Rangers were among the world's most successful football clubs. The old Rangers company no longer exists, replaced by a new company, plying their trade in the third division. Alex Thomson explains why.

Rangers was once among the world's most successful football clubs. Now they no longer exist, replaced by a team currently plying their trade in Scotland's third division. Alex Thomson explains why.

Why it is the biggest scandal of its kind in football?

Football, politics, business and the media in Scotland have suffered a seismic shock. The unthinkable happened, prompting profound debate about how sport, business, media and the law operate.

One of the biggest and best-supported clubs in football went into administration, then outright liquidation, owing millions. A newco (new company) was formed and admitted to the Scottish Division Three after lower league clubs voted it in. It is a monumental fall from grace for a club that was in a European cup final only five years ago.

What went wrong?

Just before the turn of the millennium the club spent a lot of money - more than was coming in. Rangers broke the Scottish transfer record in 2000. And even then it had significant debts.

It was a combination of those years of overspending and the use of certain tax avoidance schemes that ultimately led to the former chairman Sir David Murray selling the club in April 2011 to a little known venture capitalist called Craig Whyte for the token sum of £1.

For that pound Whyte assumed ownership of the club, its debt and a looming tax bill, the cost of which was estimated to be as high as £49m.

Why did HMRC pursue Rangers?

Director after director, and even players, took large tax-free loans. Large homes got larger. Second homes abroad got bought. To date, not a penny in the loans appears to have been paid back - all (for now) quite legally.

It was done under a complex tax-avoidance scheme, called an employee benefit trust (EBT), set up by struck-off lawyer and soft-porn baron Paul Baxendale-Walker over a decade ago.

Initially HMRC won its case. But an appeal to a tax tribunal found that use of the EBT as legitimate by a 2-1 tax tribunal majority in November 2012. HMRC is seeking leave to appeal, and told Channel 4 News the issue will probably go to the high court.

The tribunal noted Rangers had been evasive and obstructive, and even the club agreed that tax arrangements for at least five players were improper. The issue was widely reported as a victory for Rangers in the Scottish media.

Why then did Rangers collapse?

On top of that tax issue, the club's problems mounted when Craig Whyte bought the club and then, according to a Scottish FA investigation, led a regime which was reckless in the extreme, heaping further tax debt on the club. Mr Whyte disputes this but, claiming he feared for his personal security, did not attend the SFA hearings.

It is alleged that under Whyte, Rangers stopped making national insurance contributions, and HMRC is chasing the club for a fee believed to be around £3-4m.

What actions were taken and who faces punishment?

Sir David Murray remains locked in combat with HMRC. Liquidators may well have questions or start legal action against former directors.

In June 2012 the Crown Office announced it had instructed Strathclyde police to conduct a criminal investigation into Craig Whyte's acquisition of Rangers football club.

The newco operates under a transfer ban and faces a minimum of three years in relative lower-league wilderness as it fights its way back up the league to the SPL. Rangers newco chief executive Charles Green has said the club will not play in the SPL as long as he is in charge.

According to the NUJ, at least 32 journalists have complained of intimidation by Rangers fans in the past year, as have at least one football club and a leading criminal QC who needed police protection. Police have made at least one arrest in recent months as a result of this.

What happens next?

Basically three key things this year -

  • The tax issue will be resolved either in favour of Sir David Murray, the former Rangers owner, or in favour of the HMRC. The implications are huge since thousands of companies in and outside football use similar tax avoidance schemes, or have used them. It is a major test case.
  • The other big outstanding issue should also be resolved: did the liquidated club tell or not tell the FA about all the money it paid players? If it did not, the Rangers name could be removed from a large number of cups, championships etc for fielding ineligible players, and the club's history could be radically re-written. An independent commission, led by Lord Nimmo-Smith, should begin soon and rule on this one way or the other.
  • Liquidation - the liquidators BDO have to recover the money. There isn't any. Or rather, not in assets etc as the stadium and training ground are transferred to the new Rangers FC.

But there are people. That is where BDO can go, in theory. If so, a lot more litigation could follow before some of the small businesses, educational establishments and councils who are creditors of Rangers, finally get at least some money back. No-one is holding their breath.

Does it affect English football clubs?

The answer depends on the verdict of the tax court over the use of EBTs.

It is possible that English football clubs have employed the same tax avoidance scheme in the same way - in which case Rangers could be the harbinger of things to come for the footballing world outside Scotland.