Whilst the Rangers* situation escalates on a daily basis as the Mainstream Media catch up on what the Internet Bampots have been reading and talking about for months it has been interesting to note that the CVA route has been highlighted as the likely route for their ultimate survival.
The statement from Rangers after they entered administration stated "The club has put forward a CVA proposal to HMRC in which creditors would be paid and provision made for the legacy HMRC case, if approved by creditors within a month, would minimize any points deduction and enable the club to participate in European football next season”
A lot has happened in the intervening 10 days to suggest that the last point about European Football participation is now fanciful as Rangers* run roughshod over the SFA’s Uefa licensing requirements. In addition to this there is still no certainty of a CVA being agreed with HMRC anytime soon.
The point that interested me was the claim that agreeing a CVA would minimize any points deductions. This viewpoint seems to have gone un-challenged and has been accepted and repeated through various media sources as they hold the CVA up as the holy grail of Rangers* survival. But is this the case as set out by the SPL rules?
A company voluntary arrangement can be proposed for the creditors and as long as 75% (by debt value) of the creditors agree then the CVA is accepted. All the creditors are then bound to the terms of the proposal whether or not they voted for it. This also has the effect of preventing those creditors from taking further legal actions as long as the terms are adhered to by Rangers*. During the CVA, payments are made in a single monthly amount paid to the insolvency practitioner and the fees charged by the insolvency practitioner will be deducted from these payments - kerching ££££
Now as we are all aware there is an automatic deduction of 10 points for every season that Rangers are in administration, so if the administration process continues into the start of the new season then they commence 2012 / 13 season with -10 points. This is covered under the SPL rules A6.9.
There is a perception that if a CVA is agreed then the club comes out of administration and the next season they start level pegging with every other team on 0 points. Having read the wording and definition of the SPL rules my interpretation is somewhat different and not having seen this mentioned elsewhere I was somewhat surprised.
Rule A6.9 states “Where an Insolvency Event or in the vent that such Insolvency Event is part of an Insolvency Process that process, continues and / or is subsisting for more than one season then, for each such Season, during the whole or part of which such Insolvency Event or Insolvency Process is continuing and/or subsisting, the Club concerned shall be deducted 10 points or, as the case may be, shall start each such Season on minus 10 points”
The reason I have highlighted the term “Insolvency Event” is that under the terms of the SPL rules the definition of an Insolvency Event is recorded as including the following circumstance ;
Insolvency Event means, in respect of a Club, where:-
e. the Club shall enter into any arrangement with its creditors or some part of them, in respect of the payment of its debts or part of them, as a Company Voluntary Arrangement under the Insolvency Act 1986 or a Scheme of Arrangement under the Companies Act 1985 or any substituting amending or replacement legislation or any other arrangement or the like having the same or similar effect;
In instances where CVA’s are used to exit administration a payment structure is agreed to allow the percentage of the debts to be paid off over a reasonable period of time; the maximum is usually 60 months or 5 Years. Given the potential level of debt Rangers will eventually be left with after the bills are calculated, the only way they will reach agreement with the major creditor (HMRC) under a CVA is for a substantial value of the debt paid over a number of years. The CVA will not cease until the full, agreed revised debt is paid by the club, at which time they would be issued with a completion certificate. Until they receive a completion certificate they will therefore still be in the continuing process of an insolvency event.
This being the case and taking account the definition of the SPL Rules it can be interpreted that for every season Rangers are making payments in respect of a CVA they will be deducted 10 points. I don’t believe this has widely been reported as any media comment has focused on the advantage of utilising a CVA to exit Administration but does not highlight the continued 10 points deduction. In my view the only way they could prevent such an occurrence would be to pay the total amount of the CVA prior to the forthcoming season commencing.
Taking the definition and rules further the following clause relates to the registration of players whilst in an insolvency event.
A6.20 - a Club that has taken, suffered or has been subject to an Insolvency Event or Events shall not be entitled or permitted to register any Player with the League and the League shall not register such a Player in terms of Section D of the Rules until such Insolvency Event or events shall no longer continue or subsist.
The interpretation is that whilst they are operating under a CVA, Rangers* could not sign / register new players. There are a couple of exceptions such as a replacement goalkeeper however in the main they could not open that famous warchest to improve the squad.
So whilst a CVA is being touted as the panacea for Rangers* I do not think it is without consequences to the detriment of their future ability to perform and compete in the SPL.
* - In Adminitstration
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