Some quick thoughts on The Blue Knights, Rangers, and newcos

Like most people whenever I decide I won’t buy something I like to hold a press conference telling the world what I would have done if I had bought it, and why what I would have done is so much better than anything that anyone else would have done if they had bought it.  Only yesterday I decided not to buy a bar of chocolate but if I had bought it I would have eaten it and savoured the melt in the mouth quality much more than you would have if you had bought.

To the extent that holding press conferences to announce that you are not doing something is normal, today’s press conference by the Blue Knights consortium who have decided not to proceed with an offer to buy Rangers, is unsurprising. They stressed that they wished to invest in Rangers, acquire Craig Whyte’s shares, and wanted a security free purchase (by which they mean the floating charge held by Whyte’s company presumably – although how they propose to deal with the standard security for 1/2 million in favour of the Scottish Sports Council revealed in the aministrators’ statement of proposals is not obvious). The solution of the Blue Knights is that a company voluntary arrangement will be entered (and as secured creditors are not bound by such deals – removing the securities is crucial to the success of the company going forward), the creditors taking pennies in the pound for the oustanding liabilities, and with one bound Rangers will be free. That this would cover contingent liabilities (valued – unless the chairman of the meeting considering the CVA agrees otherwise – at a princely sum of £1 for the purposes of the CVA votes according to paragraph 1.15A of the Insolvency (Scotland) Rules, whatever the potential tens of millions of pounds of liability in any big or little tax case) could offer an attractive option to Rangers – but is dependent on agreement of three quarters of the relevant unsecured creditors.

So far, so what? But hidden away in the press conference was an interesting line from The Blue Knights. Brian Kennedy (a rugby club owner who is tied in to the group) indicated that he had spoken to former preferred bidder, now former bidder, Bill Miller to stress that Miller’s proposed solution – that a new company (newco) be set up to buy Rangers whole undertaking leaving the old company to wither and be liquidated, sorry leaving the old company to merge with the new company at some undetermined point in the future – did not work financially.

With a legal hat on The Blue Knights’ analysis of the newco model as not working financially is a bit odd. A newco is the normal mode of exiting administration in businesses. This is why many administrations are set up in a pre-packaged (or pre-pack) form with a newco being there almost instantly to acquire the assets leaving the detritus in the old company. It works because all of the liabilities are parked in the oldco and the business is transferred (in exchange for a fair value) to a newco which starts free of any liabilities. If the oldco had a floating charge while it preserves the priority of the relevant creditor over the assets of the oldco (now only the proceeds of the whole undertaking sale) – it does not leave any ongoing liability over the assets sold to the new company. The newco model is then often the most financially attractive solution for investors. It allows a fresh start and leaves (often) unhappy creditors.

However, the Kennedy line was that the newco model would not work financially and that this was advised to Miller. During the press conference no-one asked why it would not work financially. Now there are potential regulatory issues within football regarding licences to compete with the SFA and SPL (and frankly if you want to know about that you’re better off elsewhere. I have not digested the football rule books) – but that is not what Kennedy said. He said, a newco would not work financially. So how does parking all liabilities in an old company and starting free from liabilities not work financially on The Blue Knights’ business plan? The only clear consequence for a newco is inability to qualify for Europe for 3 years. Does this indicate that TBK’s business plan is dependent on the oldco exiting administration with a CVA and being permitted to play in Europe (with a resultant revenue stream) in years 2 and 3? If so, it is not clear that that would be possible for a Rangers club that must cut its wage bill. And it is by no means certain that UEFA would allow the club in to European football following the insolvency event. Or perhaps this is not the great financial benefit that Kennedy envisaged?

Any thoughts on the financial problems that would arise for a new company with all of the assets and none of the liabilities do please let me know.

About loveandgarbage

I watch the telly and read when not doing law stuff and plugging my decade and a half old unwatched Edinburgh fringe show.
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6 Responses to Some quick thoughts on The Blue Knights, Rangers, and newcos

  1. duggie73 says:

    It’s not Rangers, so has a fanbase of 00,000?

  2. A wee accountant in South Lanarkshire says:

    Let me just add a few thoughts on what Kennedy actually said.

    Their offer is £11m. Sounds competitive. The breakdown however makes a mockery of the headline figure.
    £5.5m is made up of £5m for the CVA post and 500k for CW shares. Presumably legal costs as £1 is the agrees price.

    £3.5m is football debt owed to Rangers (Everton for Jelavic among others). STOP! Isn’t this Rangers’ money already? D&P can collect this!

    Brushing over it we’ve £2m more from European football. STOP! Aren’t RFC banned for at least next year (possibly longer depending on UEFA’s view of the CVA)? So this on the never never. And it’s future revenue, not TBK’s money, its RFC’s money. And if we’re on the never never why don’t they offer £2m for every season they qualify for Europe for the next 10 years. At least that would register (only just) on the conciliatory scale and add £20m to the fantasy budget!

    So actually the offer is £5m. What are D&Ps fees at? £2.5m? What is the secured amount for the catering company? £2m? We haven’t even touched on CW’s guarantee.

    Pop! There’s actually no contribution to the CVA pot at all. Nothing for HMRC or ticketus, or Shred It, or the Ambulance service, or the police.

    It’s really not much of a quantum to approach creditors with now, is it? ‘Nil’. Is that a quantum? Can I interest you in Zero in the pound, sir? What if I throw in a moonbeam, an imaginary talking iguana and an eternal thought?

    No amount of bluster, wheeling out old managers or rallying cries to the berrrs will change the law. Administrators duty is to the creditors. TBKs duty seems only to be to a competitive debt free RFC. There has been no attempt to bridge that gap from TBKs. There HAS from the admins. They wanted £8.5m in cash and TBKs couldn’t, or wouldn’t, do it.

    My thoughts on TBKs? They are asphyxiated with making Rangers competitive. Kennedy is spinning and full of bravado. There’s a superiority complex and a belief no one knows anything more than what the Daily Record tell them. There’s not an ounce of conciliatory effort at paying debts.

    If I had a mind to put on a suit, write up a spreadsheet and set up a meeting with Paul Clark I could get him to take me more seriously than Kennedy, and from a standing start.

    If this is the populist choice, the people’s front, it’s finished. If he’s succeeded in winning enough support to undermine the new preferred bidder it’s the end of RFC. What I actually think is their lawyers told them next week is the last date to enact a CVA and they will spend the week undermining and becoming the default last option.

    Biggest shower of chancers you’ll ever meet.

    • merciatic says:

      Excellent analysis.

    • I agree with your analysis of the Blue Knights’ ludicrous bid.
      As I see it, they know themselves that they haven’t a hope of succeeding. What they are doing instead is positioning themselves for the post-liquidation race to form a new club. The inflammatory language and belligerent talk is designed to appeal to the rank and file of the Rangers support. The Blue Knights have made the cynical calculation that by growling and scowling at the administrators, who have had the temerity to reject their proposals, they will win the backing of the core Rangers support when the time comes for Rangers Mk II to be reassembled from the spare parts of the original.

  3. gerry says:

    Bill Miller had £30m reasons not to form new RFC.

  4. AliM says:

    Email from representatives of Brian Kennedy to D&P. Interesting read:

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