On 14 February this year Rangers FC formally applied to enter administration. The Glasgow club’s owner, Craig Whyte, a west of Scotland property and construction tycoon who bought an 85 per cent majority share in the club in May 2011, had finally accepted that its huge and accumulating debts could not be serviced by an annual income of £45m. Under the rules of the Scottish Premier League (SPL), Rangers had ten points docked, which in effect ended any hope they had of retaining the League title. Duff & Phelps, a Manchester-based insolvency firm, was appointed to manage their finances and it was hoped that Rangers would leave administration by 31 March. Failure to meet that deadline, or to have supplied annual accounts by then, would entail Rangers’ exclusion from the 2012-2013 European club competitions.

Today, Rangers remain in administration and no accounts have been filed. But that is the least of it. The club is appealing a tax bill that, with interest and penalties, could leave it owing Her Majesty’s Revenue & Customs between £75m and £100m. On 12 June, HMRC signalled its intention to oppose a company voluntary arran­gement (CVA) that the club’s new owners hoped would be accepted by its hundreds of creditors. In so doing, HMRC has brought the curtain down on the 140-year history of one of the world’s most successful football clubs. Rangers will now be liquidated and their assets sold. The next few weeks will determine what form any new club rising from the ashes will take.

When autumn arrives there is a good chance that Rangers as we know them will have ceased to exist. For those not initiated in the lore of Glasgow’s Old Firm (Rangers v Celtic) and Ran­gers’ place in the social, cultural, political and religious narrative of the Scottish nation, this is yet another cautionary tale of greed and hubris bringing about the downfall of a great football club that chose to live beyond its means. The crisis has shaken the foundations of four of the pillars of Scottish society: the government, the judiciary, the banks and the press. This is the nation’s very own bonfire of the vanities.

The story goes back to 1988 when a stagnant Rangers were trying to rouse themselves from torpor after a ten-year period in which they had won only one League title. David Murray, a charismatic steel magnate then aged 36, bought the club in August that year by agreeing to wipe out its debts with a £6m loan from the Bank of Scotland. He came from an affluent Ayrshire family and was a keen rugby player before he had both legs amputated following a car accident in 1976.

By then, his company, Murray International Metals, had been established for two years and its continued success despite the extreme physical and psychological trauma he must have endured made him an inspiration for a generation of aspiring Scottish entrepreneurs. His vision for Rangers was simple: to turn the underachieving giants of Scottish football into one of Europe’s premier clubs. In chasing this unlikely dream, he began to spend astonishing amounts in transfer fees and on wages for England internationals such as Terry Butcher, Mark Hateley, Trevor Steven and Paul Gascoigne, as well as international stars who included the Danish forward Brian Laudrup and the Netherlands quartet of Ronald and Frank de Boer, Artur Numan and Giovanni van Bronckhorst. The Bank of Scotland, both before and after it merged with the Halifax, bankrolled Murray’s mission with the sort of largesse that made you wonder if it thought it was dealing with Saudi princes, rather than a football club of limited means. Eleven League titles and 12 national cups were duly delivered in the 13 years before 2001.

Yet meaningful success in Europe continued to elude this all-star cast, though Rangers in effect reached the semi-final of the inaugural European Champions League in 1993 (which consisted of only two groups of four). By then, the financial stakes had been raised by the birth of the English Premier League, powered by Rupert Murdoch’s Sky. Not even HBOS’s fabled elastic overdraft would stretch to match Murray’s ambitions in these circumstances.

Another source of income had to be found. It duly presented itself in the unlikely figure of Paul Baxendale-Walker, a former solicitor who had begun to produce (and appear in) his own por­nographic films. Baxendale-Walker introduced Murray to an offshore tax arrangement called employee benefit trusts (EBTs). The structure of these vehicles is simple – a company places money into an offshore trust which is then divided into sub-trusts in the name of nominated employees. In Rangers’ case, these included 60 of its highest-paid players and senior executives.

The EBTs allowed the company to make discretionary payments to the beneficiaries in the form of loans that did not have to be redeemed. Neither the company nor the employee is liable for tax in such transactions, because the payments from the sub-trust are supposed to be discretionary. There ought not to be any contractual element in them. HMRC has deemed Rangers’ use of these trusts to be aggressive tax avoidance. However, the club claims that they were legitimate tax-avoidance vehicles, all of which were rubber-stamped by teams of auditors and accountants.

Aidan McLaughlin, a senior tax consultant with experience of setting up EBTs and operating them for clients, fears the worst for Rangers. “I can’t see anything other than the first-tier tax tribunal rejecting their appeal,” he told me. “In recent years the courts have strongly backed the government’s drive against tax avoidance . . .

I have seen a copy of one of the side-letters that Rangers issued to one of their players which indicates that the payment from the sub-trust was non-discretionary.”

Until around 2000, EBTs were used as bona fide instruments by companies to reward employees. After that, there was a Gadarene rush to deploy them as top-ups for highly paid executives. The contaminant factor in the Rangers scheme is the existence of the side-letters referred to by McLaughlin. If they had been arranged in this way, the payments would cease to be discretionary and would form part of a player’s salary. The tax tribunal, sitting in Edinburgh but with UK-wide jurisdiction, has been considering its verdict for more than five months.

Just as damaging are the claims about Craig Whyte’s takeover. He bought the club for a nominal £1 from Murray, having undertaken to pay Rangers’ £18m debt to Lloyds/Bank of Scotland. It has since been reported that the club withheld all VAT, income tax and National Insurance contributions during the nine months of Whyte’s tenure from May 2011 to February 2012. A list of 332 creditors is owed amounts ranging from millions (to English and Continental clubs) to a few hundred to local newsagents, florists and taxi firms. The overall debt mountain is potentially more than £140m.

Whyte funded the takeover of the club by mortgaging four years’ worth of season-ticket revenue, amounting to £24m, with an English firm called Ticketus. In effect, he bought one of Britain’s biggest clubs by trading on its future income. Although he had reassured Murray that he would be in a position to pay its debts, they have increased under his tenure to such a level that the club’s continued existence is in doubt.

Hand in glove

The prospective new owner, Charles Green, an English financier who was previously chief executive of Sheffield United, had cobbled together a deal to buy the club for £8.5m, put up by unknown investors in the form of an eight-year loan with interest. The CVA had asked creditors to accept 9p in every pound of debt, but as HMRC has rejected it, creditors will now get less than 5p in the pound.

HMRC and Ticketus together are owed 86 per cent of the Rangers debt, and as a CVA requires agreement from creditors owed 75 per cent of a firm’s debt, the approval of both is a prerequisite. If either demurs, a winding up of the assets and liquidation will follow. In such circumstances a newco (a new club) would need to be formed. It might look like Rangers and sound like Ran­gers, but would it be accepted as Rangers?

The sheer scale of the club’s corporate failures is such that, not until a few more years have elapsed will the whole saga be exhausted. The Scottish FA, the SPL, an independent tribunal, three Scottish law lords and the Court of Session, sitting in Edinburgh, have been trying to unravel the extent of the misdemeanours and find condign redress. The shadow of Fifa, football’s international governing body, has fallen across the hallway. If it rules that the Scottish FA has not sufficiently punished Rangers, then, based on precedent, it can exclude all Scottish clubs and the national team from competing anywhere in the world. Fifa is already irked that Rangers chose to challenge the edict of a transfer ban in a civil court. Any sympathy that Rangers might have had from fans of other clubs has largely evaporated because of an absence of remorse or shame on the part of the directors and executives.

The football authorities must now decide if the new Rangers will be allowed to take the place of the old club in the SPL. If they reject the

application, new Rangers will face the prospect of playing Alloa Athletic, Cowdenbeath and Stenhousemuir for the next three years. It is the football equivalent of the Rolling Stones playing Digbeth Civic Hall.

The media in Scotland stand accused of failing in their duty of scrutinising Rangers’ finances and of holding David Murray to account. It is

a commonly held view that Murray had most of the Scottish football writers who mattered in his pocket throughout his period of ownership. Mark Daly, the BBC’s splendid investigative reporter, has carried out two detailed investigations into Rangers’ finances, but it has been claimed that the subsequent revelations of financial incontinence are largely a triumph of the new, very articulate and extremely well-informed citizen journalism. Unlike newspaper journalists, though, bloggers seldom need to concern themselves with much in the way of corroboration, writs for defamation or the Press Complaints Commission.

However, one cannot deny the impact of two blogging sites, Celtic Quick News and Rangers Tax Case. Each is written elegantly, with a forensic understanding of the esoteric world of corporate insolvency. Last month, the anonymous author of Rangers Tax Case was awarded the Orwell Prize for best blog. Another whistleblower is Phil Mac Giolla Bhain, the Irish-based author, blogger and journalist who has broken four major stories about the Old Firm in the past two years. In April 2010, he supplied the Scottish News of the World with the first print story on the extent of Rangers’ tax liabilities. Curiously, while several UK-wide news outlets still retain his investigative services, not a single Scottish newspaper has contacted him throughout the period of his breaking stories online.

“I don’t think there was a ‘cover-up’ [by newspapers] in the manner that some have alleged,” Giolla Bhain told me. “But I do think there was a reticence to go after Rangers for fear that it may hit circulation. Also, David Murray used to be one of the most influential figures in Scotland and I think some people enjoyed being in his tent too much.”

It is impossible to underplay the Rangers debt saga and its effect on Scottish society. Rangers are much more than just a football club. Jeff Randall, the Sky business news presenter and Daily Telegraph columnist, once described them, and correctly, as “the quintessential British club”. Founded in 1872, they draw their support, in the main, from what once would have been described as the white, Protestant artisan class. Between the early 1900s and 1989, Rangers had not knowingly signed more than a handful of Catholic players. Scotland had been the cradle of the Protestant Reformation in Europe, and while there was a Rangers FC, the spirit of reformed Protestant 18th- and 19th-century Scotland would always be alive. It is fashionable now to be outraged and censorious about the old Rangers signing policy, but for almost a century every major institution in Scottish

life acquiesced in it by refusing to intervene: local and central government, the trade unions, the Catholic Church and Church of Scotland, the SFA and Celtic FC.

Queen, flag and country

Rangers supporters claim that their club is the most successful in the world because it has won more trophies than any other: 115, including the European Cup Winners’ Cup in 1972. But all the old certainties that once underpinned the hegemony of the Scottish Protestant way of life have crumbled. The Church, the Queen and the Conservative and Unionist Party are now peripheral influences in a society in which the once-downtrodden Catholics (many of Irish origin) are rising to the top in every sphere of influence. Only Rangers remain as a potent symbol of what Scotland once was. Every match day at their home ground, Ibrox Stadium, is a royal jubilee day, with its Union flags, “Rule Britannias” and occasional tributes to British army personnel.

When Rangers went into administration, Alex Salmond, leader of the Scottish National Party and First Minister, said that Scottish football needed them. He was stung when Celtic rebuked him by stating that their own financial well-being did not depend on Rangers’ strength. Two years before a referendum on independence in Scotland, when every vote counts, Salmond’s dilemma is that it is difficult to quantify how many Rangers supporters live in Scotland, as opposed to England and Northern Ireland, where the club is popular among Protestant loyalists. But if the 200,000 people who turned up in Manchester for the 2008 Uefa Cup final (between Rangers and Zenit Saint Petersburg) is any indication, it is safe to conclude that a large percentage of the Scottish population harbours affection for the club. If bad things happen to Rangers, they will surely look for an early opportunity to punish a Scottish government that fiddled as their club crashed and burned.

It is hard not to feel sympathy for the ordinary Rangers supporter. While very rich and garlan­ded men were creating this scandal, the rank and file have continued donating a significant portion of their incomes in the struggle to save the club. Not long after the list of creditors was published by the administrators, assorted supporters’ groups began to organise special fundraising events. Soon some of the small businesses that were owed money by Rangers were visited by fans and asked to accept handfuls of notes by way of payment for services rendered. Perhaps the most obscene irony of all is this: as these impromptu visitations were taking place, the cash meter on the Duff & Phelps account for three months’ work was reported to be approaching £5m.

Kevin McKenna is Scottish columnist for the Observer