Brought to you by John Myburgh
It appears the Administrator of Caterham Sports Ltd, is getting some undeserved flack in the accredited F1 press.
Contrary to the assertion of others who have spoken on this matter, TJ13 would like to explain the legal position of the Administrator in relation to the Caterham F1 team.
Today’s actions which saw the staff locked out of their place of work reveal that fairly quickly, the Administrator has established the view that despite Kolles’ and Manuel’s assertions to the contrary – and the emergence of a new company CF1 – that Caterham Sports Ltd, who the Administrator is legally responsible for – own the race cars together with factory-based assets to build the cars, has not been shut down – yet.
The lock out today of all employees (including management) involved in Caterham Sports Ltd is merely the Administrator ensuring that there is no possibility that the assets of this company from being secreted away.
The staff have not been dismissed, this is all part of the Administrator forcing those responsible for the day to day running of Caterham Sports Ltd to ‘prove’ the entity is a ‘going concern’ and is not simply racking up more and more debt.
The role of the Administrator is to protect the interests of the creditors, whilst ascertaining whether the business can be funded properly to continue – WITHOUT – incurring further debt, which would dilute the current creditors/employees claims for payment against the known assets of the company.
These assets are valued not at cost, but estimated realisable value. This means that despite an F1 front wing having a cost of say $100,000 associated with it, it may merely be capable of generating to anyone other than the Caterham F1 team (or Caterham Sports Ltd) a memorabilia value of substantially less than its cost.
Administrators perform this role on every kind of company in every kind of sector possible, and need NO specialist knowledge of every global cottage industry or international empire to deliver their obligations in a proper manner.
They add up the recoverable value of what is owned; subtract the value of what is owed to creditors/employees and if the result is positive, the company is ‘solvent’, if negative – it is not.
The first duty of obligation to which the Administrator of Caterham Sports Ltd is beholden is to ensure that the assets of the company are safeguarded; they are the security for the employees and the creditors and they must not be placed at any risk which will diminish the result of either parties’ claims for monies owed.
So if the Administrator believes there is a possibility that the Caterham F1 race cars and race equipment will disappear off to Austin and beyond, never to return, he is forced to disallow this course of action. The exception is, should sufficient collateral be lodged with the Administrator, to an amount equal or greater than the recoverable value of the assets at risk of flight, he MAY allow them to be removed from his jurisdiction.
That said, he would almost definitely also wish personal guarantees to be provided (enforceable in law, and recoverable) by the director(s) of Caterham Sports Ltd, should the assets never return.
This presents the current Administrator with questions to be answered; due to the fact that Colin Kolles recently sacked/removed his father from the board of directors of Caterham Sports Ltd, and appointed the Leafield Romanian cleaner – Constantin Kojocar (affectionately nicknamed ‘Mario’ by the Leafield employees) – as the sole director of Caterham Sports Ltd.
‘Mario’ does not appear to have a substantial investment or ownership in any company such as GCC Facilities (http://www.gccfm.com/), hence the Administrator’s concern is not unreasonable.
Further, the recent plan which conspired to send the cars to Germany direct from Sochi gives the Administrator no choice but to believe the ‘flight of the assets’ is a more than remote possibility.
The second role of the Administrator is to establish whether the company is funded properly to continue its operations, whilst the matters of creditor and employee claims for payment are properly negotiated.
The director(s) of the company, which is under the Administrator’s jurisdiction, are required to ‘prove’ the likely income of the company for the foreseeable future, together with the likely expenses.
This is the business plan which the Administrator will assess as viable, should income be greater than expenses, or not viable should the expenses be greater than the income.
The Administrator will then do two things. Firstly, assesses whether he believes the expenses are a reasonable forecast, and if he believes this to be the case, the company will be run on this exact expenditure budget – without exception.
They will also assess the ‘projected income’ to the extent they will speak to those who the director(s) of the company claim will be providing these funds to establish the certainty of the director(s) claims.
Having established a reasonable view on the expenditure and income, it is a simple task of ascertaining whether the latter is equal or greater than the former.
It has been argued that “the Administrator has not had the time or the opportunity to read and understand all the different agreements related to the team (basically the equivalent of the Concorde Agreement) because if he thinks that quibbling over the rent at Leafield and not looking at the big picture of what happens if the team misses Austin, then there’s not much hope and the creditors are probably not going to get much.”
The accusation against the Administrator is that he simply doesn’t ‘get’ how Formula One works. “if the team does not keep trying to win World Championship points in the final three races. The team is unlikely to succeed, but if it’s not at the races, it is 100 percent certain to fail and that will guarantee 11th place for the second year running and a dropping revenues of cataclysmic proportions. One hopes that someone has told him this already.”
As already stated above, the Administrator is legally obliged to examine the likely nature of future revenues and ensure they exceed proposed future liabilities.
Therefore, the question is, if the above ‘possibility’ is the basis for the Administrator to agree the ‘likely income’ that Caterham Sports Ltd will receive, should he allow the company to sink further into debt with the hope this income will be achieved?
Given the fact that Caterham have spent more cash than any other F1 team in history and achieved the dubious record of doing so yet at the same time failing ever to score 1 point in the Formula One championship, how should the Administrator assess the likelihood of the team outscoring Marussia in the final three races and earning the $35m the tenth placed competitor team in 2014 will receive for their entrant status at the start of the following year’s competition?
Mario is indeed an impressive individual at what he does; and today Caterham staff revealed that since his promotion to director of the company, the toilets at Leafield have degenerated into a vile place of desolate abomination.
However, more importantly, does Mario’s proposition that the Caterham F1 team will almost definitely score points in the remaining three F1 races carry much weight with the Administrator?
Suffice to say for now, this is as remote a possibility as this writer’s whimsical fantasy that would see Japan relocated from its current location to a place off the East coast of England, providing a duel purpose of a land bridge to Eastern Europe together with the fact that the fabulous F1 circuit of Suzuka would be more accessible to the British and European F1 fans.
Despite Ecclestone’s chameleon-esque assertions today that he would like to help Caterham F1, we but all remember his consistent assertions of old, that for him, a 10 team Formula One competition is preferable to one which includes 11 entrants.
So, can Caterham be saved? The answer is yes, but the cars must make the FOM freight flight on Saturday bound for Austin. If this does not occur, the team will be in breach of their commitments to the commercial rights owner to attend every F1 event on the annual calendar and be thrown out of this year’s competition and effectively the sport.
This will require the ghost ‘Swiss based Arab investors’ to stump up an appropriate amount of cash and lodge it with the Administrator of Caterham Sports Ltd; this is presuming they’ve not lost all their petro dollars on a gamble on Daimler Benz future share price, as did Aabar
This is THE ONLY way, as Ravetto has asserted is their wish, continue in the vain hope that their Caterham adventure – as they state – will earn them a profit from their ‘investment’ in the Caterham F1 team.
Further, F1 fans should always ask themselves this question when they read an article which is an apologetic, defending or appealing on behalf of the intentions of F1 characters or companies; Is there any reason this writer could be influenced to express the vicariously imbibed view that he/she expresses?
Do this, and in most cases, the credibility of the information purported will be appropriately qualified.
BOOOOMMMMM!!!! Quite superb
Amen to that, Carlo.
Great Article. Anyone else seeing uncomfortable parallels to the major defect in critical thinking that nearly sunk Lotus ? In their case, the proposed new partners Quantum, who with one exception ( a man who had a such grave suspicion hanging on his every word that even the most challenged officer of the court couldn’t take them seriously) also couldn’t be named – another shadowy bunch of anonymous oil rich types who only felt comfortable operating out of a pizza parlour. Does anybody in this damn sport do due dilligence anymore, or would that imply not knowing how F1 works ?
When this who debacle started, I asked the same question, was there no due diligence check carried out before the sale of the team was concluded. I find it baffling that a businessman such as Tony Fernandes would fail to carry out such checks.
I think Bernie’s definition of due diligence is his cash arrives promptly in its paper bag. Until the end of the year, when he can do his “health check” and sink you if he feels like he’s got a better deal elsewhere.
I wonder if they’ll put cardboard versions of the cars into the transport containers to keep the con going? they could mysteriously “catch fire” while en route from the airport to the track.
‘So, can Caterham be saved? The answer is yes, but the cars must make the FOM freight flight on Saturday bound for Austin. If this does not occur, the team will be in breach of their commitments to the commercial rights owner to attend every F1 event on the annual calendar and be thrown out of this year’s competition and effectively the sport’
I’m sure I read somewhere (Joe) that they were permitted to miss three races without penalty.
That was actually a pretty good text.
I can understand the administrators position. But is there any value that can be derived from the team assets if one of the valuable asset is a team with an entry into F1.
And were have these creditors being all these while before the sale of the team.
Administrators are usually paid from the disposal of assets, so their interests are not necessarily in the survival of a company. Sometimes liquidation of assets is sufficient to just pay the Administration fees.
F1 doesn’t always have a discernible business model, guaranteed income flow or expenses for that matter.
Mismanagement got Caterham into this situation and I can’t blame anyone who wanted to buy the company at a bargain price and cut off dead wood.
The team was headed for Administration as Fernandes had lost interest. It was an optimistic purchase and time was needed to raise the necessary means to run the operation. Kolles while not being a saint could have been given time by the creditors to come up with a payment plan.
They let go of some staff immediately they took over which in reality should have been done a long time ago by Fernandes.
I think people have become too used to seeing football teams go in and out of administration, with little discussion of the actual consequences. Administration? Just persuade all your fans to show up at your next match, persuade that local guy who happens to have a lot of cash to take on all of your debt because of his loyalty to the club, then everything gets sorted out. Or, at least, that’s how it seems to work.
I wonder if the people who are criticising the role of the administrator in this scenario have just got used to teams entering administration, and think it doesn’t have a noticeable effect on the running of the club. But ultimately F1 is very different to that (or, more importantly, the same as every other business), and maybe instead of having a scenario where anyone can run a team in the knowledge that there’ll be another gullible person to sell up to if it all goes wrong, and questioning the administrator when they don’t live up to that model, maybe journalists should be enquiring why so many of the teams keep going despite all this evidence that they aren’t going to get a return on their investment in the first place.
In defence of Joe I want to add that the real value of a F1 team lies in their license to race. The assets of a F1 team lose a significant part of their value when there is no race license. So if a team is prevented to race, and thereby lose their race license, you could argue that the administrator has made sure the team is worth less than it could be because the race license is not included. If this situation indeed turns out like that the actions of the administrator has resulted in the team being worth less and therefore the administrator has not acted in the best interest of the creditors because they could have gotten more money from the team.
This is off course all hypothetical and if it is indeed true that a team can miss up to three races before their race license is revoked this argument is not valid off course.
That argument has been propounded by Manuel “Hi know nothing” to the point of exhaustion and it is not true.
Please tell me how you value the racing license?
There in lies the quandry as Caterham Sports Limited (and it’s previous UK guises with the same company number) doesn’t/hasn’t ever owned the license to race (from how I understand the situation). The Malaysian entity 1Malaysia Racing Team sdn bhd does, making the team worthless unless you have acquired both from Fernandes. The administrator clearly has permission (license) to use said license in order to operate the team but this too will come at a financial loss. To save Caterham an agreement must be sought to not only restructure and financially assist Leafield and the assets but the purchase or licensing acquired from 1MRT sdn bhd from which to race as part of the F1 championship.
The administrator therefore has two choices:
a) Draw a line under the project, sell Caterham Sports Limiteds assets and provide the creditors with as much capital as he can. Putting 250ish people out of work in the process.
b) Assuming the team are still receiving some income continue to race the season out in a diminished capacity, whilst trying to find an investor to purchase CS Limited. Remember however they must also acquire the license from 1MRT sdn bhd otherwise they cannot race.
It’s a complex situation not eased by the flagrant deception of someone else doing an Ijaz (nod to the Judge), which will likely result in someone elses car shaping up to look very much like the 2015 Caterham. I’m trying to remain positive that things can be saved but at this stage unless I win the Euro Millions tonight I can’t see it happening.
Hi Matt, thanks for that
In update, there are about 150 people left AHJ was informed yesterday, following the group dismissal and natural wastage which has gone
Also Manuel claimed he was protecting “their license” to race.
So clearly the deal offered by Fernandes included both the manufacturing and the racing license
The value is indeed in the license. However if the organization must assume more debt to continue usage of the racing license, then the administrator must make educated calculations (read: not guesses) of each course of action as described by Matt Somerfield above. In lay terms, if the value expected is 25m but the expenses are <25m, then obviously the the administrator will not see the license as an asset worthy of the debt incurred.
F1 likes to think F1 is special. I should point out that if they were so good at their business, they wouldn't be in this position anyways.
But what is the license worth?
Besides the money a team must pay each year to continue to race a license on its own is not worth a lot because even though you’re allowed to compete, without a team and car you can’t. And if you turn it around having a car and a team without a race license is just a bunch of people with expensive contracts that maintain and enhance an expensive pile of carbon. Lose one of the two and the other’s worth becomes significantly less.
Having said that it seems that Caterham are allowed to miss the coming two races to find a new buyer without it having an effect on their race license so that makes the argument which started this thread void anyway ;-P
If the expenses are less than 25m and the value expected is 25m, how is there not value and profit there? Or did you mean the expenses are >25m?
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This article is a bit misleading. Tony Fernandes hid a mountain of debt, that was then foisted on the new investors. He also told them that the CSL debt wouldn’t affect the f1 team as CSL ddnt own the any of the f1 assets. Now, the administrator is claiming that CSL owns things that everyone else believed to be owned by CF1. Tony Fernandes is the bad guy here. Also, some believe the administrator “robbed” CF1 to do a better job with CSL.
The debt as we stated here a few weeks ago is now about £12m. Given that Fernandes wasn’t looking for any payment above the nominal consideration required; Is that unreasonable sum to acquire an F1 team which has done a substantial amount of the work on the 2015 car
Also we do not know Fernandes ‘hid’ the debt, it is another unsubstantiated assertion from Manuel “Hi know nothing”.
TJ13 contacted Tony Fernandes early this week to inform him of the things being said by Ravetto. It appears he was surprised by to hear of this and the claims being made by Manuel “Hi know nothing”.
So had Fernandes basically checked-out on paying any attention to F1 in general and CaterhamF1 in particular once he thought he’d sold it?
Racer says the green cars will miss USA and Brazil for sure.
Reports out suggesting that BE has given the administrator dispensation from competing in Austin and Brazil. Realizing he’s in a weak position afterall it appears BE has had to get involved (remember 3 car teams ain’t gonna happen and with more than Caterham facing extinction getting 20 cars on the grid in Melbourne could be interesting..)
Also the license is worthless without the rest of Caterham at this stage as although the green machine is slower than molasses at least it makes 107%, something that may not be an option for a ground up project. 12m negative isn’t such a bad place to start if you realise that at the end of the day you can’t make money out of F1. Too many still haven’t learnt this lesson (you only get out what you get in) the problem however that even with that negative baseline you’ll still need a pot full of cash to get anywhere near what Fernandes aspired to achieve.
The sensible bidder would work with BE to allow for a name change at the end of the season and at least try to leverage a decent title sponsor to share their headstone.
Thanks for the heads up on the staff numbers Judge I’d assumed some had gone but was able to quantify.
At least credit the Administrator(s) as co-author(s)…
I saw a document on Twitter from Formula money that states that competitors may miss up to 3 events in a season, so Caterham are not in breach of contract and don’t risk losing their entry by missing the last 3 races. It wasn’t Bernie being nice, it’s in black and white.
Still I think they are a dead duck, with next to no hope of continuing.
Marussia will be missing from USA and Brazil too. Only 18 cars on the grid at Texas next week.
Great article on what an Administrator is charged to do by the terms of the applicable laws and the court order(s)!
I have a bit of legal experience with insolvency/receivership/administration work, not in the UK but in a similar jurisdiction.
The Admin is going to look at two things to determine the value of the ongoing business operations:
1) Liquidation Value of Assets
2) Future Cash Flow from Assets (i.e. going concern)
Let’s address #2 first:
The future cash flow from operations is likely negative. The only cash coming into the team has been from the pay drivers as I understand the “sponsors” may not have been contributing much for the occasional shot of a Merc lapping a Caterham.
IF AND ONLY IF Caterham had future column one or column two financing (http://bleacherreport.com/articles/1955397-formula-1-prize-money-what-are-the-rewards-per-race-and-per-season) would it be advisable to keep them racing.
This would mean actually having Constructors points.
Currently, their F1 Racing license is a nothing but a lottery ticket to potentially score constructors points. Looking at their performance this season, this is a very low probability.
A prudent Administrator is not going to allow any funds, if there are any, to be thrown into a purely speculative venture such as funding the team to try to score a point.
#1 – Assets:
The 2014 cars (+ all odds and sods) only have a value insomuch as they can generate revenue for a going concern – see cash flow above – and they’re not going to. They have “collector” or “display” value. Park it at the end of the garden and put some petunias in it.
The factory equipment – VALUE. Depending on what it is, financing, etc… It may have value to another racing team supplier (none of the other teams likely need the Caterham cast-offs) or someone starting up
The factory – I’m assuming it is leased – not an asset (corp law tip, always separate the op co from the co with the real estate).
The racing license is in fact a liability – the obligations arising therefrom requiring spending a few million quid every two weeks to chase the points that would secure funding. Unless the license has attached to it 2015 IP, maybe.
2015 Intellectual Property (i.e. the 2015 car) – reports here on Tj13 indicate that the 2015 car is under development. This has value but only to anyone seeking a 2015 spec F1 car which would be a 2015 F1 entry holder without a car developed – Forza Rosso (rossa? whatever). This is IF and ONLY IF the 2015 IP is owned by the companies in administration.
What’s the Admin to do? Sell the IP and any tooling to the highest bidder(s)(Forza Rosso) which plays into the hands of Kolles and those effing clown effers and hope to have enough $$$ to repay the creditors. This is unless the Admin can find someone dumb enough to buy the license and the IP and the business as a going concern to race next year.
Other sale options may include (me guessing):
1) Haas – if they want a jump start on 2016 to develop/test/build best practices;
2) If Merc wants to scoop up a ‘Junior Team’;
3) If Honda wants to scoop up a ‘Junior Team’; or
4) Alonso’s new cycling shop (he can partner with JB!) to make carbon-wrapped bikes!
End of the day, employees get screwed along with any of the smaller suppliers (who also have mouths to feed).
Thanks! Great Comment.
Will not press on your real life experience, but I have a theoretical question or two for you, if you don’t mind playing. IF the 2015 IP is in possession of an outside entity currently, would the Administrator have any recourse against that outside entity.
Or, to give a concrete example, say I said I was going to buy an F1 team but didn’t really mean it. Whilst in charge, I used all the money and resources to develop next years car, then took that IP (which would be mostly digital, not physical) on a memory stick to a team that I was already going to enter next year. Then I get the lawyers involved and it turns out I never owned the team because terms were never agreed so I’m off the hook.
Would the administrator be able to come after my 2015 team if it wasn’t based in UK and make it pay for the IP? If it could, would it be so difficult to prove as to not be worth it? AND is it possible, if such a thing were to occur, that there might be criminal statutes in play as well.