Illegal Use of EBTs & Other Issues
16/03/2012 1,032 Comments
Correcting the constant stream of misinformation from the Scottish media has become a tiresome chore. However, in the face of repeated failures of print & radio journalists to check their facts, the task of setting the record straight falls on us: unpaid, amateurs working on a handful of blogs covering Scottish football.
“No one is accusing Rangers of doing anything illegal”
This “misstatement” was started by Rangers’ former chairman, Alastair Johnstone almost two years ago, and is said to have been repeated by Mike McGill of MIH this week. It is nonsense. Rangers have been accused of breaking UK tax law. They stand accused of pursuing an illegal tax strategy. It appears that some journalists lack the skills and/or work-ethic required to research the difference between criminal and civil proceedings.
No one is saying (or has said to the best of my knowledge) that Rangers are facing criminal charges. However, the First Tier Tribunal (Tax) on whose findings we are all waiting, will determine the legality of Rangers tax strategy. If the FTT(T) finds against Rangers, it will have deemed that the strategy used by Rangers for over a decade was indeed illegal. I struggle to believe that any hack is so stupid as to not understand this issue. One wonders if recent contact with Sir David Murray has dulled the investigative zeal of the five hand-picked journalists who were recently granted an audience. I could be wrong. Maybe they were just “duped”? Does this word mean “to have been misled voluntarily?”
Why are there no criminal proceedings?
As we saw with the Harry Rednapp trial, what appears to the general public as an open and shut case, can be very difficult to prove. Weeks of pouring over arcane legal details and endless pages of numbers would drive any jury to distraction. Bored jurors become prey to skilled advocates for the defence resorting to emotional arguments and playing on the likeability of the man in the dock. If it was Rangers on trial, it could be difficult to find a jury that would agree to convict regardless of the evidence presented. (The same might also be said of Celtic). In Rangers’ tax tribunal, three expert judges with extensive experience in tax law will decide.
Mens rea- presents a problem. This legal concept means that prosecutors would have to prove that Rangers, or any individual directors charged, were fully aware that what they were doing was criminal. As we will see later, some individual actions do appear to be criminal in nature. However, in Scots Law, we have an additional problem: corroboration. Individual pieces of evidence need to be supported by other submissions in criminal trials. In Scotland, it is difficult to both prove that someone intended to act illegally when breaking tax law and to have enough evidence to support corroboration. This means that criminal convictions for tax evasion are rare. The network of disreputable people who profit by taking advantage of distressed businesses- e.g. by pocketing their withheld tax- deliberately exploit this difficulty of obtain convictions. There is a certain poetic irony in Rangers’ situation- both beneficiary and victim of a flawed system.
Take these factors together and the decision to pursue Rangers through the civil court system will almost certainly be shown to be a wise one. But be in no doubt: Rangers have been accused of acting illegally.
Changing the subject entirely-
Why are Duff & Phelps going to court to get Ticketus deemed to be a creditor?
This issue has been butchered by our friends in the Scottish sports press as well. So I will try to undo some of the damage.
Ticketus believe that they have purchased £20m worth of heavily discounted Rangers tickets over the next four seasons. (The VAT that was not paid to HMRC would not count as Ticketus’ debt). No one in their right mind would want to buy a football club that is obligated to give away an average of 25,000 season tickets per year away to another company. (This would cut Rangers’ turnover in these years by almost half). It would be best for Rangers if this £20m is considered to be a debt. If it is a debt, Ticketus could be forced- under the right conditions- into a “cram down”. In this situation, they would have to accept the same reduction in the value of debt as the other creditors.
When could a “cram down” happen? If more than 75% of the creditors agree to a reduction in the value of their debt, then all of the debt holders will have the amount they are due reduced proportionately. If Rangers’ total debt after FTT(T) result is returned exceeds £80m, and if Ticketus was treated as an unsecured creditor, they could no longer block a Company Voluntary Arrangement (CVA).
So what will happen? Without access to the executed version of the contract documents for the Ticketus deal, it is really impossible to say. It is hard to imagine a situation where you think you have bought an asset but had accidentally granted a loan. Yet, Rangers’ difficulties have thrown up many surprises. A few more can be expected. I would assume that Ticketus’ rights to the tickets will be upheld until we hear otherwise.
If Ticketus win their case, they would effectively control Rangers’ future. Owning over 100,000 tickets for a team that no longer exists will not do Ticketus any good however. So they will be inclined to push the other creditors for a CVA. However. they would be able to demand better terms for themselves than the creditors as their price of not liquidating Rangers. This reduces the incentives for the actual creditors to do a deal on any terms.
In a complicated game of Russian roulette, the various parties all understand that the debt level will greatly exceed any price that a buyer will pay. So Ticketus, Craig Whyte, and the unsecured creditors, such as HMRC, will play an elaborate game of bluff and bluster hoping to scare each other with threats of getting less (or nothing) in liquidation.
How will it end? My money is still on liquidation and a lengthy series of court battles that bleed Rangers FC dry in the meantime. Do not forget that Craig Whyte’s ominous silence is unlikely to mean that he has abandoned his floating charge. However, only a fool would see any certainties in this mess.