Scottish Court of Session Decisions

OUTER HOUSE, COURT OF SESSION

[2017] CSOH 85

OPINION OF LORD DOHERTY

In the cause

THE RANGERS FC GROUP LIMITED

Noter;

against

JAMES BERNARD STEPHEN and MALCOLM COHEN,
the joint liquidators of RFC 2012 plc (formerly The Rangers Football Club plc)

Respondents:

Noter:  McIlvride, QC;  Oracle Law, Solicitors

Respondents:  Dunlop, QC;  Brodies LLP

22 March 2016

Introduction
[1]        The noter was formerly incorporated under the name Wavetower Limited.  RFC 2012 plc (“the Company”) was formerly incorporated under the name The Rangers Football Club plc but changed its name to RFC 2012 plc conform to certificate of incorporation and change of name dated 31 July 2012.  The respondents were appointed joint interim liquidators of the Company by interlocutor of the Court of Session dated 31 October 2012.  At a meeting of the Company’s creditors held on 4 December 2012 the respondents were appointed joint liquidators of the Company. 

[2]        The noter maintains that it is a secured creditor of the Company.  It submitted a statement of claim dated 16 September 2015 to the respondents.  That statement of claim was accompanied by a formal demand for payment of £18,000,962.29 plus interest.  The source of the debt said to be owed to the noter is a debt which the Company owed to the Bank of Scotland plc (“the Bank”) under and in terms of a term loan facility letter dated 4 November 2004 (as amended by an amendment letter dated 30 October 2009).  The debt was assigned by the Bank to the noter in terms of an assignation agreement dated 5 May 2011.  The Bank also assigned to the noter its rights, benefits, title, interest, liabilities and obligations in and under a floating charge dated 24 February 1999 granted by the Company in favour of the Bank.  

[3]        The respondents adjudicated upon the noter’s claim (rule 4.16 of the Insolvency (Scotland) Rules 1986).  By a decision letter dated 2 October 2015 the respondents notified the noter that the claim was rejected.  The letter gave the following reasons for rejection of the claim:

“…(T)he Group Claim in the liquidation is rejected due to all and/or any of the following reasons:

• The company currently has a claim of no less than £18,453,263.72 against Group in respect of sums which Group received from the Company’s assets on or around 9 May 2011. Notwithstanding the following reasons and grounds for rejection of the Group Claim, the sums due by Group to the Company require to be set off against any claim which Group may claim to have against the Company. As such, even if the Documents were ultimately determined to be valid and enforceable which, for the avoidance of doubt, is entirely refuted for the following reasons, the entire sums due by Group to the Company would require to be set off in full.

   

• The Joint Liquidators believe that Group’s claim to have acquired rights in and to sums due by the Company to Bank of Scotland plc is based on, and forms part of, a scheme of unlawful financial assistance to which Group formed an integral part. As such, it is not believed that Group has any legal basis on which to claim those sums to be due and payable to it.
• As a result of inter alia the Judgment of Mr Justice Newey dated 12 December 2013, the Joint Liquidators believe that the security pursuant to which Group asserts its claim in the Liquidation estate was acquired by fraud. As a result, any purported assignation of debt and security from Bank of Scotland plc to Group is in any event void …”

[4]        In terms of rule 4.16B(6)(a) of the Insolvency (Scotland) Rules 1986 the noter has appealed to the court against the respondents’ adjudication.  Following the lodging of its note the respondents lodged answers.  Both the note and the answers were then adjusted.  In the answers the respondents supported their adjudication for the reasons set out in the decision letter.  They aver that the assignation agreement was part of a fraudulent scheme, and that the noter was a principal participant in the fraud.  They aver that as part of the scheme the noter and the Company entered into a loan agreement dated 9 May 2011 in terms of which the Company lent £16,000,000 to the noter on interest free terms.  They aver that the documents founded upon by the noter should be reduced ope exceptionis.  The averments continue:

“Separatim the foregoing arrangements constituted the giving of unlawful financial assistance in terms of section 677 et seq of the Companies Act 2006. On that basis, the arrangements (including the Assignation Agreement and Floating Charge) are void. Separatim esto the foregoing arrangements are enforceable (which is denied) the Company is in any event not indebted to the Noter by virtue of the balancing of accounts in bankruptcy. On the hypothesis that the sum claimed by the Noter was otherwise due to the Noter as at the date the Company entered into administration (which hypothesis, for the reasons hereinbefore condescended upon is denied), the Noter was in any event indebted to the Company in a sum of at least £18,453,262.72, being a sum in excess of the sum claimed by the Noter. During the period in which the company was in administration its administrators gave a notice dated 9^th May 2012 to the Noter to the effect an ‘Event of Default’ had arisen under the Loan Agreement and that the sum of £18,453,263.72 was accordingly immediately due for payment by the Noter to the company… By virtue of the balancing of accounts in bankruptcy, the Noter’s claim is on any view extinguished by the claim of the Company against the Noter.”

The note (as adjusted) contains a preliminary plea to the relevancy of the respondents’ averments in the answers;  and the answers (as adjusted) contain a preliminary plea to the relevancy of the averments in the note. 

[5]        The noter enrolled a motion for the court to fix, of consent, a one day diet of debate.  When the motion came before me for consideration in chambers I was not content to grant it without hearing further from the parties.  I was conscious of the on-going criminal proceedings and of the desirability of not trespassing on issues which might arise there.  I informed parties of my concern and indicated that I would find it helpful to have notes of proposals for further procedure and outlines of the matters which it was proposed could be dealt with at a diet of debate.  The parties duly lodged notes of proposals and notes of argument (64, 65, 66 and 67 of process).  These tended to confirm my misgivings about having a debate while the criminal proceedings were outstanding.  It was clear to me that both of the principal matters in dispute (whether there was a fraudulent scheme, and whether the noter was the recipient of unlawful financial assistance from the Company) were issues in the criminal proceedings.  My provisional view was that the appeal should be sisted pending determination of the criminal proceedings.  That was communicated to parties.  I invited any further representations they wished to make before I made a decision.  The noter indicated that it had no representations to make.  The respondents asked for a hearing to be fixed where the matter could be discussed. 

The hearing
[6]        At the outset of the hearing I made an order in terms of section 4(2) of the Contempt of Court Act 1981 prohibiting the reporting of certain matters until the conclusion of the criminal proceedings.  The order was made ex abundante cautela.  It mirrors the terms of the section 4(2) order made in the criminal proceedings.  

[7]        Mr Dunlop indicated that he had no difficulty in appreciating the concern which I had.  He acknowledged that it would be inappropriate for this court to traverse the fraud issue.  It was clear that that particular issue would be incapable of resolution at debate and that some form of proof would be necessary.  He submitted, however, that the other two issues might be capable of being determined at debate without trespassing on the criminal proceedings.  In those circumstances it would not be right to sist the appeal.  Delay in the determination of the appeal was to be discouraged.  The criminal proceedings might take more than a year to be completed.  If the noter’s appeal was successful the noter would, as a secured creditor, rank before any of the ordinary creditors.  The noter would be the only creditor to obtain a dividend from the liquidation.  If that was indeed the position the respondents might not wish to proceed with the appeal to the Supreme Court against the decision in Advocate General for Scotland v Murray Group Holdings Limited & Ors [2015] CSIH 77.  That was another reason for avoiding delay.  Prejudice to the criminal proceedings could be avoided by prohibitions on reporting.  Any findings made in the appeal would be of no relevance to, and ought to be inadmissible in, the criminal proceedings.  

[8]        Mr McIlvride indicated that the noter now accepted that it would be inappropriate to proceed with the appeal while the criminal proceedings were outstanding.  He recognised that whether there was a fraudulent scheme, and whether the noter was the recipient of unlawful financial assistance from the Company, were likely to be live issues in the criminal proceedings.  He also submitted that it was difficult to see how the court could determine the issue of balancing accounts in bankruptcy in isolation.  The loan agreement of 9 May 2011 would have to be examined in context and having regard to the relevant surrounding circumstances.  That would be likely to involve considering whether it formed part of a series of transactions, and if so, the effect of those transactions. 

Decision
[9]        I sisted the appeal and gave brief oral reasons.  Mr Dunlop intimated at the bar that he was instructed that a reclaiming motion would be marked.  I now set out more fully the basis of my decision. 

[10]      It is understandable that the respondents wish to know as soon as possible whether the noter’s claim is a good one.  They have a duty to proceed expeditiously.  They also suggest that if the claim were to be well founded that might affect whether they proceed with the proposed appeal to the Supreme Court in Advocate General for Scotland v Murray Group Holdings Limited & Ors, supra.  In relation to the latter matter, it seems to me that the principal consideration is likely to be the respondents’ legal advice as to the prospects of success.  If that advice is favourable it may point to the desirability of an appeal, whether the ultimate beneficiary in the event of success would be the noter as secured creditor, or ordinary creditors. 

[11]      Having considered the terms of the indictment in the criminal proceedings I am satisfied that (i) whether there was a fraudulent scheme involving the noter, and (ii) whether the noter was the recipient of unlawful financial assistance from the Company, are both issues which arise in the proceedings.  In those circumstances hearing the appeal before the criminal proceedings have been concluded would trespass upon matters at issue before the High Court of Justiciary, with the risk of prejudice to the administration of justice in those proceedings.  The risk can be avoided by sisting the appeal meantime.  That will give rise to some delay in the appeal’s disposal.  Any delay is prejudicial to the interests of creditors (the noter as secured creditor if the noter’s claim is a good one, or the body of unsecured creditors if it is not).  However, in my opinion that disadvantage, and any disadvantages to the respondents arising from the sist, are outweighed by the benefit to the administration of justice in the criminal proceedings.  

[12]      Prohibitions on reporting might reduce, but in my opinion would not remove, the risk of the appeal proceedings impinging upon the criminal trial.  Nor do I think it can be said with confidence ab ante that any evidence about the appeal would be of no relevance to, and would to be inadmissible in, the criminal proceedings.  Even if it was inadmissible, in what may well be the highly charged atmosphere of the trial there can be no guarantee that it would not emerge.  

[13]      I am not persuaded of the utility of proceeding at this stage to hear the appeal on the balancing of accounts in bankruptcy issue.  It is not clear to me that it will be possible to divorce that ground entirely from the other issues.  Even if that would be possible, fragmentation of the appeal issues in this way would create the risk of the whole gamut of the appeal process having to be gone through more than once.  In my view that would be undesirable.  

OUTER HOUSE, COURT OF SESSION

[2017] CSOH 85

OPINION OF LORD DOHERTY

In the cause

THE RANGERS FC GROUP LIMITED

Noter;

against

JAMES BERNARD STEPHEN and MALCOLM COHEN,
the joint liquidators of RFC 2012 plc (formerly The Rangers Football Club plc)

Respondents:

Noter:  McIlvride, QC;  Oracle Law, Solicitors

Respondents:  Dunlop, QC;  Brodies LLP

22 March 2016

Introduction
[1]        The noter was formerly incorporated under the name Wavetower Limited.  RFC 2012 plc (“the Company”) was formerly incorporated under the name The Rangers Football Club plc but changed its name to RFC 2012 plc conform to certificate of incorporation and change of name dated 31 July 2012.  The respondents were appointed joint interim liquidators of the Company by interlocutor of the Court of Session dated 31 October 2012.  At a meeting of the Company’s creditors held on 4 December 2012 the respondents were appointed joint liquidators of the Company. 

[2]        The noter maintains that it is a secured creditor of the Company.  It submitted a statement of claim dated 16 September 2015 to the respondents.  That statement of claim was accompanied by a formal demand for payment of £18,000,962.29 plus interest.  The source of the debt said to be owed to the noter is a debt which the Company owed to the Bank of Scotland plc (“the Bank”) under and in terms of a term loan facility letter dated 4 November 2004 (as amended by an amendment letter dated 30 October 2009).  The debt was assigned by the Bank to the noter in terms of an assignation agreement dated 5 May 2011.  The Bank also assigned to the noter its rights, benefits, title, interest, liabilities and obligations in and under a floating charge dated 24 February 1999 granted by the Company in favour of the Bank.  

[3]        The respondents adjudicated upon the noter’s claim (rule 4.16 of the Insolvency (Scotland) Rules 1986).  By a decision letter dated 2 October 2015 the respondents notified the noter that the claim was rejected.  The letter gave the following reasons for rejection of the claim:

“…(T)he Group Claim in the liquidation is rejected due to all and/or any of the following reasons:

• The company currently has a claim of no less than £18,453,263.72 against Group in respect of sums which Group received from the Company’s assets on or around 9 May 2011. Notwithstanding the following reasons and grounds for rejection of the Group Claim, the sums due by Group to the Company require to be set off against any claim which Group may claim to have against the Company. As such, even if the Documents were ultimately determined to be valid and enforceable which, for the avoidance of doubt, is entirely refuted for the following reasons, the entire sums due by Group to the Company would require to be set off in full.

   

• The Joint Liquidators believe that Group’s claim to have acquired rights in and to sums due by the Company to Bank of Scotland plc is based on, and forms part of, a scheme of unlawful financial assistance to which Group formed an integral part. As such, it is not believed that Group has any legal basis on which to claim those sums to be due and payable to it.
• As a result of inter alia the Judgment of Mr Justice Newey dated 12 December 2013, the Joint Liquidators believe that the security pursuant to which Group asserts its claim in the Liquidation estate was acquired by fraud. As a result, any purported assignation of debt and security from Bank of Scotland plc to Group is in any event void …”

[4]        In terms of rule 4.16B(6)(a) of the Insolvency (Scotland) Rules 1986 the noter has appealed to the court against the respondents’ adjudication.  Following the lodging of its note the respondents lodged answers.  Both the note and the answers were then adjusted.  In the answers the respondents supported their adjudication for the reasons set out in the decision letter.  They aver that the assignation agreement was part of a fraudulent scheme, and that the noter was a principal participant in the fraud.  They aver that as part of the scheme the noter and the Company entered into a loan agreement dated 9 May 2011 in terms of which the Company lent £16,000,000 to the noter on interest free terms.  They aver that the documents founded upon by the noter should be reduced ope exceptionis.  The averments continue:

“Separatim the foregoing arrangements constituted the giving of unlawful financial assistance in terms of section 677 et seq of the Companies Act 2006. On that basis, the arrangements (including the Assignation Agreement and Floating Charge) are void. Separatim esto the foregoing arrangements are enforceable (which is denied) the Company is in any event not indebted to the Noter by virtue of the balancing of accounts in bankruptcy. On the hypothesis that the sum claimed by the Noter was otherwise due to the Noter as at the date the Company entered into administration (which hypothesis, for the reasons hereinbefore condescended upon is denied), the Noter was in any event indebted to the Company in a sum of at least £18,453,262.72, being a sum in excess of the sum claimed by the Noter. During the period in which the company was in administration its administrators gave a notice dated 9^th May 2012 to the Noter to the effect an ‘Event of Default’ had arisen under the Loan Agreement and that the sum of £18,453,263.72 was accordingly immediately due for payment by the Noter to the company… By virtue of the balancing of accounts in bankruptcy, the Noter’s claim is on any view extinguished by the claim of the Company against the Noter.”

The note (as adjusted) contains a preliminary plea to the relevancy of the respondents’ averments in the answers;  and the answers (as adjusted) contain a preliminary plea to the relevancy of the averments in the note. 

[5]        The noter enrolled a motion for the court to fix, of consent, a one day diet of debate.  When the motion came before me for consideration in chambers I was not content to grant it without hearing further from the parties.  I was conscious of the on-going criminal proceedings and of the desirability of not trespassing on issues which might arise there.  I informed parties of my concern and indicated that I would find it helpful to have notes of proposals for further procedure and outlines of the matters which it was proposed could be dealt with at a diet of debate.  The parties duly lodged notes of proposals and notes of argument (64, 65, 66 and 67 of process).  These tended to confirm my misgivings about having a debate while the criminal proceedings were outstanding.  It was clear to me that both of the principal matters in dispute (whether there was a fraudulent scheme, and whether the noter was the recipient of unlawful financial assistance from the Company) were issues in the criminal proceedings.  My provisional view was that the appeal should be sisted pending determination of the criminal proceedings.  That was communicated to parties.  I invited any further representations they wished to make before I made a decision.  The noter indicated that it had no representations to make.  The respondents asked for a hearing to be fixed where the matter could be discussed. 

The hearing
[6]        At the outset of the hearing I made an order in terms of section 4(2) of the Contempt of Court Act 1981 prohibiting the reporting of certain matters until the conclusion of the criminal proceedings.  The order was made ex abundante cautela.  It mirrors the terms of the section 4(2) order made in the criminal proceedings.  

[7]        Mr Dunlop indicated that he had no difficulty in appreciating the concern which I had.  He acknowledged that it would be inappropriate for this court to traverse the fraud issue.  It was clear that that particular issue would be incapable of resolution at debate and that some form of proof would be necessary.  He submitted, however, that the other two issues might be capable of being determined at debate without trespassing on the criminal proceedings.  In those circumstances it would not be right to sist the appeal.  Delay in the determination of the appeal was to be discouraged.  The criminal proceedings might take more than a year to be completed.  If the noter’s appeal was successful the noter would, as a secured creditor, rank before any of the ordinary creditors.  The noter would be the only creditor to obtain a dividend from the liquidation.  If that was indeed the position the respondents might not wish to proceed with the appeal to the Supreme Court against the decision in Advocate General for Scotland v Murray Group Holdings Limited & Ors [2015] CSIH 77.  That was another reason for avoiding delay.  Prejudice to the criminal proceedings could be avoided by prohibitions on reporting.  Any findings made in the appeal would be of no relevance to, and ought to be inadmissible in, the criminal proceedings.  

[8]        Mr McIlvride indicated that the noter now accepted that it would be inappropriate to proceed with the appeal while the criminal proceedings were outstanding.  He recognised that whether there was a fraudulent scheme, and whether the noter was the recipient of unlawful financial assistance from the Company, were likely to be live issues in the criminal proceedings.  He also submitted that it was difficult to see how the court could determine the issue of balancing accounts in bankruptcy in isolation.  The loan agreement of 9 May 2011 would have to be examined in context and having regard to the relevant surrounding circumstances.  That would be likely to involve considering whether it formed part of a series of transactions, and if so, the effect of those transactions. 

Decision
[9]        I sisted the appeal and gave brief oral reasons.  Mr Dunlop intimated at the bar that he was instructed that a reclaiming motion would be marked.  I now set out more fully the basis of my decision. 

[10]      It is understandable that the respondents wish to know as soon as possible whether the noter’s claim is a good one.  They have a duty to proceed expeditiously.  They also suggest that if the claim were to be well founded that might affect whether they proceed with the proposed appeal to the Supreme Court in Advocate General for Scotland v Murray Group Holdings Limited & Ors, supra.  In relation to the latter matter, it seems to me that the principal consideration is likely to be the respondents’ legal advice as to the prospects of success.  If that advice is favourable it may point to the desirability of an appeal, whether the ultimate beneficiary in the event of success would be the noter as secured creditor, or ordinary creditors. 

[11]      Having considered the terms of the indictment in the criminal proceedings I am satisfied that (i) whether there was a fraudulent scheme involving the noter, and (ii) whether the noter was the recipient of unlawful financial assistance from the Company, are both issues which arise in the proceedings.  In those circumstances hearing the appeal before the criminal proceedings have been concluded would trespass upon matters at issue before the High Court of Justiciary, with the risk of prejudice to the administration of justice in those proceedings.  The risk can be avoided by sisting the appeal meantime.  That will give rise to some delay in the appeal’s disposal.  Any delay is prejudicial to the interests of creditors (the noter as secured creditor if the noter’s claim is a good one, or the body of unsecured creditors if it is not).  However, in my opinion that disadvantage, and any disadvantages to the respondents arising from the sist, are outweighed by the benefit to the administration of justice in the criminal proceedings.  

[12]      Prohibitions on reporting might reduce, but in my opinion would not remove, the risk of the appeal proceedings impinging upon the criminal trial.  Nor do I think it can be said with confidence ab ante that any evidence about the appeal would be of no relevance to, and would to be inadmissible in, the criminal proceedings.  Even if it was inadmissible, in what may well be the highly charged atmosphere of the trial there can be no guarantee that it would not emerge.  

[13]      I am not persuaded of the utility of proceeding at this stage to hear the appeal on the balancing of accounts in bankruptcy issue.  It is not clear to me that it will be possible to divorce that ground entirely from the other issues.  Even if that would be possible, fragmentation of the appeal issues in this way would create the risk of the whole gamut of the appeal process having to be gone through more than once.  In my view that would be undesirable.