Blue Knights lay it on the line: Newco will fail, too late for CVA

This afternoon the Blue Knights (plural!) held a media conference as Paul Murray and Brian Kennedy explained their “credible plan” to rescue Rangers.  The quantum of their bid was:

£5.5m cash on delivery of a CVA, £500k of which is for delivery of Craig Whyte’s shares.
£2m dependent on European earnings in the coming years.
£3.5m the company will collect from those who currently owe Rangers money.

Uefa have confirmed that they regard UK companies who dispose of debts via a CVA to have breached their insolvency rules and therefore be ineligible for European competition for 3 years.

It is likely that the administrators or any liquidator would be able to collect much or all of the £3.5m earnings from Rangers debtors.

Mr Kennedy said “the tax case is irrelevant to this CVA”.  Mr Murray was a director of Rangers during their controversial EBT period which led to the big tax case.  The tax authorities may consider the “the tax case” more relevant than Mr Kennedy.

Mr Murray and Mr Kennedy were both clearly exasperated that Duff and Phelps felt unable to accept their offer to take the club through a CVA.  Mr Kennedy could not have been clearer that attempts to establish a Newco would fail, that only a CVA would enable Rangers to survive and it was now too late for this.  On Radio Scotland last week Mr Murray explained that, in his view, a CVA was necessary as a Newco could not survive without European income for three years.

Throughout the media conference it occurred to me that perhaps they don’t know Uefa’s rule on a CVA.  Unfortunately the question was not put to either man by the media.  When asked if they knew if the other bidder had put more money on the table Mr Kennedy said, “I don’t care if [ours is]the largest bid”.  Perhaps, but creditors will, and under an enormous amount of scrutiny, Duff and Phelps are likely to car a great deal.

It will be interesting to hear how Duff and Phelps respond but in summary, my two key questions are:

Would HMRC accept a CVA from a director of Rangers during the operation of their EBT scheme?*

How deliverable is the £2m dependent on European income considering a CVA would exclude Rangers from European football for three years?

The plan was flush full of irrelevant details they had clearly spent a lot of time on, such as the non-exec support of former managers, and a Rangers FC Constitution, forbidding the club from spending more than it earned, but sounded light on how it would convince HMRC to accept a few pennies in the pound from a company with such a chequered tax history, and was potentially slapdash on the European income element.

*Mr Murray suggested he would withdraw from the consortium if Craig Whyte objected to his participation but the lack of attention to HMRC’s view on him appeared to be an obvious oversight.

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