Concern About Rangers As A Going-Concern?


Yesterday, one of our regular contributors, Adam, provided news that Rangers may have finally persuaded an auditor to sign-off on their 2011 accounts.  With a raft of legal issues related to holding an Annual General Meeting late (and the need to have audited financial statements released prior to an AGM), it is important for Rangers and its directors that they do not add to their already complex compliance problems. Thus, it would make sense for directors Craig Whyte, Gary Withey, and Phil Betts to want to minimise any further damage.

Adam and I have had some”off-line” correspondence and I see him as someone willing to ‘call it as he sees it’. As one of this blog’s most vocal Rangers-supporting contributors, Adam and I often disagree on how to interpret data.  However, I can vouch for his scrupulous adherence to factual analysis. (Some would argue that we are both selective in the facts we use, but that is a separate issue). Therefore, unless this is an effort to flush out a source of their many leaks, it does seem probable that Rangers will finally release audited accounts shortly.

In reviewing various Rangers’ fan messageboards, it appears that this issue is the subject of a lot confusion and false information. The intolerance of dissenting voices within the online Rangers community has stifled contributions from accountants and the financially literate within their support. To help fill the factual vacuum, this post shall attempt to provide an explanation of an auditor’s role in context with Rangers’ current difficulties and the likely issues behind the delay.

First, we should address the unaudited numbers released by Rangers on 30 November.  The financial statements presented at that time are largely in accordance with accounts leaked to me several months ago.  It is unlikely that any major irregularities or changes to the basic financial statements will be reported. The issue is almost certainly related to the issue of “going-concern”.

The accounts of every company should include a statement from the board of directors indicating whether the accounts have been prepared on the basis of the business being a “going-concern”.  This basically means that the directors must make a statement that “there are no material uncertainties related to events or conditions that may cast significant doubt about the ability of the company to continue as a going concern“.  In plainer English, they have to certify that they do not know of any events which would cause the company to file for insolvency within 12 months of the accounts being issued.  (Asset values would have to be written down to their current liquidation value if it is believed that the business will cease trading in the immediate future).

Obvious question: if it is the directors who certify the going-concern status of a company, why is there a fuss about the auditors signing off the accounts?

The chartered accountants tasked with auditing a company are required to provide an opinion of as to whether they agree with the directors or not.  There are  three basic boilerplate phrases that directors can choose from:

  • the use of the going concern basis of accounting is appropriate because there are no material uncertainties related to events or conditions that may cast significant doubt about the ability of the company to continue as a going concern. This is the standard phrasing that accompanies most audits.  Its use- without auditor modification- signifies that the directors and auditors do not see a significant risk of insolvency within 12 months of the opinion.
  • the going concern basis is not appropriate. This is used when insolvency is a virtual certainty and that assets will be liquidated.
  • the use of the going concern basis is appropriate but there are material uncertainties related to events or conditions that may cast significant doubt about the ability of the company to continue as a going concern.  This is most likely to fit Rangers if the auditors are primarily focused just on the Big Tax Case. The probabilities of Rangers winning or losing the case can be debated and rely upon non-public information to form an opinion. Depending on what facts are available, your view of Rangers’ likelihood of success will vary dramatically. This provides the tissue behind which Grant Thornton (presuming that they are still Rangers’ auditors) can hide and claim that the outcome of the First Tier Tribunal is uncertain.

However, such an opinion would require disclosure of the risks. Rangers have previously only admitted that there is an on-going dispute with HMRC.  The club have not formally admitted that the scale of the tax assessments are unpayable. This blog provided the world with confirmation of the scale of the problem with our identification of where the Bain Papers could be found online [subsequently redacted on legal advice].  The Bain Papers claimed that Rangers faced bills of £49m.  This amount will be found to be high and the actual amounts should Rangers lose the case are more likely to be in the region of £36m.  (The difference is due to a technical argument over whether the EBT contributions should be considered pre- or post-tax).  The penalty would be determined in a separate tribunal and would likely be an additional £12-18m given the strength of evidence related to Rangers’ willfulness that exists.

With the FTT(T) scheduled to conclude (finally!) on 18 January, we can expect their findings to be published sometime in March or April.  (There is no set schedule.  They publish when they are ready.)  If the FTT(T) goes against Rangers, the amounts deemed liable become due and payable immediately.  HMRC can exercise discretion in enforcing payment during an active appeals process when payment would result in bankruptcy.  However, the right to demand payment is in HMRC’s hands and that cannot be ignored by an auditor.  The history of this case- Rangers’ evasiveness and extreme efforts to avoid admitting the truth when questioned may not bode well for HMRC’s patience.  Normally, a new owner would be cut some slack, but when the new owner has a questionable past himself, his involvement may be more hindrance than help.

If the auditors are more concerned about a basic lack of cash to fund Rangers’ immediate obligations, it is possible that they will indicate that a going-concern is not appropriate. This would require a write-down in Rangers’ asset values and would precipitate balance sheet technical insolvency.  Hence, it seems unlikely at this time. I suspect that Whyte will have secured some form of short-term funding prior to any audited statement release.

The impact for Rangers in having “modified in relation to going concern” audited accounts is that they will have to release quarterly financial statements to the public.  This would make it very difficult for Whyte’s ‘below the radar’ style to continue. Number crunchers would be able to discern how Whyte is financing Rangers- questions over whether Whyte has made good on his contractual promises to invest £6.7m would be answered.  Whyte’s record on paying suppliers would become transparent. Using cash saved by failing to remit the correct PAYE, NIC, and VAT amounts to HMRC on time would not only be obvious, but would become a legal hazard under quarterly reporting. In short, Whyte and his fellow directors would lose a lot of flexibility.

There are many mysteries surrounding Whyte  & Co. Their reasons for buying Rangers at an enterprise value at which few others can see them realise a profit is the central issue. Their baffling behaviour in the last seven months has set debate raging as to whether they possess a financial acumen unseen in Scottish business or whether they are incompetents who are in over their heads. A modified opinion from an auditor is unlikely to provide an explicit answer to that question, but we will certainly look for clues within the footnotes.

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.

2,050 Responses to Concern About Rangers As A Going-Concern?

  1. Paulsatim says:

    What is TC?

  2. jean says:

    corsica says:
    05/01/2012 at 11:12 pm

    Well it seems that he needs money from somewhere 🙂 Nah I don’t really believe that either as litigation could prove very costly if he loses. Now the the bit about Edu etc, I could well believe.

  3. jean says:

    Paulsatim says:
    05/01/2012 at 11:17 pm

    Talk Celtic (apologies RTC)

  4. Eoligarry says:

    As a Barra white settler from Ayrshire I can confirm Barra & Vatersay are most beautiful Celtic islands with wonderful locals. Check oot Vatersay Boys gig on beeb iplayer for a wee ex of the local culture.

  5. FFS Anton! says:

    I agree with Jean @ 11:18.

    His recent track record in pursuing litigation is not exactly scary and can you blame players for wanting away? There is always breaking news in 24 hrs but I won’t hold my breath that it will be this! I can see how the pressure on Whyte might well be rising

  6. timtim says:

    I would take it with a pinch of salt as well
    but it would be entirely in keeping with the character that is CW
    If he really is feeling the pinch and without the ftt decision to use
    as an excuse I can see him resorting to blaming skeletons left by
    the previous board. Of course he’ll threaten to sue but only for long enuff
    to get outta Dodge.
    I feel the honeymoon is over for him with the media and support
    for them its put up or shut up and he has 25 days to pull the rabbit
    out the bowler.

  7. Paulsatim says:

    Thanks Jean!!

  8. corsica says:

    Jean it is all a load of horse manure.

    Who seriously would buy Edu or Lafferty? It is just like Jelavic and the £10m written offer from QPR – pure rubbish.

  9. Hugh McEwan says:

    jean says:
    05/01/2012 at 11:12 pm

    Hugh McEwan says:
    05/01/2012 at 11:09 pm

    True………….that we already knew 🙂

    ===================

    Just making the point, all this nonsense that goes on about who is going to pay it is just a distraction.

    Who pays it is irrelevant. Anyone can come along and do that.

    It is Rangers who HMRC will chase for any tax which is established. It is Rangers who will suffer if it doesn’t get paid.

  10. corsica says:

    Also, CW may be a clown but SDM isn’t and, sure as hell, he will have made sure there are post-event no disclosure and liability clauses in the paperwork.

  11. Paulsatim says:

    http://twitpic.com/83n6nl

    More spin from the Daily Record!

  12. jean says:

    corsica says:
    05/01/2012 at 11:24 pm

    I meant that I could well see why they would want out………rats and a sinking ship? Or maybe that’s a bit harsh as no one wants to lose their job!

    Hugh McEwan says:
    05/01/2012 at 11:26 pm

    But he were a Billionaire he could pay it for them …………………..:)

  13. timtim says:

    thats it am off tae batter on my Bhatarsaigh Bhoys CD

  14. renfrewdave says:

    what would happen to the rangers newco if the fans decided to set up rangers1873 along the lines of AFC wimbeldon, FC united

    play through from the lower leagues,
    appoint john greig as chairman,
    walter smith as director of football and some ex players as coaches etc…
    famous ex players or even business men with wealth off the radars may even help out with small cash injections to get the club going
    old rangers fans then take up season tickets, for appox £100 per season, approx 9k would follow follow them spilting any rangers newco fan base and tv pulling power.
    they would have more spending power and anyone else in the lower leagues
    they could ground share with partick thistle say ,
    the fans of rangers1873 would then beable to get one over on the person who destroyed their old club… mr whyte/white and hold there heads high as they will have re started their club
    D murray could even out bid mr whtye/white for ibrox or murray park and give it to rangers1873 as “im sorry for selling the club to someone who did all this bad stuff to you gift”
    rangers newco would then be in the position where thier new product isnt able to launch and goes bump again… this time not due to their chosing….

    if carlsberg done planned insolvency events not going to plan…

  15. OnandOnandOnand says:

    I suggest a test for all us so verbose posters, myself included.

    “Would Jean understand this?”

    Jeannie is the litmus test, by her own admission, much of what is posted here is over her head. (but you seem to get it anyway,) We critiscise Rangers fans for not understanding the reality of what is going on but if Jeannie doesn’t get it, we shouldn’t criticise others. it is up to us to explain in terms that jeannie gets and up to Jeannie to pull us up and jeannie to tell us what she wants explained again. )

    Jean, if that sounds patronising, I am sorry.

  16. gunnerb says:

    Paulsatim says:
    05/01/2012 at 11:29 pm

    http://twitpic.com/83n6nl

    More spin from the Daily Record!
    ____________________________________________

    Its Ally McCoist`s part in this charade that I find most distasteful…Rangers man ..aye right.

  17. Hugh McEwan says:

    OnandOnandOnand says:
    05/01/2012 at 11:35 pm

    I suggest a test for all us so verbose posters, myself included.

    “Would Jean understand this?”

    Jeannie is the litmus test, by her own admission, much of what is posted here is over her head. (but you seem to get it anyway,) We critiscise Rangers fans for not understanding the reality of what is going on but if Jeannie doesn’t get it, we shouldn’t criticise others. it is up to us to explain in terms that jeannie gets and up to Jeannie to pull us up and jeannie to tell us what she wants explained again. )

    Jean, if that sounds patronising, I am sorry.

    ================================

    About 20 to 12

  18. Corsica

    The SPA (share purchase agreement) does not make explicit disclosures of risks or provide details of how bad the tax case could get.

    However, it does have a pile of references to RFC becoming insolvent in the event of an adverse outcome in the tax case. Therefore, I cannot see how Whyte could claim that he has been misled. Perhaps Whyte did not know that Rangers were not guaranteed a champions’ league position? 🙂

    I suspect that the “another 24 hours” rumour is just someone entertaining himself with a pointless rumour.

  19. renfrewdave says:

    gunnerb says:
    05/01/2012 at 11:35 pm
    Paulsatim says:
    05/01/2012 at 11:29 pm

    http://twitpic.com/83n6nl

    More spin from the Daily Record!
    ____________________________________________

    Its Ally McCoist`s part in this charade that I find most distasteful…Rangers man ..aye right.

    ——————————————————————————————————————–
    is that due to the fact the boy and his agent were told what signing on fee rangers were wanting from him and his agent??

  20. Hugh McEwan says:

    From follow follow

    Claimed to relate to a meeting between the RSA and Craig Whyte.

    Assembly meeting with Chairman Craig Whyte –

    No scope for negotiating a settlement with HMRC due to the criticism they have had from MPs and the Media about some high-profile “deals”. That means the case could take even more time to resolve as any outcome is likely to be appealed by either party.

    – If the decision is adverse and the Club appeal, HMRC can still seek to enforce the decision – not clear if they would but they can start to pursue payment of the tax liability.

    – He hopes “Rangers Football Club Plc” could survive any administration event but feels it would not be the end of the world if it didn’t – I think he said that at our last meeting.

    – There are no concerns about current cash flow and the day to day running of the Club although he acknowledges that the running costs must be reduced – again that was said at our last meeting.

    – There will be comings and goings in the January transfer window – however, players need to go to ensure any new arrivals don’t increase the number of players and the salary costs and it is unlikely that all income will be used to buy new players. He emphasised we need creative players and strikers. There is a list of targets but no names were mentioned.

    – He is really pleased with the backing from the fans and will continue to robustly defend the fans when necessary.
    The AGM will probably take place in March 2012 – the accounts are as yet unaudited – the delay is due to awaiting legal opinion on the tax case! He hopes by then to be able to give shareholders more information and be better placed to answer the questions that will inevitably be asked.

    He will remain accessible to us and he offered an “open-door” to raise any key issues.

  21. gunnerb says:

    OnandOnandOnand says:
    05/01/2012 at 11:35 pm

    I suggest a test for all us so verbose posters, myself included.

    “Would Jean understand this?”

    Jeannie is the litmus test, by her own admission, much of what is posted here is over her head. (but you seem to get it anyway,) We critiscise Rangers fans for not understanding the reality of what is going on but if Jeannie doesn’t get it, we shouldn’t criticise others. it is up to us to explain in terms that jeannie gets and up to Jeannie to pull us up and jeannie to tell us what she wants explained again. )

    Jean, if that sounds patronising, I am sorry.
    ____________________________________________________________________

    If it doesn’t patronise Jean it certainly does Rangers supporters.

  22. OnandOnandOnand says:

    Hugh McEwan says:

    05/01/2012 at 11:37 pm

    is that a code?

  23. TheBlackKnight says:

    OnandOnandOnand on 05/01/2012 at 11:35 pm said:
    I suggest a test for all us so verbose posters, myself included.

    “Would Jean understand this?”

    Jeannie is the litmus test, by her own admission, much of what is posted here is over her head. (but you seem to get it anyway,) We critiscise Rangers fans for not understanding the reality of what is going on but if Jeannie doesn’t get it, we shouldn’t criticise others. it is up to us to explain in terms that jeannie gets and up to Jeannie to pull us up and jeannie to tell us what she wants explained again. )

    Jean, if that sounds patronising, I am sorry.
    ====================================

    Run that by me again 😉

  24. jean says:

    OnandOnandOnand says:
    05/01/2012 at 11:35 pm

    No it is not patronising as most of this is outwith my scope of experience. Whilst I am not a lawyer or an accountant I am educated enough to extrapolate from the available data what I need to know……..not everyone can do that.

    I understand to a large degree what’s happening although, sometimes you lot go off on a tangent and the discussion becomes more complex when you get into all the intricities of the subject matter. I don’t deny that it can be quite intimidating to the uninitiated but I do try to ask when I don’t understand something.

    Juse a tip guys …if you act daft enough for long enough no one will expect anymore of you and that way you get to surprise people at times 😉

  25. majoc says:

    Ah,just missed 1967.

  26. Lord Wobbly says:

    Hugh McEwan says:
    05/01/2012 at 11:46 pm

    He will remain accessible to us and he offered an “open-door” to raise any key issues.
    ~~~~~~~~~~~~~~~~~~
    Adam. Are you reading this?

  27. TheBlackKnight says:

    Hugh McEwan on 05/01/2012 at 11:37 pm

    PMSL!!! 😀

  28. OnandOnandOnand says:

    I shall await Jean’s judgement

  29. The FollowFollow post

    Most of that they could have read from here- months ago! 🙂

    The cash flow issue I am not sure that I buy, but only Craig knows for sure. If there is not a problem, he must have finally made good on his working capital promises. However, even that would not see him through the season without asset sales.

    On the items about the tax case, I must applaud him on his command of the facts. 😀

  30. Hugh McEwan says:

    OnandOnandOnand says:
    05/01/2012 at 11:47 pm

    Hugh McEwan says:

    05/01/2012 at 11:37 pm

    is that a code?

    ============================

    When someone posts something really confusing on the interweb I reply with the time.

    It’s faux confusion for comedic effect.

  31. timtim says:

    Hugh McEwan says:
    05/01/2012 at 11:46 pm

    From follow follow

    ———————————-
    going down like a lead balloon
    the temperature is rising ,are the pitchforks about to come out

  32. TheBlackKnight says:

    majoc on 05/01/2012 at 11:51 pm said:
    Ah,just missed 1967.
    ==================================

    I have it on DVD 😉

  33. Hugh McEwan says:

    rangerstaxcase says:
    05/01/2012 at 11:55 pm

    The FollowFollow post

    Most of that they could have read from here- months ago! 🙂

    ============================

    You could almost have been his script writer.

    My fun will be watching the loyal respond. They are not pleased that he seems to be accepting administration.

    Oh and despair about there being no deal on the table. Quelle surprise on that one, who would have thought it.

  34. Hugh McEwan says:

    timtim says:
    05/01/2012 at 11:56 pm

    Hugh McEwan says:
    05/01/2012 at 11:46 pm

    From follow follow

    ———————————-
    going down like a lead balloon
    the temperature is rising ,are the pitchforks about to come out

    ==================================

    Those, the very tall hats and the flaming brands.

  35. Ian Ferguson says:

    Night Terror says:

    05/01/2012 at 4:05 pm

    Ian Ferguson says:
    05/01/2012 at 3:51 pm

    Night Terror:

    That is Not a proposal for a successful league, it is a recipe for the lowest common denominator.

    Why would or should a club’s income, gained through their supporter numbers or by success be diluted to enable a better standard of income for other clubs ?

    You may as well suggest that in cup competitions everyone gets the same ie 1st round exit or winner or the same payout immaterial of league position or points gained,

    Neither idea is sensible or has merit, neither does yours.

    In any business a model is followed & a place or level in the market place is achieved or not.

    I do not see a false subsidy of any club at the expense of another as a solution to “Scottish Football.s” woes.

    We have had too much of that already.
    ———————————————————————-

    *Must resist posting*

    *Must resist posting*

    *Must resist posting*

    *Must resist posting*
    +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

    What kind of answer is THAT?

    It’s right up there with WOW JUST WOW, are you ADAM in disguise, or did you mean must resist POSING?

    Your suggestion is ridiculous, it is either competition or not.
    In any competition a team or player find their own level.

    If handicaps are your preference then follow horse racing, they have a model that works… Kinda.

  36. JoeMc says:

    It is possible to transfer trade losses if one company transfers a trade to another company under common ownership. Importantly the losses able to be transferred are restricted to the extent relevant liabilities are left behind. I can assure you there is limited scope (no scope) for rangers retaining tax losses post reconstruction while at the same time clearing their liabilities.

    At present the tax losses may appear to be of little use, however picture the scenario were a football club run financially soundly ie broadly break even each year excluding player sale profits. On the sale of say a mcgeady type player for 10million with no base cost ie 10 million profit then circa 23% of the £10 million would be lost to the taxman. The tax losses therefore become very important to a potential purchaser.

  37. OnandOnandOnand says:

    jean says:

    05/01/2012 at 11:51 pm

    OnandOnandOnand says:
    05/01/2012 at 11:35 pm

    No it is not patronising as most of this is outwith my scope of experience. Whilst I am not a lawyer or an accountant I am educated enough to extrapolate from the available data what I need to know……..not everyone can do that.

    I understand to a large degree what’s happening although, sometimes you lot go off on a tangent and the discussion becomes more complex when you get into all the intricities of the subject matter. I don’t deny that it can be quite intimidating to the uninitiated but I do try to ask when I don’t understand something.

    Juse a tip guys …if you act daft enough for long enough no one will expect anymore of you and that way you get to surprise people at times

    ——————————-

    Just posting this again so that some of you wil read it and remeber it’s not about “us guys”

  38. corsica says:

    rangerstaxcase says:

    05/01/2012 at 11:40 pm

    Corsica

    The SPA (share purchase agreement) does not make explicit disclosures of risks or provide details of how bad the tax case could get.

    However, it does have a pile of references to RFC becoming insolvent in the event of an adverse outcome in the tax case. Therefore, I cannot see how Whyte could claim that he has been misled. Perhaps Whyte did not know that Rangers were not guaranteed a champions’ league position?

    I suspect that the “another 24 hours” rumour is just someone entertaining himself with a pointless rumour.
    ***********************
    Granted, I think you had already covered that previously. It’s not the actual disclosures, risks or details I’m after, but that the documents include the standard clauses on disclosure and liability – “I promise to tell the truth but it is up to you to check it”; “I promise to tell you everything but I can’t be held responsible, if I forget to tell you something”; “it’s up to you to check everything yourself and you can’t rely on anything I say”; etc.

  39. Paulsatim says:

    timtim says:
    05/01/2012 at 11:56 pm

    “Burn the witch”!!!

  40. Dave B says:

    jean says:
    05/01/2012 at 11:51 pm

    (smileyface)

    Hope Tendulkar gets his 100th 100th tonight as that issue appears to have been going on as long as FTT(T)!

  41. jean says:

    oops ….*just*

  42. George A says:

    Good point Joe MC.

    Not sure about the current position but the scenario that you describe used to happen.

    From my dim and distant recall of taxation in the 1980’s it was called S 177 relief when losses were transferred across a group. When Lawrence Marlborough and then David Murray got involved in Rangers in the late 1980’s I think this might have been one of the prime motivators.

    A lot of changes to tax law since then so not sure if this model still works.

  43. CMC says:

    Many felt in their bones that HMRC would settle for about £7-10M.

    Aside from an all out win, what straws to Rangers fans have to clutch onto now??

  44. gunnerb says:

    corsica says:
    06/01/2012 at 12:05 am

    Edit ….”“I promise to tell the truth but it is up to you to check it”; “I promise to tell you everything but I can’t be held responsible, if I forget to tell you something”; “it’s up to you to check everything yourself and you can’t rely on anything I say”; etc.”
    _________________________________________________________________________

    Caveat Emptor….its like buying a used car from a dodgy dealer…hmmm

  45. jean says:

    Dave B says:
    06/01/2012 at 12:08 am

    Hope we’re not talking cricket…………worse than watching paint dry!

  46. TheBlackKnight says:

    corsica on 06/01/2012 at 12:05 am

    See SafferyChampness 😉 (“risks”)

  47. gunnerb says:

    jean says:
    06/01/2012 at 12:12 am

    Dave B says:
    06/01/2012 at 12:08 am

    Hope we’re not talking cricket…………worse than watching paint dry!
    _______________________________________________________________

    Philistine..:-)

  48. jean says:

    gunnerb says:
    06/01/2012 at 12:13 am

    🙂

  49. Dave B says:

    jean says:
    06/01/2012 at 12:12 am

    Sorry,

    That’s what’s on telly as I await Her Ladyship awakening from slumber induced by Big Brother!

    Thank God for Laptops!

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