What we do know about Caterham F1?

The Caterham F1 team appears to be in a right mess at the moment, with the previous owner and the new owner in dispute over the deal. Obviously we are not privy to all the paperwork, but what we do have access to is filings at the UK’s Companies House. These are useful to understand what was happening in the team. What we can see from these is that Caterham Sports, the company that runs the racing team, has only one “charge”, which means that some of its assets ARE pledged. The last available accounts cover the 2012 season, but these reveal a number of things: the principal activity of Caterham Sports Ltd is “to provide design services, testing services and race support services to its parent company 1Malaysia Racing Team Sdn Bhd” (1MRT). They also reveal that the team’s $75 million turnover was “derived mainly from management fees received from the holding company and other ancillary income”. The accounts detail that $27 million was spent on staff costs, $27 million on research and development and $19 million on “administrative costs”. One can suggest from these figures that the team was not responsible for paying for its Renault engines. The current engines cost around $38 million, everything included, but in 2012 they were cheaper. However, the administrative costs appear to be only sufficient for smaller suppliers, travel and so on, rather than a major item such as the engine bill. One presumes, therefore, that the Pirelli contract is also held by 1MRT. This all makes sense given that the entry is owned by 1MRT.  What is also clear from the numbers is that the team’s sponsorship revenues and TV rights payments do not come to Caterham Sports, but must go to 1MRT or to an associated company in Malaysia.

The one outstanding secured loan was worth $8.5 million and came from the Export-Import Bank of Malaysia (Exim). This is a Malaysian government-owned bank and this seems to have been the prime mover in the move towards administration. The loan was “secured by way of a debenture and a fixed and floating charge over the assets of the company”. A fixed charge is a secured on particular property, such as land, buildings, machinery, intellectual property and trademarks. A floating charge is more general, relating to the entire business.

According to the administrators, London-based Smith & Williamson, Caterham Sports’s debts are in the region of $24.2 million, which means that these are probably trade debts, built up during the 2013 and 2014 seasons. If one subtracts the loan, that means that around $16 million is owed to suppliers of various kinds, although there are probably staff costs included in the figure as well.

The key question that needs to be answered is whether or not the Formula 1 chassis are actually owned by Caterham Sports, or whether they belong to 1MRT, as the latter was the entity that commissioned their construction and owns the IP and was using the race team simply to provide services. This has to be the case for 1MRT to be considered “a constructor” in F1 parlance. The chassis should not therefore be covered by the charges mentioned above, as a company cannot pledge what it does not own. If the cars are deemed to belong to 1MRT and not Caterham Sports then the administrator has no legal right to seize them and there is no reason why 1MRT could not transfer them to another company to be raced. There is another company called Caterham CF1 Grand Prix Ltd that is in existence.

The revelation that the sale was made to a Swiss company called Engavest SA reveals a little more. This firm was previously called Dragon Global Entertainment SA before changing its name to Engavest and then in July – after the sale date – it became CF1 Grand Prix Holdings SA. It is not clear who owns this as the only names linked to the firm seem to be nominees. The same seems to be true of Caterham Sports which used to be owned by 1MRT but seems to have been transferred to a Romanian individual called Constantin Cojocar. He became a director just two weeks ago. The administrators say that Cojocar has indicated in court papers that the plan had been for his associates to pay $3 million a week to pay off creditors, but the money did not arrive. While this might suggest that there was no money behind the new owners of 1MRT, it might equally mean that they are not willing to invest their money until the sale is completed.