RANGERS administrators did not get a proper valuation of the club before selling the business assets for just £5.5m to the Charles Green’s Sevco consortium, it has emerged.
While some within Duff and Phelps, the company responsible for guiding the club through its financial implosion, were pushing for a brand valuation, it has emerged it was dropped in a matter of days with one manager saying it had been considered “a waste of money”.
The brand, which includes the ability to use the club’s name, trademarks and logos for financial gain, and is used in all its merchandising was effectively sold for nothing.
An assessment carried out by an independent finance expert on the day of the Sevco purchase and commissioned by the new owners put the value of the brand alone at £16m.
Papers lodged in the case show that the brand ‘giveaway’ formed part of a a wider analysis that revealed that assets were sold for at least a fifth of its fair value.
The liquidators of the club BDO are suing the joint administrators of the club David Whitehouse and Paul Clark of Duff and Phelps for £56.8m saying a flawed cost-cutting strategy meant creditors lost millions from the handling of the club’s financial implosion.
Mr Whitehouse and Clark are defending the action by claiming the liquidators expected a “bonkers” strategy of a ‘fire sale’ of Rangers which would have “effectively shut the club down for good”.
The administrators have said the idea was to present “a functioning working club” and to rescue it as a going concern so that it could be sold to prospective purchasers.
But internal Duff and Phelps emails lodged in the case have revealed a level of friction between the staff members in the way the administration was being carried out.
The action comes nine years after the Craig Whyte-controlled Rangers business fell into administration and then liquidation leaving thousands of unsecured creditors out of pocket, including more than 6000 loyal fans who bought £7.7m worth of debenture seats at Ibrox.
READ MORE: Ex-Rangers administrators fight 'bonkers' £56.8m 'shut club down' claim
An agreed fact in the case is that on March 16, 2012 Duff and Phelps decided to pause the start of any work on preparation of a brand valuation report.
But before that senior associate Charles Walder was in contact with colleague Mathias Schumacher about obtaining a brand valuation report. Mr Walder wrote in an internal email on March 14: “We will need the brand valued on a going concern basis i.e. on a normalised bases discounted significantly as the company is administration.
“We will also need the brand valued on a liquidation basis, i.e. what a purchaser would pay for the brand if the club ceased playing football and the brand was sold.”
Mr Schumacher, who had previously said it would take two weeks to perform a valuation, was told that the administrators had asked for best and final club purchase offers by March 16.
He was told a valuation was needed shortly after to “critique the offers”.
Accountant James Saunders, a managing director with Duff and Phelps, one of those who received the email, two days later said that the brand valuation was at the request of a “major stakeholder in the business and may not now be necessary”.
The court has been told the stakeholder was HM Revenue & Customs, the biggest creditor in Rangers’ financial downfall.
When Rangers went into administration over outstanding PAYE and national insurance payments worth £14m, HMRC claimed it was owed more than £90m.
The size of the potential HMRC debt - the result of Rangers’ controversial use of employee benefit trusts (EBTs) to pay staff and players from 2001 to 2010 - had been blamed for the business being consigned to liquidation in June 2012 and the club being relegated to the bottom rung of Scottish football.
Well before the liquidation, the EBTs issue, commonly known as the ‘Big Tax Case’ was perceived as a significant setback to Sir David Murray, the former chairman of Rangers, in finding a buyer for the football club. Sir David eventually sold it for a token £1 to Mr Whyte in May 2011.
Mr Saunders, a director of the global restructuring advisory practice of Duff and Phelps,told Lord Tyre that it was the joint administrators decision to pause the process.
He said: “I believe it was because the sentiment was that the brand value would be borne out of the sale process. And it didn’t feel realistic to value the brand on a standalone business without the club. It felt like a waste of money to get that valuation, when we were still in the throes of the sale process at the time.”
Mr Saunders agreed that that meant that the administration team did not know the valuation of the brand on a going concern or on a liquidation basis.
Kenny McBrearty, QC, for BDO told Lord Tyre that there is a case made out that Duff and Phelps failed to get a brand valuation report “and they should have done” which had an effect on the bidding process.
Papers in the case reveal that while the Rangers assets were bought by Sevco for £5.5m, the fair value assessment to the group was put at £27.2m.
While just ten of the star players including striker Steven Naismith, goalkeeper Allan McGregor, midfielder Steven Davis, and defender Steven Whittaker were valued at £21.35m after the club went into insolvency - they ended up being bought for just £2.75m as part of Sevco’s £5.5m purchase. BDO’s representatives described that as “some way short”.
Ibrox and Murray Park were snapped up for £1.5m in the deal, but a fair value assessment, carried out by an independent valuer was £6.5m.
But at the time of the purchase, there had been no licence to play football so the Ibrox and training facility valuation had been downgraded. A subsequent valuation priced the stadium and Murray Park at £80m.
Earlier Mr Walder, who gave evidence from Los Angeles, agreed that the brand valuation was needed to show the administrators had obtained “fair value” for the assets.
He was further asked why no brand valuation report was pursued.
Mr McBrearty said: You’ll understand that now, looking back we can see that you included in a prominent position, quite a bit about the brand and the information memorandum.
“We had the case strategy note indicating that the brand and the IP [intellectual property] would be worth something. We had the format of the offer and the memorandum of offer, which indicated that part of the price was to be attributed to the brand.
“And then we have a decision not to value the brand.
“Can you really not help with why that was, that was considered unnecessary?”
Mr Walder said: “I don’t recall.”
When Rangers under the stewardship of Mr Whyte went into administration in February, 2012, it was believed the club had potential debts of over £100m. Creditors ranged from corporate giants such as Coca-Cola to a picture framer in Bearsden and a lady called Susan Thomson who ran a face-painting business and was owed £40.
In a separate case, Duff and Phelps is claiming misconduct in public office while pursuing a £25m claim against the Lord Advocate over damage to its business over the malicious Rangers fraud case scandal.
The Lord Advocate has questioning the relevancy of the action by Duff and Phelps which comes after it was admitted their employees David Whitehouse and Paul Clark were maliciously prosecuted in their action taken against prosecutors and the police.
Both settled out of court in December and the Crown Office confirmed both men were awarded £10.5m damages, while legal costs will be at least £3m.
The new case means that the taxpayer faces a bill of over £110m for the wrongful prosecutions by the Crown Office and Police Scotland.
Mr Whitehouse, Mr Clark and five others were subjected to detention and criminal proceedings in relation to fraud allegations in the wake of Craig Whyte’s disastrous purchase of Rangers from Sir David Murray for £1 in May 2011 and its subsequent sale before a judge dismissed all charges.
Five of the seven men charged in relation to Rangers fraud cases have been pursuing compensation complaints over wrongful arrest against either Police Scotland, the Crown Office or both with a collective claim now standing at £113m.
Former Rangers chief executive Charles Green is among those to receive compensation after Crown lawyers accepted he too was subjected to a malicious fraud prosecution.
A full hearing in his £20m damages claim over wrongful arrest to decide how much should be awarded is due later this year.
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