Ten point deduction looms as Rangers signal administration intent

Fifty-four times Scottish Champions face £49m HMRC bill.

Rangers Football Club are set to enter administration as the club battles with HM Revenue and Customs (HMRC) at a tribunal over a disputed tax bill of £49m.

They have submitted a notice of intent to appoint administrators and the club now has ten days to decide whether to enter administration, a move which would result in a 10 point penalty deduction.

Owner Craig Whyte admitted last night that the likelihood is that Rangers will enter administration, adding: "I think we have to face that Rangers will be in administration - and will come out the other side a fitter and stronger business."

If the tribunal decides in favour of HMRC, Rangers would be likely to incur further costs, with some reports suggesting they could owe as much as £75m. The case surrounds Rangers' apparent misuse of the employment benefit trusts (EBTs) in which the club avoided paying large sums of tax.

Rangers, who have won the Scottish title 54 times, are currently running a £10m per year deficit and were forced to sell star striker Nikica Jelavic to Everton for £5.5m in the January transfer window to ease some of the financial pressure on the club.

Craig Whyte, who bought the club from former chairman Sir David Murray last year, released a statement in which he said the following:

Since I took over the majority shareholding of the club in May last year, it was clear to me the club was facing massive financial challenges both in terms of its ongoing financial structure and performance and the potential consequences of the HMRC first tier tax tribunal.

I have taken the decision that the most practical way to safeguard the long-term future of the club is to go through a formal restructuring process. It may still be possible to avert this but that is not the most likely way forward.

What is of paramount importance is the long-term security, survival and prosperity of this great football club.

From my early days as chairman I saw that administration was a very real option to enable the club to address these challenges and make a fresh start.

Frankly, the case for administration in pure financial terms was compelling but I was acutely aware that such a great institution as Rangers could not be viewed exclusively in financial and business terms.

So what does administration mean for Rangers?

Administration

Administration occurs when clubs miscalculate their cash flow. In the case of Rangers, a situation has occurred whereby HMRC have demanded a substantial tax sum and the club are unable to make the payment. The administration process allows a club to continue operating without having to sell of assets to pay immediate debts. It is hoped that administration will give Rangers time to change their business model to a more sustainable one whilst continuing to compete in the Scottish league.

Administrators

Administrators are essentially a set of accountants whose job it is to analyse the club's books and minimise losses by restructuring their finances. Administrators will run the business side of the club temporarily, paying creditors as much as possible whilst still keeping the club afloat. In some cases, administrators will be charged with the task of finding a buyer for the club if it is clear the current owners cannot afford to continue their involvement.

If administration fails, the club faces the threat of liquidation where the clubs' assets will be sold in order to pay back creditors.

10 Point Deduction

At the moment, Rangers have only submitted a notice of intention to appoint administrators which does not incur a penalty, however, if the club does appoint administrators, which seems highly likely at this stage, they will immediately face a ten point penalty deduction and the club would no longer be able to sign new players until the administrators leave. These rules around administration have been in place since an Annual General Meeting of all Scottish Premier League clubs in 2004.

With the club currently 4 points adrift of rivals Celtic, a 10 point deduction would effectively end their hopes of a fourth successive SPL title.

Who will suffer?

There is a possibility that player and staff wages may be suspended if the administrators deem such action necessary. In a club statement, Rangers tried to assure fans that they will not be affected by the administration process, saying there will be "no impact on season ticket holders and shareholders".