A note for journalists and Neil Doncaster

Neil Doncaster, the head honcho at the SPL, keeps telling anyone who listens that a company voluntary arrangement is the same thing as a newco. This is nonsense – but he persists with these remarks unchallenged. Anyway, we’ll keep this simple and ignore floating charges and rights in security.

Here is a scenario. Alpha Ltd is a company. It is owned by A and B who each have 50% of the shares. The company is run badly and owes vast sums of money to creditors. The company goes into administration.

(a) Scenario 1 – Alpha Ltd’s creditors are approached by the administrators for Alpha Ltd who indicate that someone is prepared to invest in Alpha Ltd. This investment – which will keep the business going – will see a financial investment but will only be made if the creditors agree a company voluntary arrangement. The CVA will give the creditors 5 pence in the pound on their debts. The creditors have it in their power to reject this, but may agree if the value they get on the CVA will be greater than they get if the company is liquidated.

If Alpha Ltd exits on a CVA A and B remain owners of the shares (except insofar as incidentally (and outwith the control of the creditors) there is a deal to transfer their shares to the investor. The investor could of course be one of the existing shareholders).. They can appoint directors. All of the assets of Alpha Ltd remain with Alpha Ltd. The same entity exists.

Now let’s consider scenario 2.

Scenario 2. This is the most common way to exit administration, the “newco” model. Typically it will be done quickly in the early days of administration- in order to preserve the value of the business, and in the best interests of the creditors (who the administrator is meant to be acting for). Anyway, in this model the investor in Alpha Ltd sets up a new company, Omega Ltd. Omega Ltd is owned by C – a new investor (or it could be set up by A and B – such things happen). It agrees with the administrators (who have had prior approval from the creditors – such things are required no matter what some journalists tell us) that the whole turnover of the business of Alpha Ltd is transferred to Omega Ltd – all assets, all contracts and rights (that are capable of being transferred – some rights cannot (eg contracts where particular parties were chosen for special reasons) and will die with Alpha Ltd). The liabilities of Alpha Ltd are left with Alpha Ltd. Omega Ltd doesn’t want them. The net effect is that the proceeds of the sale of the business assets goes to Alpha Ltd which will be liquidated and who then have to pay off the creditors, potentially pennies in the pound. Alpha Ltd will then be dissolved. Wound up. It will join the choir invisibule. IT will be an ex-company. No more. Expired. It will have gone to the great companies house graveyard in the filing cabinet.

Now using your skill and judgment can you spot the difference between these two scenarios?

And if you can spot the difference do you think you could drop a note to Neil Doncaster explaining it.

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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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3 Responses to A note for journalists and Neil Doncaster

  1. clonesbhoy7 says:

    Simples…except for Neil Donkeyarsetwister

  2. Miles Mania says:

    Nice article. I really wish these journalists sitting in front on Neil Doncaster, repeating his diatribe verbatim, would take the time to do *some* reading and pose some questions that actually get him to back up his words.

    Its clear to me that the majority of the SPL clubs (chairment and/or managers) want to keep Rangers in the league, and had hoped that the integrity issue will go away. However, that’s not happened, so they’ve all gone underground and put Neil Doncaster out there to be the bad guy – he can be positioned as neutral and the clubs will hope that they don’t face a backlash from their own fans when they’re seen almost begging Rangers to join the league again.

    When the other club fans do complain about the lack of punishment, asking where the integrity has gone, they’ll roll out the “big boy did it and ran away” line. And, why not, its working for Rangers.

    All very sad and Scottish football will be even more of a laughing stock.

  3. Excuse my stumbling on this article and digging it up, but it’s a topic I’ve a certain interest in! 🙂

    A long time ago but your article contains a major flaw.

    You misunderstood & misrepresented Neil Doncaster. He wasn’t identifying the football club as indistinguishable with the “Alpha Ltd” in your example, but the business entity that company operated. (As he was perfectly correct to do, given the distinction in the relevant rulebook between the football club and it’s “owner and operator” ie. corporate entity).

    On that basis, Doncaster was in fact correct to state that, as in both your scenarios, the outcome between CVA and newco is the same, to the extent that the football club/business entity does indeed continue, being transferred between the two corporate entities as you describe.

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