Expert Comment: Rangers in crisisThursday 14 June 2012
Dr Michael Lavalette, Head of Department for Social Care, Work and Justice (and Celtic season ticket holder) on troubled times for Scotland's biggest sporting institution.
For those interested in sport – and football in particular – Thursday 14th June marks the day one of Scotland’s sporting giants crashed and died.
The announcement from HMRC that they will not support the administrators planned Creditors Voluntary Arrangement (which would have meant creditors accepting between three and nine pence for every pound owed) means that Rangers will now be liquidated.
These bare facts hardly capture the drama of the events that have unfolded since Rangers Football Club – the biggest sporting institution in Scotland – went into administration on 14th February 2012.
The immediate cause of the move to administration was the club’s failure to pay taxes, PAYE and National Insurance payments in the period from May 2011 when the club was taken over by Craig Whyte.
Whyte bought the crisis-stricken club for a pound but agreed to pay off the club's existing debt with the banks. It is now clear he did this by borrowing the money from a company called Ticketus and took the money as an advance of the next four years' season ticket money.
Whyte inherited from previous owner Sir David Murray a mountain of debt and a range of business and tax evasion practices that HMRC has argued are illegal. The most significant of the contested practices was an Employment Benefit Trust scheme which paid players’ ‘loans’ into an off-shore tax haven – which, of course, they never had to pay back. The way of supplementing players’ wages meant that Rangers could afford to play and pay players who would otherwise be beyond their reach.
This practice (currently considered under the rubric of ‘the big tax case’) is presently with a First Tier Tax Tribunal with every suggestion that the result will go against Rangers and a further tax bill, of as much as £100 million, immediately due to HMRC.
The rejection of the CVA means that some within Ibrox (Rangers’ home) will now quickly try to move to set up a ‘newco’ which they will try to manoeuvre into the Scottish Premier League. But the SPL has always had promotion and relegation on merit – it is not a ‘franchise league’ and has never parachuted a club into its top-tier from scratch before.
The bankrupt football club now possess questions for Scottish football with regard to sporting integrity and ‘fairness’. Why should a bankrupt institution – with vast unpaid debts to a range of businesses (including close to £1,000 for unpaid newspapers!) be allowed straight back into the top tier of Scottish football?
This issue has been further muddied because of the way Rangers operated the EBT. It is now apparent that Rangers gave players and employees letters stating that the EBT payments were part of their wages (evidence of the extent of this practice were established in a recent BBC Scotland investigation).
This means that Rangers have also been operating ‘dual contracts’ – an official contract, which was lodged with the Scottish Football Association and a second ‘side contract’ which was not declared. This practice breaches football rules and technically carries a penalty of a 3-0 defeat in every match in which a player with a dual contract played (and there were perhaps 800 games that Rangers played with ‘ineligible’ players).
The EBT practice has been in place for at least ten years. This means that Rangers effectively cheated Scottish football by playing players they otherwise couldn’t afford. The level of ‘financial doping’ is so excessive that Scottish football administrators will surely find it difficult to ignore and return Rangers to the top table.