If a “shoot-the-messenger” culture exists that lead accounting staff at Rangers to hide potentially bad news from the Chief Executive, the club is in worse shape than anyone thought. A picture seems to be emerging of a dysfunctional organization that rarely misses an opportunity to do the wrong thing.
This would all appear to be a hangover from the reign of Sir David Murray. It is a familiar issue for companies where an overbearing ego casts a long shadow. Organizational design, delegation of authority, and a common understanding of business ethics are sacrificed to feed Mammon. In such companies, strong middle managers do not develop or they are passed-over for more the more compliant. When the cult of personality fades or is extracted, there is no corporate culture to fall back upon. Either Rangers has become such a troubled company, or Alastair Johnston is mistaken when he claims that no one knew that this issue was brewing. If Martin Bain knew but did not inform the board of developing risks, it would reveal the extent to which Rangers have become distracted by internal feuding and ownership issues.
The obvious next question: Are there any more tax issues?
I have been told of a few issues bubbling under. It should not surprise us that more issues exist. Once you ‘cross the Rubicon’ and embark upon what is, at best, a high risk taxation strategy, your door will be open to every snake-oil selling law firm with a plan. Other schemes in which it has been claimed that Rangers have participated over the last decade include one to award share warrants in cash-rich offshore companies to staff and to make use of film partnerships. (Coincidentally, this last scheme was apparently used to compensate a former Rangers manager who bears a startling resemblance to the actor David Caruso).
Whether investigations into these other issues ever result in additional tax assessments remains to be seen. Nevertheless, it is clear that when a revitalised Celtic started to apply pressure on Rangers in the late 1990s, Sir David Murray directed the club to chart a course which now imperils its very existence.