Rangers Cash Flow: A Huge Problem


Following on from my previous post, I am enclosing a screen capture of Rangers cash flow projections for the current season.  It provides a numerical insight into the scale of the problem facing Craig Whyte’s Rangers.

Before we wade waist deep in numbers, I should explain that the data has been anonymised.  By this, I mean that all of the numbers have been adjusted slightly.  However, the net effect of the adjustments on the totals is negligible.  The original raw data  was much more granular and more easily verified.  At the request of the source, some values have been aggregated.

The first point to observe (for those who are unfamiliar with cash flow projections), is that this sheet starts with the 2010/2011 season ‘Actual’ cash flow values as a baseline.  The rest of the numbers represent increases or decreases in cash flow compared with the same period in the previous season.

Next, we should note that Mr. Whyte has some degree of flexibility over when bills are actually paid.  This means that this analysis has an accuracy of approximately of plus or minus one month.  Additionally,  there is currently no evidence of Craig Whyte having made good on the pledges made in the takeover documents to invest cash.  Therefore, I have not shown any investment in working capital from Rangers’ majority owner.

Without Whyte’s investment, the spreadsheet shows that Rangers could survive through the October pay period and hitting a brick wall by the end of November. However, this could also be interpreted as projecting Rangers filing for insolvency before the end of October.  (Rangers fans will be hoping that cash can be stretched out until the end of December when the opening of the transfer window would hold out hope of liquidating assets to extend the life of The Rangers Football Club plc.  I am told that this is highly unlikely.)  Values are in £ 000’s.

Of course, if Whyte has recently made good on his promises of working capital investment, Rangers can breathe for a while longer, but it would be unlikely to even cover the next month’s cash requirements.  To survive to February or March 2012 when the First Tier Tribunal can be expected to return with its findings in “The Big Tax Case”, Whyte would have to invest close to £15m to keep Rangers going.

So where is the investment from Whyte’s “Wavetower”?  (“Wavetower” is now more formally called The Rangers FC Group Ltd and Whyte claims that he owns it 100%).  The takeover documents do provide a watertight promise of investment.  If insolvency is inevitable, the smart move for Whyte is simply to pay off the obligation to a receiver rather than to Rangers prior to insolvency.  If Whyte opts for receivership (and if he defeats any legal challenges to his appointment of a receiver), he will get all of that payment back less expenses.  (As regular readers of this blog will know well, a receiver acts solely to recover the debt owed to the holder of a ‘floating charge’.  In buying Rangers’ debt to Lloyds, Whyte has acquired this legal privilege of priority repayment above everyone else except recipients of statutory payments.  Only once the secured creditors are paid in full would other creditors receive anything).  So, rather than seeing his money consumed by “old Rangers”, Whyte is able to keep his powder dry while satisfying his legal obligations too late to do the current company any good.  (Viewers of Mark Daly’s recent BBC Scotland documentary on Whyte’s business history will feel a sense of deja-vu).  Alternatively, Whyte might be more benevolent than many believe and he may choose to pour in cash until the tax tribunal returns a result.  That would indeed be a surprise.  This would take his investment in Rangers up to a figure of about £33m.  The prospect of a return on his investment would disappear at such a figure.  Basically, Rangers’ failure to qualify for the Champions’ League scuppered any sensible prospect that Rangers could survive to face down HMRC in “the big case”.  Only a substantial cash injection now will prevent insolvency in the coming weeks.

On the subject of return on investment, quite how Whyte plans to turn a profit on Rangers has mystified informed observers of all hues.  Noting that the bubble in Scottish football has long since collapsed and our game is fully decoupled from the continuing financial madness of the English Premier League, anyone making an investment in a Scottish club must value the business based upon the free cash flows (money available to be withdrawn by shareholders).  There are two major ways for Whyte to handle Rangers.  Either he liquidates assets and destroys the football club in the process or he runs the club as a going concern and tries to find a buyer (or pockets an annual dividend).  Whyte has had ample opportunity to liquidate Rangers and make a quick profit.  He has not done so.  We are now left with the going concern option.

Let us look at how Rangers would be valued as a going concern.  Sparing you the details of asset valuation theory, if an owner expected to withdraw £1 million for himself from a business each year, he might pay £10-12 million today.  (This is very reasonable for a high risk business in today’s low interest rate environment).  Leaving aside the idea that supporters would tolerate any owner withdrawing £1 million per year for himself, if the future sale value of The New Rangers as a going concern is at most £12 million (i.e. the most a rational buyer would pay), how does Whyte plan to turn a profit having paid £18 million for Rangers’ debt?

What sort of lender would give Whyte £18m for such a high-risk investment while expecting no more than £10-12 million in return?  No one else would touch Rangers.  What did Whyte see that no one else did?

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.

1,456 Responses to Rangers Cash Flow: A Huge Problem

  1. andy Fitzpatrick says:

    Yeh droid,,,you HAVE TO SEE THIS

  2. TheBlackKnight says:

    Is it PowerRangers?

  3. JJ says:

    Is it the beginning of end or the end of the beginning?

    One thing for sure now, we are in the end game.

    Hope Theaccountant/Sam etc are not near any sharp objects or a gas oven!

  4. duggie73 says:

    Could the footballing side of things be going any worse for prospective NewCo?
    The better the Rangers players perform, the more interest from other clubs to lure them away on higher wages than NewCo can pay (on a free transfer, or something rather close to it).
    The higher Rangers are up the SPL table, the more likely Rangers fans are to feel utterly betrayed by Whyte were NewCo unable to collect the points total RFC have accumulated.
    It isn’t a forgone conclusion that Rangers fans would universally back a new team. It isn’t a dead cert NewCo could play with “Rangers” somewhere in their name. Which kinda makes the “let Rangers back in the SPL for financial reasons” chat a wee bit on the presumptious side…

  5. TheBlackKnight says:

    iain mcg says:
    30/10/2011 at 11:01 pm
    “The circular to shareholders makes it clear that any funds advanced by CW to rangers would be by way of loans, ergo covered by his fc and cash-neutral? Am I mistaken?”

    I believe you may be. There is nothing to suggest that additional debts (other than what the Whyte Knight paid – even he can’t remember – for the Lloyds debt) are covered under the floating charge.

  6. v says:

    Just some ramblings, feel free to ignore or poke fun at

    One of the many things that have puzzled me about this whole thing was ‘who will make money out of this? (well, apart from lawyers)
    Even if the MBB manages to get the newco into the spl, someone will have to invest some serious money just to pay the wage bill. (maybe I’m being unfair but investing real money into a business doesn’t seem to be mr whyte’s strong point) Selling the club, even without hmrc seems unlikely to recoup his investment

    Then I thought, what if whyte is the patsy? He gets rfc through the ‘difficulty’ with the taxman. and they end up in the spl with the newco. So, he’s stuck with a club he can’t sell for a profit

    Unfortunately, he’s not very good at running football clubs and it all goes ‘bosums up’ leaving some rangers minded folk to rescue rangers at the last minute(fergus like) from the brink of another insolvency

    That way, Lloyds get their dosh, rangers get rescued and are debt free, leaving whyte out of pocket and out of the picture
    I realise it’s nonsense but every other scenario seems to be nonsensical, so I thought I’d add that to the list of theories

  7. Hugh McEwan says:

    TheBlackKnight says:
    30/10/2011 at 11:19 pm

    I think the circular states that certain monies he spent would be added to the debt, however without the insolvency event that debt would be written off anyway.

    Kind of “I’ll add it on but it won’t really matter anyway guys”.

  8. OnandOnandOnand says:

    Duggie @ 11.13

    Good points, but to be clear, Wavetower will get permission from the IP to use the name Rangers as part of the deal, so “Rangers” name will live on

  9. Hugh McEwan says:

    v says:
    30/10/2011 at 11:20 pm

    Just some ramblings, feel free to ignore or poke fun at

    One of the many things that have puzzled me about this whole thing was ‘who will make money out of this? (well, apart from lawyers)
    Even if the MBB manages to get the newco into the spl, someone will have to invest some serious money just to pay the wage bill. (maybe I’m being unfair but investing real money into a business doesn’t seem to be mr whyte’s strong point) Selling the club, even without hmrc seems unlikely to recoup his investment

    Then I thought, what if whyte is the patsy? He gets rfc through the ‘difficulty’ with the taxman. and they end up in the spl with the newco. So, he’s stuck with a club he can’t sell for a profit

    Unfortunately, he’s not very good at running football clubs and it all goes ‘bosums up’ leaving some rangers minded folk to rescue rangers at the last minute(fergus like) from the brink of another insolvency

    That way, Lloyds get their dosh, rangers get rescued and are debt free, leaving whyte out of pocket and out of the picture
    I realise it’s nonsense but every other scenario seems to be nonsensical, so I thought I’d add that to the list of theories

    ————————————

    Newco could be a private company, therefore keeping a lot of this stuff secret. Which could then float, bringing in a shedload of money.

    It would require people to put the money in though.

    A lá, as you say, Fergus.

  10. Hugh McEwan says:

    OnandOnandOnand says:
    30/10/2011 at 11:24 pm

    Duggie @ 11.13

    Good points, but to be clear, Wavetower will get permission from the IP to use the name Rangers as part of the deal, so “Rangers” name will live on
    ===============================================

    Good will will be valued at £1 though, so it won’t reduce the debt by very much.

    Probably the only true valuation.

  11. TheBlackKnight says:

    Hugh McEwan says:
    30/10/2011 at 11:22 pm

    Thanks Hugh, I stand corrected but was it not pointed to before (cant recall by whom) that in such an event the floating charge would only cover the original oulay to Lloyds.

    The running costs, players contracts etc are unsecured? I bow to your superior knowledge on such matters.

  12. Paulsatim says:

    OnandOnandOnand says:
    30/10/2011 at 11:24 pm

    Didnt HMRC prevent Farsley Celtic using the name Celtic in their newco name? Why not Rangers too?

  13. OnandOnandOnand says:

    Duggie,

    If you are having trouble sleeping, read this re use of company names

    http://insolvency.mercerhole.co.uk/tags/s216/

    Just to be clear, the rules were changed as suggested, so nothing to stop the name being used, it’s not a prohibited name if you buy rights to it from an IP

  14. andy Fitzpatrick says:

    Newco,,,glasgowr angers

  15. iain mcg says:

    The black knight,

    Beg to differ, sir, look at the circular again. Until such times as the revenue position was (is) determined, any funds advanced shall be treated as loans ( the 90 day “insolvency event” rule)

    A classic cya clause. The fc covers any such advances

  16. jimbo milligan says:

    Medals ???? This has got to be some kind of a windup . surely !!!

  17. OnandOnandOnand says:

    Paulsatim.

    Funnily enough, I don’t know much about Farsley Celtic, apart from what you get on a google search and we all know that’s 99% crap.

    Maybe The Don has a view on this, where are you, my Don? Are you the mysterious backer, waiting with the family wealth?

  18. droid says:

    shrewd move gold is at $1800 an ounce

  19. TheBlackKnight says:

    No problem Iain, happy to be corrected.

    If a floating charge is a sum due, how can that be determined if the charge continually increases unless it is specifically registered against the floating charge?

  20. andy Fitzpatrick says:

    Ah jimbo,,,I see what you did there,,,windup,,,good one

  21. Hugh McEwan says:

    TheBlackKnight says:
    30/10/2011 at 11:27 pm

    Hugh McEwan says:
    30/10/2011 at 11:22 pm

    Thanks Hugh, I stand corrected but was it not pointed to before (cant recall by whom) that in such an event the floating charge would only cover the original oulay to Lloyds.

    The running costs, players contracts etc are unsecured? I bow to your superior knowledge on such matters.
    ===============================

    Oh good Lord no, I would claim no such thing. Learning all of the time, this site has been great for that.

    People here who clearly know what they are talking about have said the floating charge is by it’s nature able to fluctuate and is designed to do that very thing.

    Bearing in mind the holder will normally be a bank or institution, they would almost certainly put a ceiling on it. Then allow it to float over the assets as agreed. Allowing the amount to vary whilst protecting their position.

    Craig Whyte is both the floating charge holder and the creditor. He won’t find himself hard to do business with 😉

  22. droid says:

    #rangerstvshows

    http://trendsmap.com/local/gb/glasgow

    it’s gone

  23. Paulsatim says:

    OnandOnandOnand says:
    30/10/2011 at 11:33 pm

    From Yorkshire Evening Post

    Farsley Celtic: Future of club in fresh doubt

    Published on Thursday 15 October 2009 14:28

    Farsley Celtic’s future has been thrown into fresh doubt – just weeks after the troubled football club appeared to have won its fight for survival.

    Farsley Today reported how the club were hours away from going out of business in early September, following a two-month spell in administration.

    * Click here for Farsley Celtic Clockwatch.

    Celtic president John Palmer then seemed to have saved the day with a last-minute rescue package that was provisionally accepted by the Blue Square North side’s administrator, accountancy firm Mazars.

    But now it has emerged that HM Revenue and Customs (HMRC) – Farsley’s principal creditor – is unhappy with the proposal that would formally bring the 101-year-old club out of administration.

    * Click here for more Farsley Celtic news.

    Under the terms of the proposed deal – a type of insolvency procedure known as a Company Voluntary Arrangement (CVA) – HMRC would receive only a proportion of the money it is owed.

    So-called ‘football creditors’ – such as players and other clubs – would, however, be paid in full.

    As a result, HMRC is refusing to support the CVA – and its status as principal creditor means the deal cannot go through without its backing.

    That in turn leaves Celtic at risk of breaking a league rule which stipulates clubs leaving administration must do so via a CVA.

    Mazars is now due to discuss Celtic’s future with the Football Conference, which runs Blue Square North.

    Conference general manager Dennis Strudwick confirmed that failure to exit administration via a CVA could theoretically render a club ineligible for its competitions.

    But he also stressed no decision on Farsley’s continued participation in Blue Square North would be taken before talks with Mazars.

    A Celtic spokesman said the club was still taking stock of the taxman’s newly-revealed opposition to the CVA.

    He also said the club’s game at Redditch tomorrow (Sat) was due to go ahead as planned.

  24. Hugh McEwan says:

    jimbo milligan says:
    30/10/2011 at 11:32 pm

    Medals ???? This has got to be some kind of a windup . surely !!!

    ————————————

    LOL

    Very good, homonym humour.

  25. iain mcg says:

    The black knight,

    Thanks for your reply, a floating charge is exactly that, sometimes it secures nothing, next day loads, depends on the debt due to the holder, e.g. whether he has just paid the wages…

  26. timtim says:

    http://twitter.com/#!/pmacgiollabhain

    medals heist true apparently

  27. jimbo milligan says:

    Paulie walnuts, I respect your posts. You said earlier that CW making funds available to pay month end salaries was throwing money away. Why? The circular to shareholders makes it clear that any funds advanced by CW to rangers would be by way of loans, ergo covered by his fc and cash-neutral? Am I mistaken?

    This is my understanding . I still dont see any concrete evidence that rangers are going into administration imminently. Whyte will stumble along until the FTT ruling ,then pull the plug.

  28. duggie73 says:

    OnandOnandOnand says:
    30/10/2011 at 11:29 pm
    Duggie,

    If you are having trouble sleeping, read this re use of company names

    http://insolvency.mercerhole.co.uk/tags/s216/

    Just to be clear, the rules were changed as suggested, so nothing to stop the name being used, it’s not a prohibited name if you buy rights to it from an IP
    +++++++++++++++++++++++
    Thanks man. At a skim, Whyte can’t work as chairman of a phoenix Rangers in any case iirc from SPL or SFA rules, so not 100% sure it’ll all apply in quite the way the article’s discussing,but I’ll give it a thorough and bemused look-over the morrow.
    Life, eh? It’s never quite what you expect it to be.

  29. OnandOnandOnand says:

    Paulsatim @ 11.37

    What does that have to do with HMRC allegedly blocking the use of the name “Celtic”?

    TBK,

    I have to confess I think I was the person who cast doubt on the ability to vary the terms of the Floating Charge post assignation. At the very least, might give a creditor, such as HMRC, the right to object to the sum allowed by administrator or receiver under the charge

  30. Paulsatim says:

    OnandOnandOnand says:
    30/10/2011 at 11:53 pm

    Cant find the article about name change, but felt the article pasted was of interest ref HMRC blocking their CVA

  31. TheBlackKnight says:

    OnandOnandOnand says:
    30/10/2011 at 11:53 pm

    Many thanks OnandOn….. I couldn’t recall whom, but I recalled the gist of it. Or perhaps not! 😉

  32. if their is any truth in the story why would medals be getting seized?? Phil Mac says their worth around 17k and if they were/are so short of funds would they not have already entered admin/receivership etc???

  33. andy Fitzpatrick says:

    I think your right,,game over”………. #rangerstv. Mock the weak

  34. iain mcg says:

    The black knight,

    I may be due you an apology, having re-read your earlier post, “determination” of the sum due (fluctuating) is dependent on the debt “chrystalling” on one of a few pre-defined events, most notably the appointment of an admin or receiver, sorry if that bores anyone

  35. TheBlackKnight says:

    Iain, would a MG01s not ordinarily have been submitted with details of the charge and the amount?

  36. OnandOnandOnand says:

    Paulsatim

    Just a point of information. When CVAs, admin pre-packs and the like became more common, HMRC set up a dedicated centre to deal with the proposals of IPs. This then followed the usual civil service logic as follows :-

    we are here to deal with CVAs
    the more we accept and have to monitor, the bigger our department will become
    the bigger our department comes, the more important we become
    we want to be important
    so accept CVAs

    It might surprise you to know that, outside football, CVAs and admin orders aren’t that hard to get approved by HMRC. It’s just the football creditors’ rule that hacks them off as football creditors, at least in Engerlund, are expected to be paid first

  37. Paulie Walnuts says:

    Busy evening. Good to see things largely back on topic and within acceptable bounds.

    I am told by an absolutely reliable source that the medals thing is true. The DR had the story off the record (no pun intended) on Thursday, and have taken til now to stand it up from other sources. To understand it you have to know how arrestments work. All the court gives you is a warrant to arrest. This is the legal authority to freeze money. But you still have to find the money before you can freeze it. Most obviously an arrestment served on a bank account which is in overdraft catches nothing. So you have to find someone who owes the debtor money – in the phrase used in the old cases is he the debtor’s debtor? Obviously if there is a bank account in credit the bank owes the debtor money. You see them also used on trade creditors. So a builder’s merchant owed money by a builder for a pile of bricks will often arrest in the hands of the person for whom the builder is building an extension.

    The assumption is that it is only money which can be arrested, but that is not correct. It is perfectly competent to arrest any form of moveable property. The old cases are full of examples of ship loads of grain and the like being arrested.

    I gather that what happened is this. McIntyre got his warrant to arrest. He served in the hands of the bank and the bank told him they were not holding sufficient funds to satisfy the arrestment. So he looked around at other sources. One of those other sources was the SFA or SPL (I’m not sure which) who owed certain payments to Rangers. Having served an arrestment you get a statutory statement confirming if it has caught anything. Lawyers acting for whichever one of the SFA or SPL it was replied to McIntyre’s lawyers confimring that certain payments which were due to Ragers had been arrested, but also that the 2010/11 league championship medals which were contractually due to be delivered to Rangers had been caught by the arrestment as well.

    Jimbo,

    I think he could probably add any money to the floating charge up to a point, The question is whether he can and if he can whether he should. Plan A I think saw insolvency towards the end of the season or in the close season. If Whyte is to start throwing money in to keep it going, what does he gain? It is a huge amount of money to get to January, still less to the end of the season. There is no evidence he has it. What does he gain? A player clear out? Assuming anyone buys at serious money when the dogs in the street know the players will be free agents soon enough, and assuming theplayers co-operate in being sold when they know that as free agents they wil likely do rather better. If he has the money, which I doubt, the logical thing to do is to hoard it on the basis that he will get far more bang for his buck post insolvency. The only reason to fund it through would be if he thought there was a serious chance of winning the tax case. Everything he has said or done and all the other evidence suggests the contrary.

  38. I’m begging RTC’s indulgence to put up a link to the latest piece of mine – http://scotslawthoughts.wordpress.com/2011/10/31/rangers-and-hmrc-pre-pack/

    2000 words on pre-packs, and whether HMRC could block one – the answer depends, as many legal things do, but there is a clear way for an administrator to deal with things to avoid the need of HMRC consenting.

    I’ve also added a couple of quick points re (a) the supposed McIntyre attachment of medals, as per the blurry Daily Record (if true, I think this has been done by McIntyre’s lawyers purely and simply to embarrass Rangers and (b) the differences re Farsley Celtic, caused by them being in liquidation, and the fact that the rules regarding phoenix companies are far more relevant to, and restrictive in, liquidations than administrations.

  39. droid says:

    No spl money, how does that affect the spreadsheet calculation folks?

  40. iain mcg says:

    TBK,
    A floating charge would most def be registered (and any assignations thereof) am sorry not au fait with current CH form nos. but, beauty is, fc’s exist thru whenever the parties wish untill notified to the registrar
    If there is a special significance to the form to which you refer, please tell me, at the moment I think the security position re wavetower (as was) and rfc is pretty straightfirward

  41. iain mcg says:

    My apologies, the last bit was inadvertently published before being finished or corrected, mea culpa, hope you got my jist

  42. OnandOnandOnand says:

    Iain mcg @12.23am

    Why would an assignation be registered? What is the basis of the legal requirement to do so, given that Part 2 of the BAD Act isn’t in force yet?

  43. iain mcg says:

    Paulie,

    Must disagree in the strongest terms.

    The only thing that can be arrested is ” the obligation to account”

    Where is Paul MacConville when I need him (actually I dont!)

  44. OnandOnandOnand says:

    Paul McConville @ 12 20 something

    Which is it? Receivership or Administration? You tied yourself in knots in that article, they are 2 different and distinct regimes but you have mixed them up. I don’t mean to be disparaging but your article seems based on a more academic analysis with very little hands on experience. Your article is more than a little misleading. SIP 16 is guidance, nothing more, and the extensive case law you cite is relevant only to administrations, not receiverships

  45. Paulie Walnuts says:

    Iain,

    You’re correct, but the obligation to deliver the medals is an obligation to account as the term is used in this context.

    It may conceivably be over-caution, but advice was taken and the response was sent by solicitors for the SPL/SFA (whichever it was).

    Paul,

    The story is true. I understand however that the position is the opposite from your assumption. They were only after the money which is owed, and they nearly fell off their chairs when they got the response saying the medals were caught as well, since when they have been trying to release the medals from the scope of the arrestment.

  46. iain mcg says:

    OAoaoa,

    I dont even know the act to which you refer, I do know that a fc must be registered and any assignation similarly so; crucially, the first act of any receiver deemed to be appointed is to seek legal confirnation that he has been validly appointed in terms of the fc docs registered and has authority to act

  47. iain mcg says:

    Paulie,

    Okay, got that.

    Hope you took my post in the spirit intended.

    Sleep beckons, ‘nite all

  48. OnandOnandOnand says:

    iain mcg

    I refer to the Bankruptcy and Diligence (Scotland) Act 2007 and the fact that you don’t recognise this speaks volumes, I ask again, where is the legal authority for the proposition that assignations of floating charges MUST be registered?

    Och, I suppose it doesn’t matter, it will all come to pass, in due course.

  49. iain mcg says:

    Oaoaon

    I would refer m’learned friend to the final sentence of my previous post : -)

    Nite all

  50. Paulie Walnuts says:

    Just read Paul McConville’s blog. He has, perhaps undestandably, misunderstood what has happened. It is not an attachment but an arrestment.

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