RFC 2012 plc – Legal Update

The Court of Session recently published the long-awaited judgment of Lord Tyre in the note by the Joint Liquidators of RFC 2012 plc for orders under paragraph 75 of Schedule B1. In it, Lord Tyre takes the relatively unusual step of criticising the conduct of the administrators of RFC 2012 plc, even if he ultimately only awarded the Noters a small fraction of the payment they had sought.

The background to this case is the conduct of the administration of RFC 2012 plc or, as it was more widely known, Rangers Football Club, by David Whitehouse and Paul Clark, both of Duff and Phelps (the “Administrators”). The Noters made a number of allegations about the conduct of the administration; these are divided into two broad heads in the judgment: first, that the Administrators failed to properly manage costs during the administration; and second, that they failed to obtain the best possible price when the company’s assets were ultimately sold on.

In relation to the first head, Lord Tyre held that the Administrators had not met the required standard of competence in a number of ways. They had failed to properly explore the idea of further redundancies and the sale of more of the club’s players. They had relied on the opinion of the club’s then-manager, Ally McCoist, to produce a list of proposed player redundancies; when this was rejected as being too small, they “failed to follow through the implication of this, i.e. that they needed to obtain advice from someone else.” This was compounded by “certain other failures by the respondents adequately to inform themselves of the possibilities available to them.” They had not properly explored the possibility of selling players outside the usual transfer window – something which was possible, if unusual. In particular, they had failed to accept a significant bid for Stephen Naismith, who ultimately left the club for nothing when he refused to TUPE transfer to the new company. Similarly, they proceeded on the basis that the SFA would apply an equivalent of the English “Football Creditors’ Rule” – i.e. that redundant players could claim against a newco seeking to adopt the previous company’s league registration – in spite of this not apparently being the case. They had failed to properly explore the possibility of making further non-playing staff redundant.

Regarding the second head, Lord Tyre criticised the Administrators for failing to at least consider selling the company’s heritable property – Ibrox Stadium itself, along with the training facility at Murray Park – whether in the form of a sale-and-lease-back agreement, or some other form. This was particularly the case when it became clear that the bids they had received for the company entire were no greater than the valuation they had received for the heritable property. Elsewhere, however, His Lordship was less convinced that there had been failures by the Administrators. Their decision not to seek an independent brand valuation had been appropriate, as had the Administrators’ dealings with Craig Whyte, the company’s owner; they had not failed in their duties by trying to keep him on side, rather than trying to compel him to transfer his shares.

In practice, many of these failings – for example, the failure to sell players – relied in part upon the actions of third parties such as the prospective buyers. As a result, in valuing the Noters’ claim, Lord Tyre relied on the “loss of a chance” principle where appropriate. This required him to value the loss caused by the failure, based on expert evidence, then apply a reduction based on the likelihood that the proposed action would have taken place. Where it was more likely that it would have happened, the reduction was less; where it was more speculative, the reduction was greater. In relation to the player sales above, the “chance” was valued at 50%, so once a final figure for the loss had been calculated, this was reduced by 50% to reflect the fact that it was only loss of a chance, not a guaranteed sum.

This is a relatively unusual and high-profile case. However, it confirms that – while the courts are not generally willing to second-guess an insolvency practitioner’s actions – they will scrutinise practitioners’ conduct and make awards where this is found to have fallen short.

 

BBM Solicitors specialise in advising IPs in both contentious and non-contentious matters (including transactional work). Contact: Eric Baijal (emb@bbmsolicitors.co.uk).This briefing note is current as at 11 October 2021 and is our understanding of the position described at that date. Legal advice ought to be taken before relying on its terms (particularly to ensure the law has not changed).