Explaining the mess at Caterham

Caterham Sports Ltd has  gone into administration. The London-based  Smith & Williamson accountancy firm of Moorgate, London has been named as the administrator. The goods that were previously seized by the bailiffs known as the Sheriffs Office have been passed to the administrator. However, there remains a dispute as to whether these items should have been legally removed from the team. The administration does NOT threaten the racing team, despite reports to the contrary. It is a complicated business but it looks likely that Caterham Sports Ltd will end up being worth very little. The Formula 1 entry, the most important asset, is owned by a Malaysian company called 1Malaysia Racing Team Sdn Bhd. This had an operating company called 1Malaysia F1 Team (UK) Ltd. This would later convert itself into 1Malaysia Racing Team (UK) Ltd and ultimately it became known as Caterham Sports Ltd. When the team changed hands in July the new owners must have either bought or leased 1Malaysia Racing Team Sdn Bhd, in order to secure the all-important F1 entry. This remains valid unless the Malaysian company itself is deemed to be insolvent in which case the Formula One group can terminate  the agreement and cease all further payments. This has not happened. Thus the F1 entry is valid as long as the team continue to appear at races.

It is difficult to ascertain exactly what has happened, but it seems that shares in some of the companies in the original structure may have been pledged in exchange for loans. If these pledges were not lifted the new owners could not take control and thus their backers could not reasonably commit money to the project. This probably explains why at the end of August, a parallel company called Caterham CF1 Grand Prix Ltd, which was owned (on paper at least) by deputy-team principal Manfredi Ravetto, was set up and seems to have taken over the running of the business for 1Malaysia Racing Team Sdn Bhd. This is perfectly legal. The operations of the team passed from one firm to another. The key question is who owns the assets (machinery, cars etc). This remains uncertain but when the bailiffs came to seize some of them a few weeks ago, they were stopped from putting them up for auction on the basis that they had no right to take them. This would suggest that they were not owned by Caterham Sports, but rather by either the Malaysian parent company, or by the independent Caterham CF1 Grand Prix Ltd. There is nothing wrong with a company selling its assets to another company owned by the same people – if  the assets were sold at a reasonable price when the first company was still legally solvent.

The administrators say that they are in discussions with 1MRT to see whether Caterham Sports can continue to supply the F1 team.

“Positive discussions were held between the administrators and the team manager, Manfredi Ravetto, and also with the financial backers of the team on Friday 17 October and it is hoped that these will lead to a financially acceptable arrangement for the continuation of the relationship between the company and the F1 Team,”  the administrators said. “If a financially acceptable arrangement cannot be agreed between the administrators and the Caterham F1 Team the administrators will then enter into dialogue with other interested parties with regard to a sale of the business and assets of the company.”

The key question is who owns what.