Glasgow Rangers: Losing The League To Celtic Is The Least Of Their Worries

Facing a tax bill of £75m, Rangers are not only facing administration but a real chance of extinction. But how did it come to this, and where can one of the game's most famous clubs go?
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Facing a tax bill of £75m, Rangers are not only facing administration but a real chance of extinction. But how did it come to this, and where can one of the game's most famous clubs go?

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Glasgow Rangers: Losing The League To Celtic Is The Least Of Their Worries

Scotland had been bracing itself for the bad news for weeks... months even, but when it came, the St Valentine’s Day Massacre of Rangers’ finances and 140 years of uninterrupted history was still a shock, jolting fans, media and club staff alike from their default complacency.

On Monday 13th February Rangers confirmed that they intend to enter administration with the club admitting they could be facing a tax bill of "substantially more than £50 million" and indeed anything up to £75m by their own latest estimates.

The club lodged papers at the Court of Session in Edinburgh on Monday lunchtime. Rangers now had up to ten working days to mull over the fine print of discussions with creditors and contemplate a formal administration process that most experts had already agreed was now inevitable.

But in a bold move clearly designed to outflank Rangers and their primary secured creditor Chairman Craig Whyte, HM Revenue and Customs lodged a counter application of their own to put Rangers into administration. Now Whyte has a gun to his head and it’s the taxman who’s calling the shots.

So it was on Valentine’s Day that HMRC lodged the order with the Court of Session in Edinburgh calling for the court to appoint an administrator that would be preferable to their interests rather than the administrator of Mr Whyte’s preference, from the Manchester firm Duff and Phelps.

The Court of Session confirmed to STV that the application had been heard and that Rangers had a few hours to appoint their man and enter administration.

The Ibrox club now face a race against time to reorganise their finances in time to exit administration and earn a licence to play in Europe next season

The court’s decision will no doubt have massive repercussions for Craig Whyte, Rangers and their employees in particular - and that is despite Rangers seemingly getting their way. However the sporting reality of administration for the SPL champions is that administration has immediately triggered a 10-point deduction by the Scottish Premier League. And a resulting gap of 14 or so points to rivals Celtic has all but ended Rangers bid for a fourth consecutive title. The Ibrox club now face a race against time to reorganise their finances in time to exit administration and earn a licence to play in Europe next season. To do that they would have to leaving administration and file club accounts in time for a March 31st deadline.

As the news broke initially, Rangers Chairman Craig Whyte insisted there was no alternative to the action due to the shadow cast by the so-called Big Tax Case that relates to Employee Benefit Trust tax avoidance vehicles utilised by Rangers from 2001 onwards. The club also revealed it was in talks with HM Revenue and Customs over a deal to avoid formal insolvency. Craig Whyte – a so-called business ‘turn-around specialist’ – has clearly been gambling that HMRC will settle on a lesser figure (in the past a figure nearer £12m or so had been mentioned as handle-able by Whyte), knowing that if they drive Rangers out of business their chances of receiving a decent payback from the Glasgow giants would be negligible.

As recently as last week Rangers appeared confident of a satisfactory resolution to the tax case, with sources claiming a 75% chance of success on the basis of a defence that centred around official documentation that they claim gave them permission to use the tax avoidance scheme in the first place. That was prior to a rethink at HMRC that Rangers claim they were not party to. Clearly though there is something to argue over, to negotiate on – even if the ultimate responsibility lay with Rangers’ advisors to keep abreast of the relevant legislation.

Just a few days on that bullishness has evaporated however. Rangers are now contemplating all sorts of unfolding scenarios where liquidation and the re-emergence of Rangers as a phoenix club could be a potential and very real solution (notwithstanding the ethical questions and opposition of a hardcore of traditionalist Rangers’ fans that such a move would create).

Set against a potential £75m tax burden, a £10m per year operational deficit and anything else that is yet to arise from further revelations, Rangers simply don’t have much room to manoeuvre

The last published accounts in June 2010 showed Rangers net assets, including the stadium, at £70m. That figure though could be further compromised by an inflated valuation on a stadium with negligible redevelopment potential, due to its location and Category B historic listed building status, and a training ground (Murray Park) that cannot be sold for house-building due to greenbelt restrictions. Set against a potential £75m tax burden, a £10m per year operational deficit and anything else that is yet to arise from further revelations, Rangers simply don’t have much room to manoeuvre – if they have any at all.

Indeed, HMRC’s robust response, so far, suggests they intend only to play hardball, making an example of Rangers if they feel they have to - and Mr Whyte too.

Rangers dispute with HMRC centres on the use of employee benefits trusts, which were in place a decade before Craig Whyte bought out Sir David Murray last May. It has been suggested that the use of the tax avoidance schemes could actually date initially from the transfer of the Dutchman Artur Numan in 1998 onwards rather than the 2001 dateline claimed by Rangers. It is also said that Celtic investigated the use of EBT’s with the transfer of the Brazilian ex-Middlesborough midfielder Juninho Paulista in 2004, but decided not to proceed.

The problem for Rangers, in terms of their ongoing negotiations with HMRC, is that they have become something of a test case for the tax authorities who would look to pursue other businesses who have also utilised similar employee benefits trusts schemes for tax avoidance, on the back of a positive outcome against Rangers.

Rangers’ three-day tax case tribunal concluded on January 18, the result appears to be imminent although it is unknown whether or not Rangers initial response had been triggered by advance notice of the verdict.

Regardless, Rangers have admitted that victory was not feasible, at least in the sense of allowing Rangers a clean slate to resume their day-to-day business dealings, given HMRC's determination to succeed and their commitment to “appeal, appeal and appeal again” in pursuit of a satisfactory result. Rangers say their decision has been taken now to force matters to a head and avoid the potential for years of extreme instability as the HMRC process rumbles on without resolution. This, they say, could hamper the financial restructuring and indeed further investment in the club. HMRC are following their own agenda – that of safeguarding the chances of any payback they are entitled to from Rangers – at all costs. It was, in fact, confirmed that a £9m bill due by Rangers in VAT and PAYE had triggered the revenue's legal move on Tuesday.

It is hard to escape the impression that the spectre of the big tax case could be something of a smokescreen, masking as it does far more profound structural problems at Rangers

In a statement, the club said: "The tribunal relates to a claim by HMRC for unpaid taxes over a period of several years dating back to 2001, which, if decided in favour of HMRC, could result in liabilities and penalties substantially more than the £50 million reported, which the club would be unable to pay."

Whyte, who was jeered by around 100 fans as he read out a brief statement outside the main entrance of the historic main entrance of Ibrox on Monday, said: "It is extremely disappointing the club finds itself in this position but decisions have to be taken to safeguard the long-term survival and prosperity of the club both on and off the field."

Rangers has proposed a Company Voluntary Arrangement should it go into administration with creditors protected from the tax case liability. However, it is hard to escape the impression that the spectre of the big tax case could be something of a smokescreen, masking as it does far more profound structural problems at Rangers.

Craig Whyte’s predecessor as chairman, Alastair Johnston pre-empted the the revelations of Rangers’ Black Monday by calling for a formal government probe into Craig Whyte’s takeover of the club.

Notwithstanding questions regarding Johnston’s own role in all this (in terms of his own due diligence on behalf of fans and shareholders), the shock move came a week after Glasgow newspaper The Daily Record revealed that Craig Whyte had mortgaged four years of projected season ticket sales to finance his new Ibrox regime.

Alastair Johnston says he wants “full disclosure” from Whyte, who bought the club for £1 from Sir David Murray last May and cleared their debts of £18million to Lloyds Banking Group. In turn, Rangers’ fans have a right to question what has happened to the funds raised by the sale of Nickica Jelavic to Everton, cost-cutting measures enacted on the wage bill and the monies accrued from the season ticket deal with Ticketus. As the picture appears to worsen at Ibrox on an almost hourly basis, Rangers fans will demand answers as to how their club has hit the skids so spectacularly and so quickly.

Following Black Monday, The SPL confirmed a 10-point deduction and a transfer embargo was now put in place now administration is confirmed, but it is the statement of intent signalled by the brisk moves of HMRC on Valentines Day that pose Rangers the greatest danger. Remember, it was the taxman that got Al Capone in the end and in that original St Valentines Day Massacre. In this modern day equivalent, a 10 point league penalty and the loss of their SPL title to rivals Celtic, could prove to be the least of Rangers’ problems.

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