“NewCo” in the Context of an Insolvency Event


The SPFL Articles and Rules both contain a definition of Insolvency Event. The definition is identical. The possibility of an insolvent owner and operator of a Club applying to effectively exit insolvency by means of a share transfer of the SPFL share from the insolvent owner and operator to a new solvent owner and operator of a Club is not expressly referenced as an Insolvency Event.
A CVA is referenced as an Insolvency Event but would not typically of itself attract a 15 point deduction in accordance with section E of the SPFL Rules because, except in exceptional cases, a CVA would be part of an Insolvency Process and each stage of one Insolvency Process does not attract individual 15 point penalties.

The traditional exit route of an owner and operator of a Club from insolvency is by means of a CVA and it has been tacitly accepted by Clubs, both in the SPL and SFL, that a single sporting sanction of a one off deduction in points is appropriate for a single Insolvency Process where a CVA is used as an exit method providing that the whole Insolvency Process is completed within the same Season and the immediately succeeding close Season.

In effect, the SPFL Rules provide that if the Insolvency Process as a whole is not completed for the start of the following Season then a further 15 point penalty results.

There are instances in England where, for whatever reason, a CVA route has not been possible to implement in order to exit an Insolvency Process and in Scotland, to date, we have the one example of Rangers FC where a CVA could not achieve the requisite 75% vote of creditors in favour of the CVA proposal.

In such circumstances, if "a Club" is to be "saved" and not to suffer the fate of Third Lanark and Clydebank then the only solution is what has become known as the NewCo solution.

In contradistinction to football the NewCo means of exiting an insolvency situation with the business continuing, albeit with new owners, is the norm. Often this is accomplished by a "pre-pack". Whilst CVAs have become slightly more popular in general business in the course of the last few years, the great majority of Insolvency Processes which involve the "saving" of the business are implemented by means of a NewCo typically as a component of a pre-pack.

For whatever reasons a NewCo solution to an Insolvency Process is regarded negatively in football and the widely held view is that additional sporting sanctions, over and above any sporting sanctions that might have been imposed at the time of administration (15 or 25 point penalty and registration restrictions in the case of the SPFL) ought to result from a NewCo solution being adopted to secure an exit from insolvency.

SPFL Articles

The possibility of the transfer of the business assets and undertaking of a Club between one owner and operator and a new owner and operator has always been envisaged in the Articles of Association of the SPL. The relevant current SPFL Articles are 31 to 43 (inclusive).

These Articles apply whether the context of the proposed NewCo is one which involves an Insolvency Event or otherwise.

So far as SPFL Limited is concerned the critical component of a NewCo Transaction is the transfer of the one SPFL Limited share held by the existing owner and operator of the Club ("OldCo") to the proposed new owner and operator of the Club ("NewCo").

Subject to a series of mandatory requirements where to consent to the registration of the transfer of the SPFL Limited share must be refused, the Board of the SPFL Limited has absolute discretion, unfettered by any express criteria, to approve or otherwise the registration of the transfer of an SPL share between owners except in the context of relegation and promotion.
The discretion is not limited by any express criteria becausethe discretion must be exercised in the best interests of SPFL Limited and the members of SPFL Limited. In short, the members of the Board cannot either refuse to approve the registration or decline to approve the registration for reasons which are not reasons having regard to the interests of SPFL Limited and its shareholders.
Rangers FC

It is important to bear in mind that whilst Rangers FC spent Season 2011/2012 playing in the SPL and Season 2012/2013 playing in Division 3 of the SFL, that was not as a consequence of any sanction or penalty imposed either by the SPL, SFL or, for that matter SFA. Rather, what some argue effectively amounted to a relegation of three divisions was the result of the then shareholders in SPL Limited not agreeing to register the transfer of the Rangers OldCo share in SPL Limited from Rangers OldCo to Rangers NewCo and then Rangers NewCo only being able to secure associate membership of the SFL on the basis that Rangers FC, owned and operated by NewCo, would enter the SFL in Division 3.

There are many, and to some extent, conflicting analysis and rationales as to why the result was as it came to be of that process and, in the present context, there is unlikely to be any benefit in further examination of the events which led to it.

NewCo Arrangements in Insolvency Contexts – for discussion

It is understood that there is a view held by a number of SPFL Clubs that explicit provision should be made for a specific sporting sanction to be imposed in the event of "a Club" seeking to emerge from an Insolvency Process by use of a NewCo procedure. Whilst SPFL Article 33 entitles the Board to attach whatever conditions that it thinks fit to the approval of the transfer of an SPFL Limited share between an Oldco and a Newco, it is considered by some not to be appropriate to leave decision making on such conditions to the unfettered discretion of the Board.

The proposal that has been articulated is that whatever other conditions may be attached to the approval of the registration of the transfer of an SPFL Limited share in an insolvency context, the conditions should, as a minimum, require that the Club concerned be relegated by one division if a NewCo solution is implemented ("Sanction Relegation").

If the Club concerned were to be liable to be relegated in any event, by reason of its position in the relevant division at the end of the Season or by virtue of the result of a Play-Off Competition then the Sanction Relegation should be applied on top of the "Sporting Relegation".

The proposal is best explained by example.
Assume during a Season that the owner and operator of a Club suffers an Insolvency Event, most likely an administration, the result would be that the Club owned by that owner and operator would immediately suffer the fixed 15 points deduction. Assume that the Club is playing in the Premiership and that at the end of the relevant Season the Club concerned holds tenth place in the Premiership, taking account of the points deduction for the administration. Assume also that the Club is unable to exit its Insolvency Process by any means other than a NewCo solution. In such circumstances the Club concerned would, as part of the conditions attached to the SPFL share transfer, be relegated to play in the Championship in the immediately succeeding Season i.e. a “Sanction Relegation” would automatically be applied.

If the same Club were to finish in twelfth place in the Premiership at the end of the Season in question, taking into account the 15 points sporting sanction, then the Club would be relegated initially to the Championship, being a Sporting Relegation, and would then be subject to the Sanction Regulation taking the Club down to play in Division 1 in the immediately succeeding Season.
Precisely identical principles would be applied in the case of Clubs in the Divisions below the Premiership in the relevant Season.

One anomaly could arise where the Club using the NewCo solution finished in a play-off place at the end of a Season. The proposal in that situation is that the Club in last place in the Division shall participate in the play-off competition and the Club using the NewCo solution would be automatically relegated.

Further detailed provision would need to be made in the Rules for situations in which more than one Club in any one Season in any one Division uses a NewCo solution and/or are in the Divisional play-offs or are compelled to take part in the Pyramid Play-Off Competition from League 2 in which case some kind of pre-play-off competition(s) would need to be included in the Rules. Detailed provision would also require to be made for which Club(s) would be promoted as a consequence of a Sanction Relegation.

Steps Required for Implementation

The above approach to Sanction Relegation by essentially one Division has unanimous support from the Board. The next step is to identify the extent of support for the proposal amongst the Clubs.

Any change in the existing arrangements would require amendment of the Articles which would require (i) 11 Premiership Clubs to vote in favour (i.e. 11 Clubs); (ii) 75% of the Clubs comprised in both The Premiership and The Championship; and (iii) 75% of all the Clubs in membership of the SPFL.

The required changes are to Articles which are not included in SPFL Article 194 and therefore the three year moratorium and the 100% vote in favour do not apply.

One option would be to take the proposal as a discussion matter to Clubs at an All Club Meeting in order to identify the level of support. If the support was at a sufficient level and was sufficiently broad based to indicate likely adoption by the required majorities, then detailed drafting could be undertaken with a view to bringing proposed amendments to the Articles to the General Meeting proposed for 13 January.

SPFL Board
16 September 2013

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