Whispering The L-Word

In the few short weeks of the existence of this blog, we have seen Rangers problems with HMRC move from being dismissed variously as “Celtic supporter fantasy” and “it’s a  problem for the parent company, not Rangers” to Rangers’ own Chairman admitting that if the club get hit with the full potential of the tax bill, the famous Glasgow football team would be forced into administration.  It is with no small amount of pride that I note that media outlets in Scotland and the UK generally are using this blog as a reference.  If imitation is the sincerest form of flattery, then the number of blogs conducting outright plagiarism should be taken as a great compliment.  The scale and speed of change in the tenor of reporting has been dramatic.  I do not claim credit for all of that, but if this blog has helped push the truth forward, then it has been worthwhile.

To summarise the situation, Rangers FC are currently appealing tax assessments for underpayment of taxes of £24m and interest of between £10-12m.  If the club loses the current case, it will be the subject of a penalty hearing that could see an additional £18-24m being piled on top.  The evidence against the Ibrox club is overwhelming.  I have seen evidence that leaves me in no doubt that within Rangers the knowledge that what they were doing was illegal was both widespread and explicit.

In parallel with the tax drama, we have had front-row seats to a theatre of the absurd production: Rangers’ takeover saga.  With the assistance of a well-oiled media machine, public relations teams for prospective custodians have had little difficulty getting publicity.  Truth and transparency have been victims in these killing fields of agenda-driven misinformation.  Most damaging of all for Scottish football is that Rangers’ supporters have been handed a never-ending series of straws at which to clutch.

The takeover scenarios boil down to two options currently: Craig Whyte and a hurriedly thrown together trial-balloon linked to current Rangers directors Paul Murray (no relation to former Chairman, Sir David) and South African-based Dave King.  Murray and Lloyds Banking Group appear to be throwing their weight behind the Whyte plan.  However, the sub-committee of the Rangers board charged with assessing Whyte’s proposal are less than impressed.  Everything I can glean from this situation suggests that they are right to be concerned.

Whyte does not have the money to fund the takeover on his own.  However, he does appear to have secured some of the credit required to allow him to conclude a deal.  His plan would be to pay off the bank completely (allowing Lloyds to get off stage and to be nowhere near the scene should the tax bill hit).  Sir David Murray will also benefit by putting as much distance between himself and the imminent disaster that awaits what was once the jewel in his crown.  (I am very doubtful if Murray will receive much, if anything, for his shares.  Rangers’ shares are truly almost worthless to any informed investor just now.)  As discussed in the previous blog, it is a virtual certainty that Whyte will flip the debt taken on to finance the deal back on to Rangers FC.  So far from becoming debt-free, the debt may actually increase as a result of this transaction.  (Whyte’s reluctance to speak on the record provides the cover of deniability when the saviour status accorded to him in many corners of the press falls short of reality).  The deal for Whyte becomes a low-cost gamble.  If the tax case hits, he and his creditors will have priority to pick over Rangers’ bones.  It is likely that he seeks more control than the 85% shareholding Murray can give him to further enhance the claims of Rangers’ new creditors in the event of administration.

If Whyte is able to clear the bank debt for £20-21m, he can get rid of Murray for a nominal fee.  There are other creditors who would not be cleared now, but so long as they can be subordinated down the creditor priority list in the event of administration, they will not matter.  In this scenario, Whyte may not have much reason to care about the tax bill!   If Whyte’s due diligence has produced fire sale valuations of Ibrox, Murray Park, and player contracts in place at the time as exceeding this total, then he and his backers have no reason to fear the tax bill.  The worst case would be that they get their money back.  The best case would be that Rangers win their appeal of the tax bills in their possession and they could then sell the club for a decent profit.

There are a couple of challenges with this analysis.  Firstly, it takes a very generous valuation of property values around Ibrox and Murray Park to get close to these valuations.  How much will continuing player contracts be worth in August 2011?  Others will be able to estimate these values better than I can, but I struggle to make this deal add up.  That would not present a problem.  In every deal, there is someone whose optimism and valuation exceeds that of the man on the other side. Much more serious for Rangers fans are implications of such a strategy for Rangers as a football club.

Under the status quo, Lloyds would be treated as a secured creditor.  HMRC would have by far the largest claim on Rangers assets, but would be an unsecured creditor.  With total debts in the region of about £90m, Rangers’ survival would depend upon Lloyds and HMRC agreeing to accept pennies on the pound and allowing the football team to continue in operation.  The PR problems that would face a High Street bank in being held responsible for closing Rangers would help build pressure for both Lloyds and HMRC to do a deal.  However, a new creditor in the form of Whyte and his backers, would be more immune to such special pleading.  Their business plan would explicitly require that they do not share with any of the subordinated creditors.  HMRC can veto any creditor deal that would keep Rangers going.  Whyte and backers would only be able to force the discussions to a conclusion that sees them take virtually all Rangers’ assets by pushing for…  the L-word: Liquidation.

This explains the hostility to the Whyte proposal from the existing Rangers board.  Whyte is anything but a messiah, and actually amplifies the risks to Rangers’ existence.  Venerable Rangers-first types like Johnston and Greig would see that far from revitalising their club (as the PR leaks promised), this is a vulture capitalist play.  It is actually quite a good and credible distressed debt investing opportunity that exploits the aversion of Lloyds, and in particular, Sir David Murray to be on stage when the curtain could fall.  The only real mystery remains over quite why Whyte wants the support of the board.  With 85% of the shares, he would be free to fire the board within minutes of taking over.  Per the previous blog, 15% of shareholders can block a change in shareholder rights.  There may also be a ‘poison pill’ provision with this threshold as part of previous deals with Dave King.  This remains yet another factor that the main players seem reluctant to clarify, but Rangers fans and small shareholders must be used to being lied to and misled by now.

The Paul Murray / Dave King situation seems to be a poorly thought out effort to maintain morale while they oppose Whyte.  Putting actual cash into Rangers FC just now by a capital increase would be a waste of money prior to the tax case being resolved.  After the tax case, if Rangers, by some strange quirk of fate, manage to win, there will be plenty of financing options available, and one that leaves the bank and/or Sir David Murray in place would not be amongst the most popular.  However, we come back to the central point of this blog: no discussion of Rangers’ finances or ownership can be made without reference to the tax case.  We have already deconstructed the idiocy of believing that anyone else will pay the tax bill on Rangers’ behalf.  It is a stupid notion that could only be promoted by the most cynical or the most innumerate.  The Whyte plan appears to greatly increase the chances of Rangers FC disappearing altogether should he win his battle but the club loses the tax case.

About rangerstaxcase
I have information on Rangers' tax case, and I will use this blog to provide the details of what Rangers FC have done, why it was illegal, and what the implications for what was (updated) one of the largest football clubs in Britain.

209 Responses to Whispering The L-Word

  1. timtim says:

    Whats in it for Whyte?
    well ,power for one
    the control a messiah can command over a well fed media
    is a valuable asset it certainly helped Berlusconi and Minty
    and hundreds of others
    Profile amongst the business community is also raised
    and many will happily deal with him because of who he now is

    If the club is liquidated through the taxcase then Whyte will
    possibly have rescued the holy grail that is Ibrox and the spiritual home
    for the reformed club will still be there . He will be seen in a very favourable light

    The last point is the economic situation worldwide
    Whyte may have concluded that this is a good time to take on debt
    if he can secure long term fixed rate finance, or to turn his capital
    into hard assets (Ibrox and MP)

    I think Whyte knows the taxcase is not in their favour
    and the liquidation of rangers will not be blamed on him
    starting again in Div 3 aka Airdrie Utd will not require great funding
    in the transfer market for 4 years minimum
    by then Whyte can offload it for a very handsome profit

  2. Brendan1970 says:

    Could Whyte actually be Stalking Horse for Lloyds?

  3. Jeepster says:

    Ssn Jim White claiming 52 million deal will go through in next 48 hours

    Don’t shoot the messenger

    Actually go ahead

  4. Boab says:

    He managed to become one of Scotland and the UK’s richest ever people and no-one noticed. Good trick that.

  5. Mark Dickson says:

    Fiorentina played 1 season at the bottom tier of Italian league football after their financial collapse and liquidation but as the new club were essentially (although not legally) a continuation of the same Fiorentina football club and traditions they were promoted a couple of rungs up the ladder on the basis of “Sporting Merit and Achievement” to Series B where they promptly won promotion back into the top flight meaning their absence from Series-A lasted only a couple of years ………. would the SPL/SFL really make a Rangers team start all the way at the bottom and work their way back up?

    Whilst fairness dictates they of course should have to work their way back up wouldn’t it also be a gross distortion of those leagues in terms of club size/power and a waste of everybodies time and lost promotion opportunities if it was fairly inevitable they (RFC) would power through the division back to the top flight? Would the SPL automatically grant or reserve them a special place? Can the other SPL clubs afford financially without them in the top flight if that would adversely affect club and overall league finances?

  6. derherold says:

    Neither in Germany nor in Austria could it be possible to remove/transfer/sell assets of a company in a short distance of time of an administration.

    As @boab says (HMRC) “… absolutely would have something to say about someone removing the assets from a business which is right in the middle of a tax tribunal, particularly when it is clearly to try to protect the assets of the business.”

    The repetitious told scenario would eliminate any “civilised” administration law … any company would search for a “WHI(Y)TE KNIGHT” who secures assets before a liquidation.

    The “corporate raider” situation we´re knowing especially in the 80ties had nothing to do with the every celtic supporter thrilling idea of Whyte=profit, RFC=liquidation, HMRC=nothing.

  7. Gary c says:

    In the case of Airdrie, they bought over Clydebank and changed the name to Airdrie Utd and moved the team back to Airdrie. With buying over Clydebank, they held the registration of being a Member of the SFL. If that hadn’t of happened, Airdrie would have been extinct. Now if Rangers do go down the same road and it comes to the L word. They’d no longer be a registered member of the SFL. How they would go about getting re-registered i don’t know. Would they try to buyover another Scottish Club and take their registration or would the rules be bent a little to allow them back into the game?? And for the record, and after speaking to someone who knows Whytes father. Whytes father was a Rangers fan, but for Whyte he was astounded when he first saw his name. 1st. He didn’t believe he had anywhere near the amount of money as being quoted in the Scottish Media to fund such a deal/takeover/fakeover, whichever you want to call it 2nd. He didn’t think he was even a Rangers fan.

  8. Boab says:

    It would be a total travesty if they were given any sort of special treatment. I would expect them to have to work their way back up through the ranks. Re-iterating I do not think they will go into liquidation. Worst case scenario they will go into admin and lose 10 points. I very much doubt even that happening.

  9. Mark Dickson says:


    The SFL & SPL of course have rules for clubs in administration but it is also the clubs (as members) who decide via the management board and panels the severity or leniency of any penalties imposed on the clubs involved and if memory serves me correctly Livingston only got papped down to the bottom league becuase they were still in administration and uncertainty about resolving their future when the new season began (basically they weren’t in a position to guarantee they could fulfill their fixture list) that is why they got demoted but others like Dundee (twice), Motherwell, Livingston (first time) etc did not.

    I think even though we as fans would want to see the ultimate and harshest penalties as possible imposed on our bitter rivals i think reality dictates that the clubs think differently (ie from the financial perspective) and they would probably lobby for a certain degree of clemency for Der Hun?

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