Rangers heads to liquidation after HMRC vetoes CVA

by Rachael Singh

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12 Jun 2012

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HM Revenue and Customs

HM REVENUE & CUSTOMS is set to vote against a rescue deal at Rangers FC, an act that will see the club enter liquidation.

In order for a Company Voluntary Arrangement (CVA) to be approved, 75% of creditors by value of debt need to agree the deal.

However, HMRC, as the second largest unsecured creditor with a debt of about £21.5m, has announced it will refuse the deal, meaning the club will enter liquidation.

In a liquidation, the club's books can be investigated to check for potential fraud, and assets can be traced and pursued through court challenges – all of which cannot take place in a CVA.

A statement from HMRC said: "A liquidation provides the best opportunity to protect taxpayers, by allowing the potential investigation and pursuit of possible claims against those responsible for the company's financial affairs in recent years.

"A CVA would restrict the scope of such action. Moreover the liquidation route does not prejudice the proposed sale of the club. This sale can take place either through a CVA or a liquidation."

The club will transfer its assets, including player contracts, to a new company with the old company liquidated and its books investigated.

Paul Clark and David Whitehouse, both partners at Duff & Phelps, were appointed joint administrators to Rangers FC on 14 February.

Clark said: "HMRC has taken the view that the public interest will be better served with the liquidation of The Rangers Football Club plc as a corporate entity. The club will continue to operate as it has always done but within a new company structure."

Clark confirmed HMRC's decision to reject the CVA was based on "historical non-compliance with tax liabilities by the former owners and directors".

The administrators had issued CVA proposals that would have seen Servco, a consortium of investors, pay £8.3m for the club, having already paid £200,000 for exclusive rights to the Scottish side.

According to the proposals, it was likely unsecured creditors such as HMRC would have received between 3p to 9p for every pound owed if the club entered a CVA. However, the administrators predicted unsecured creditors were unlikely to receive any payment in liquidation.

Because of HMRC's stance, the CVA vote is now a matter of course as there is not enough creditor vote to approve a CVA without the taxman's backing.

Rangers will transfer its assets to the new company which will continue to trade. It has been bought by Servco for £5.5m, most of which has already been paid to the administrators.

BDO partners Malcolm Cohen and James Stephen will be appointed joint liquidators to the old company, although no timescale for when this will happen has been made available.

Cohen said: "Once BDO is formally appointed, the joint liquidators will be seeking to protect any remaining assets, maximise recoveries for the benefit of creditors, and investigate the reasons behind the failure of the company.

"It is right that there is a full and robust investigation into why the company failed, together with concerted efforts to recover monies for creditors and the taxpayer. This may include pursuit of possible claims against those responsible for the financial affairs of the company in previous years."

If a company collapses, secured creditors such as lenders are paid first – while unsecured creditors, such as the taxman and St Johns Ambulance Service, are paid with what's left.

In a CVA, as the payment is made over an agreed period of time, the club can earn money and agree to pay back a nominal amount during the lifetime of the CVA contract.

In a liquidation, unsecured creditors are repaid with what is left from the sale of assets, following the payment of secured creditors, and administrators' and liquidators' fees.

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