Confidence Trick

Those with an interest in the outcome of Rangers’ appeal against HMRC’s assessments in the ‘Big’ Tax Case might be justified in feeling a little confused.  When the story first broke in April 2010, Alastair Johnston gave this statement to the media: “Tax issues are never clear-cut but all I can say is we have taken a lot of legal advice on the issue.  I do not think it should be a material concern for us in the longer term but we can’t say for sure yet what might happen.”

Between breaths of fire and vitriol directed at former Rangers directors after Mark Daly’s recent BBC Scotland documentary, Craig Whyte said: “At this point the club’s advice from tax advisors has been that the club has a good chance of succeeding in the tribunal but it would be wholly irresponsible not to consider the potential consequences for the club should the decision be made against us”.

Yet an array of tax professionals say that if Rangers provided its players with side contracts assuring them that loans taken from an Employee Benefit Trust (EBT) would not have to be repaid, then the club’s chances of succeeding in appealing the assessments in their possession would be very slim.

Opinions- it is (famously) all about opinions.  One opinion probably matters more than most.  It is that of Andrew Thornhill QC, Rangers’ Counsel in the EBT case.  He seems to be a little less bullish than Johnston and Whyte.  In correspondence with their legal expert, Rangers received more nuanced advice.  The following is an excerpt from internal Rangers communications prepared to inform Whyte about a range of matters:

No one would expect a lawyer to tell his client that a favourable outcome is guaranteed. Even this blog has always gone to pains to point out that there is no such thing as certainty in court cases. (Although Rangers may be destined to prove the old saw “the only sure things in life are death and taxes” correct on both counts). However, I would have expected more uplifting advice to have been communicated internally to justify the optimistic pronouncements from Ibrox.

This advice is tantamount to saying “there is definitely a possibility of winning the case”. I would agree! It is logically equivalent to “there is a non-zero probability of winning our case”.

Of course, the case is a bit more complicated than just Rangers versus HMRC.  As we have covered previously, the case involving the Murray Group Management Limited Remuneration Trust goes beyond just Rangers: it deals with several current and former subsidiaries of Murray International Holdings Ltd.  Each subsidiary is legally responsible for paying its own employment taxes and each will be held individually liable for any negative outcome from the case. Yet not all of the subsidiaries will have been guilty of the same scam as Rangers.

Those who have been reading all of the posts and replies on this blog (a monumental task these days) will understand that any cash that Sir David Murray withdrew from the trust might well be deemed to be a legal loan.  As Chairman, majority shareholder, and in effective control of MIH through most of the years in question, he would have had little reason to write himself a side letter saying that he did not need to repay any loans.  If this is what he has done, then he will likely have been within the operating limits established in the Dextra case.  So anyone seeking to provide ambiguous advice to a prospective buyer of Rangers FC might well point to grounds for optimism on aspects of the case involving the Murray Group Management Limited Remuneration Trust.  (I look forward to comment on this point from our unpaid team of legal experts!)  Yet, those familiar with the case cannot conceive of a possible defence in Rangers’ case. (Assuming that the club did indeed provide side-letters to players).

Is Thornhill speaking only to the Rangers case?  Was a sunny-side-up opinion procured to help smooth the sale of the club?  Did Whyte decide to make his move on the basis of a seemingly optimistic legal opinion that in fact says nothing at all?  Whyte’s purchase of Rangers seems to defy all logic and business experience.  We have to include the possibility that he has been legally duped.  Of course, the contract that sold Rangers to Whyte includes a gagging order preventing Whyte from commenting negatively on the previous owners.  So we are unlikely to learn if Whyte is experiencing any buyer’s remorse.

As the quote above also points out, the resumption of the case is near at hand.  Next week will see the closing stages of the case begin.  The window for speculation is fast closing and real answers to the mysteries of this case will start coming thick and fast.  The 8-12 week period from the conclusion of the case is realistic.  The stuff about “a period to discuss the affordability of any settlement” is not.  There is no stage in the formal process after the tribunal to negotiate.  The bill for the underpayment & interest (about £36m) will have crystallised and would be legally enforceable.  Rangers can appeal (through the MHL subsidiary of MIH) to the Upper Tribunal.  HMRC do not normally enforce payment if it will result in insolvency while an appeal is underway.  However, there has been a hardening of hearts recently, and in cases where it is felt that the appeals process is being abused to delay the inevitable, they will be more likely to enforce their legal right to demand payment shortly after the First Tier Tribunal (Tax).  HMRC can elect to do a deal at any time of their choosing.  However, a pennies on the pound settlement in the wake of recent publicity seems unlikely.  Public punishment of a Draconian nature might do more to fill the public treasury than any smattering of repayment which Rangers could muster.

The question remains whether Whyte can keep Rangers solvent long enough to divert blame for the disaster that is almost certainly about to befall Rangers.  A post-Big Tax Case fall will be so transparently the work of the previous management and owner that Whyte will not need to comment.  Falling earlier will leave Whyte with a lot of responsibility for Rangers’ problems, and he will not be able to openly throw any mud in the direction of the real culprit: Sir David Murray.