Another false alarm for Rangers fans?

There must a psychological term for having no memory for disappointment.  Whatever it is Rangers fans, and their media boosters, seem to have a bad case.  There seems to be no learning from previous cynical manipulations from the people who currently own Rangers.

Today’s Sky Sports News story just so happened to be released 15 minutes before Companies House posted the financial results for Rangers’ parent company, Murray International Holdings Ltd (MIH).  The results were for the 12 months to 30 June 2010 (almost a year ago) and reveal that MIH made a loss of £71.7m and had equity of just £7.7m.  (This includes Rangers’ greatly inflated net asset figures).  Sir David Murray’s media manipulation is the stuff of legend, and this looks to be another glorious chapter.  Within an hour of the story of a ‘done deal” being planted on SSN and FollowFollow.com, the inevitable modifications started seeping out.  “…just a few more things to iron out”.

If those things include (as I suspect) the price for MIH’s shares and responsibility for the assorted tax bills (those received and those yet to arrive), then this farcical fakeover story is no further forward.

However, it will have served its purpose in distracting a media pack that seems more ready than ever to turn on Murray from another set of disastrous financial results.

Administration: What would happen if… ?

Many people have been asking about what would happen if Rangers were to file for administration and what the basic nuts and bolts of the process would be.  As opposed to a 5,000 word essay on the subject (that would struggle to retain anyone’s attention), I thought that a series of shorter snippets and observations might help.

So let us start with a seemingly random question: Who would be the creditors in an administration filing?

Assuming that the First Tier Tribunal result would be a catalytic event , in order of size, the main creditors would be:

–  HMRC (unsecured)
–  Lloyds Banking Group (secured & preferred)
–  The Rangers Bond Holders (unsecured)
–  Trade Creditors & Accrued Liabilities (unsecured)
–  Employees (mixture of preferred & unsecured)

The Accrued Liabilities group is interesting.  At the time of the administration filing, anyone who has paid Rangers to deliver on a product or service but has not received that product or service, will have the value of their contract with Rangers included on the Rangers balance sheet as a liability.  This would include the “unused” portions of season tickets.

What many season ticket holders may not realise is that depending upon the outcome of an administration process- whether a CVA, or selected assets & liabilities are carried into a new company (with the bad assets and undesirable liabilities left behind), or liquidation, no one- not even Alastair Johnston nor Sir David Murray- can guarantee that seasons tickets purchased for the 2011/2012 season will be honoured for the whole season if there is an administration filing before the season is complete.

It would be at the discretion of the administrator and the new owners to decide which contracts will be honoured and carried into a new business and which would be left to wither, taking their place to ask for a pennies on the pound distribution from money rasied by selling the club in administration.  Of course, in restructuring any company, if you have hopes for the business to continue trading, you would not wish to incur the wrath of the customer base.  However, I suspect that a fear of a collapse of season ticket sales might be behind the “all hands on deck” PR campaign to sell a nonsensical takeover as being “another 48 hours” away.

Rangers’ Expert Advice

Anyone else notice the subtle difference in Rangers’ statements on Friday compared with earlier efforts to allay fears about the tax case?  The club’s Chairman, Alastair Johnston’s prepared statement said: “We continue to vigorously contest HMRC’s challenge on the taxation treatment of the Trust and in doing so continue to receive reassuring opinion from tax, accounting and legal specialists.”  Compare this to the previous mantra from the club: “On the basis of expert tax advice provided to Rangers, the club is robustly defending the matters raised.”

In any information vacuum, commentators tend to over analyse what information does exists, and I may be guilty of the same thing here.  However, I detect a change in tone; a de-emphasis and lesser reliance on having followed “expert tax advice”.  I think that many people would be interested in this aspect of the story,  so we need to ask the question: “Who gave Rangers their tax advice?”  The answer: Paul Baxendale-Walker.

Mr. Baxendale-Walker is a colourful character to put it mildly.  Under the pseudonym of Paul Chaplin, he hosts a late-night TV show called “The Red Zone”.  He also is the founder and owner of one of Britain’s largest pornography studios, Bluebird Productions Limited.  However, he does have a basis to claim expertise in tax matters and is the author of a number of books on the subject, including one with Rangers’ own lawyer for the current EBT case, Andrew Thornhill QC.

Yet there have been clouds over his career and the restless Mr. Baxendale-Walker was arrested on 22 November 2000 and charged with conspiracy to commit fraud by the Serious Fraud Office over his role in the Balfron Group Ltd case.  While one of the owners of Balfron Group was eventually convicted and jailed for raiding the company’s pension fund, Mr. Baxendale-Walker fought his charges and eventually won a stay of prosecution.  However, the Law Society alleged that Baxendale-Walker had “given a false reference to a bank, which indicated that the person to whom he referred was a person of good standing when he had no basis for saying so”.  He was suspended by the Law Society on 4 May, 2005 for three years for “serious professional misconduct”.  However, a call to the Law Society to check on his current status revealed that he was ‘struck off’ on the 29 September 2006.  This amounts to losing his “license” to practice law.  He also became embroiled in a lawsuit with  the accounting firm Deloitte claiming that one its employees, Aidan Langley, was telling potential clients that “Baxendale-Walker would advise clients to mislead HMRC“.  Deloitte confirmed that the case did not go to trial, but would not elaborate on the nature of any settlement with Baxendale-Walker.  While he personally cannot practice law in England and Wales, he is the owner of a law firm bearing his name that has qualified lawyers who can provide advice and execute his strategies.

It is with this background, we turn to his involvement with Rangers FC.  A journalist contacted me through this blog this week to provide details of an interview he conducted with Mr. Baxendale-Walker in October last year.  In the interview, he admitted that Rangers FC were a client and that he had  finished another assignment with Rangers just a few weeks earlier.  His discussions with Rangers started back in 1998, but the trusts did not get implemented until 2000.  The timing coincides with Sir David Murray’s now legendary bombast during the Succulent Lamb interview with James Traynor which included statements like: “Bring on the next 10 years, there’s more to come for Rangers.”  That Celtic had just stopped ‘ten in a row’ and had been taken off the financial life-support system under the leadership of Fergus McCann around the time that the discussions about  ‘increased tax efficiency’ started cannot be ignored.  That its actual implementation coincides with Martin O’Neil’s revitalisation of Celtic and the 6-2 victory over Rangers in August of 2000 also seems noteworthy.

While Baxendale-Walker defended the advice given to Rangers and expressed confidence in a Rangers victory, when challenged on the suitability of EBTs for distributing payments for contractual obligations, he admitted that: “the Rangers case is the test case“.  That the man whose law firm developed Rangers’ EBT strategies is conceding that the club will be the guinea pigs for their own implementation of EBTs should be a cause for concern.

The journalist told me that he had a sense that Baxendale-Walker had delivered a ‘canned-product’ to Rangers and had not been deeply involved in the mechanics of its implementation.  He felt that it was unlikely that Baxendale-Walker or any of the staff at his law firm would have been tracking which requests for loans from the EBT were for contractual obligations and which were not.  So, it is quite possible that Baxendale-Walker gave perfectly good advice.  The questions are over what Rangers did with it.

Aside from the doubts which their own tax advisor’s comments raise about Rangers’ use of the EBTs, one wonders about the quality of leadership at Rangers.  Was this really the only lawyer from whom competent tax advice could be obtained?  Back to the subtle change in wording in Rangers’ statements in their defence: do they betray a desire to lessen the focus on the original tax advice received?  The reality is that Rangers took a legal tax strategy that was suitable for a narrow set of circumstances and forced it into a hole into which it was not designed to fit.

Come ahead, Rangers

I note the curious mixture of fact and fiction being allowed to be discussed by Rangers since their bizarrely amateurish presentation of their Interim Results on Friday.

One point that has been often recited in the last 24 hours is the notion that Rangers do not know how bad the EBT tax case could be.  Without fear of legal consequences, I say: THAT IS A LIE!

I will paste a response to another thread on this blog below.  It seemed too important a point to be buried on a comment to an older post:

On the point of the bills in Rangers’ possession, they do indeed hold bills of about £54m. So anyone who would publicly say that “Rangers do not know how much the bill could be” is lying. Let me be very specific: (at the point of wanting to face down anyone, in any court, in any country), Rangers KNOW how much the assessments in their possession amount to. The only doubt is actually over the penalty for their egregious lying to HMRC  and to the tribunal. This  could lead to a larger penalty than which they have been billed already.

Let’s make this very clear: RANGERS KNOW EXACTLY THE TOTAL AMOUNT OF  THEIR BILLS.

I have actually heard a Rangers director deny that bills exist, but later admit that “assessments” were in his possession.  Bills and assessments from HMRC amount to the same thing.  Anyone pretending otherwise is a LIAR or does not know the facts of this situation.

I will gladly meet any representative of Rangers FC,  in any court,  in any county to dispute this assertion.

Alastair, Sir David, Martin: as we say in Glasgow: “Come ahead!”

Alastair Johnston Confirms The RangersTaxCase Truth

As part of his one-on-one series of interviews with different journalists  yesterday, Alastair Johnston gave an illuminating interview to Michael Grant of The Herald. Link Here

The key text is below, but it confirms the core of what this blog has been telling you:

  • The tax tribunal began in October 2010 and ran out of time
  • It resumes shortly

However, Johnston gets one critical aspect very wrong and we will discuss this below the interview extract:

Isn’t it true that either Whyte takes over or Rangers are in terrible trouble?
Johnston: “There are other mechanisms that we would like to pursue but at this point in time, as I say, the huge contingent of what HMRC has done is actually the gorilla in the room in terms of us expediting this. The timing is not terrific.”

 You and most of the board couldn’t prevent a Whyte takeover even if you opposed it?
Johnston: “I can sit and scream but I can’t stop it happening. Rangers could face a massive bill at the end of an HMRC probe into the use of trust funds to pay players over a 10-year period.

What is the timescale for learning the final bill?
Johnston: “Unfortunately it could actually go on for a long time. They had a tribunal before Christmas and they didn’t get all their evidence. So, like they do in the law, it is terminated for four months. They are starting again at the end of this month, that will take maybe a couple more weeks, then four or six weeks to come to a decision, then they’ll issue a decision, then they’ll negotiate the decision, see what the impact of it is in real terms – money – and that could go on for months.”

Discussion:
Aside from some vindication, what I find amazing is Johnston’s comment in the last question that “then they’ll issue a decision, then they’ll negotiate the decision“.  Could it be that Rangers’ Chairman is so poorly informed and badly advised that he actually believes this?
Let me be very clear, after the tribunal returns a result, there will be no negotiation. The current tribunal is dealing with only the underpayment and interest portions of the bills. At the request of Rangers FC, the penalty determination was deferred until after the First Tier Tribunal makes a decision.  (This has the advantage of spreading out the timeline and perhaps the day of reckoning, but greatly increases the legal fees for the case).   HMRC does not negotiate underpayment of taxes or interest on that underpayment.

Any stories you might have heard about pennies on the pound deals are either urban myths or are from cases where the law is vague and HMRC can see that there is genuine ambiguity about how much should be paid.  Negotiating tax discounts creates a perverse incentive for tax payers: why pay the full amount on time when I can try to cheat and even if caught, I will pay less and later.  It is nonsense, It does not happen. It will not happen.  Least of all, HMRC will not be heading to the table for talks after having just won a protracted and expensive legal battle.

The only part which can normally be negotiated is the penalty.  HMRC will show leniency towards tax delinquents who wandered accidentally across the line and who are ready to make good on their underpayment and interest.  The highest penalties (75-100% of the core underpayment) are reserved for those who can be proven to have consciously broken the law and who have attempted to deceive HMRC.  Rangers are already in possession of a penalty assessment that is 75% of their £24m core underpayment.

So is Johnston ‘playing dumb’ and trying to make this process sound less threatening, or does he really not understand the what is happening?  Is it really possible that Rangers’ directors have been sleep-walking their way to disaster?  Could Craig Whyte also not have understood how high the stakes were until recently?  Popular culture likes to imagine that “the smartest guys in the room” are making deals and cleverly assessing their every move.  However, I am open to the possibility that there has been monumental ignorance and incompetence on Rangers’ board and their false confidence could have rubbed off on anyone dealing with them.

Another point to address from a different interview, Alastair Johnston repeated his strange assertion that “no one is accusing Rangers of having done anything illegal”.  Yes they are.  Rangers are accused of having broken UK law.  It will take quite a creative definition of “illegal” to say that consciously breaking the law is not “illegal” conduct.  What no one has done is to file criminal charges.  That was at HMRC’s discretion.  HMRC is a revenue collection organisation and usually only brings criminal prosecutions in cases involving lawyers and financial professionals where it is easier to prove that they would have known that they were committing a crime.  The standards of proof in a civil tax tribunal are also a lot lower than in a criminal court.  So, it is extremely unlikely that anyone will be criminally prosecuted in Rangers’ case (unless they commit perjury), but that does not mean that Rangers have not acted illegally. They have.

Whether it is ignorance of  the legal process or an attempt to deceive, Alastair Johnston’s shambollic performance yesterday should send a shudder down the spine of Rangers supporters.  In times of trouble, it is often to the Chairman to whom companies turn for experience, wisdom, and a steady hand on the rudder.  Rangers may be lacking someone to play this role.