Engavest hands back control of Caterham F1..

The impasse between representatives of Caterham F1 and the the court-appointed administrators, Smith & Williamson, has been broken, although the consequences for the F1 team’s future remain unclear.

A statement released this morning simply says that “..representatives of 1MRT/Caterham F1 Team have agreed, with all rights reserved, to hand-over management of the Caterham F1 Team to the administrator Mr Finbarr O’Connell in the higher interest of allowing the team to continue operating and preparing for the next events.”

This follows yesterday’s comment by O’Connell, “I think everybody’s got to rally together in order to find a solution to this. It’s a very expensive sport, but you’ve got to pay your suppliers, you’ve got to pay your employees and then you can go racing.”

“If 1MRT reaches acceptable terms with me they can be back in the facility and it won’t be in limbo. The cars have to go off to the US very soon and they’re cutting it very fine.”

It seems that apart from the administrator gaining control of 1MRT, no money has changed hands and therefore little in effect has been resolved. O’Connell’s push to gain control seems to have backfired, since he now finds himself responsible for a business which he has neither the means nor the knowledge to run.

We’ll await further news in due course, but it seems unlikely that they’ll spend any more money to compete until a new financial backer is found.

With far more F1 prize money on the line (for 10th place in the championship) than the amount owed to creditors, they need to act quickly. The next two races look unlikely (US and Brazil), but the Abu Dhabi grand prix is on 21st November where double points are available.

Tony Fernandes and Caterham Group still own the team, therefore all that’s been achieved is to wrestle it away from those who wished to invest and hand it back to those who wanted rid of it. Whose fault that is will be a mute point when in a few weeks time there’s little left (of any value) to argue over.

* * *

Oct 24, 2014 – 11:55 GMT

CATERHAM F1 TEAM STATEMENT

Following a request of yesterday evening at 21.55hrs CET from Caterham Sports Limited’s administrators and the legal advisors of Mr Tony Fernandes’ related EXIM Bank, representatives of 1MRT/Caterham F1 Team have agreed, with all rights reserved, to hand-over management of the Caterham F1 Team to the adminatrator Mr Finbarr O’Connell in the higher interest of allowing the team to continue operating and preparing for the next events.

Ends

Oct 23, 2014 – 18:54 GMT

ENGAVEST REPLIES TO FERNANDES CLAIMS

Engavest SA, strongly refutes the allegations of Tony Fernandes and Caterham Group CEO Graham Macdonald regarding its conduct while trying to purchase Caterham F1. Our statement of earlier today still stands.

Every single condition precedent of the Sales and Purchase Agreement for which Engavest was responsible has been met.

Only the seller, which includes Mr Fernandes, failed to meet his obligations.

All salaries have been paid.

Engavest sold CSL. It did not appoint Mr Cojocar who, we believe, was a former top footballer for Steaua Bucarest during the 1980s.

The claims of Mr Fernandes and Mr Macdonald contradict their own press statement dated 03 October 2014

“Caterham Group wishes to clarify that, following the sale of the F1 business in July, it has no affiliation with Caterham F1 Team”.

That one sentence alone contains two errors:

1. the date was June 29

2. having failed to transfer the shares Caterham Group and Mr Fernandes wholly owned Caterham F1 at the time of the statement, as they do today.

Incidents such as a Caterham Group representative forcibly breaking into a filing cabinet containing our private and confidential documents and the continued refusal to deal with the outstanding loan of Exim Bank and complete the agreement has culminated in Engavest’s total comtempt of Mr Fernandes and his Group executives with whom we entered a deal in good faith.

Ends.

Oct 23, 2014 – 15:16 GMT

CATERHAM GROUP STATEMENT: SALE OF CATERHAM F1 TEAM

Tony Fernandes, Caterham Group co-Chairman:

“In June 2014, I decided, together with my co-shareholders, to sell my stake in the Caterham F1 team. We agreed in good faith to sell the shares to a Swiss company named ‘Engavest’ on the basis that Engavest undertook to pay all of the existing and future creditors, including the staff. The continued payment of staff and creditors was so important to me that I ensured that the shares would not be transferred to the new buyers unless they complied with this condition.

Sadly, Engavest has failed to comply with any of the conditions in the agreement and Caterham Sports Ltd (the UK operating company of the F1 team) has had to be put into administration by the bank, with large sums owing to numerous creditors. Our agreement with Engavest was very clear: there was no legal obligation to transfer the shares to them unless certain conditions – which included paying creditors – were met. Those conditions have not been met. Our lawyers have asked Engavest several times to comply with these conditions but they have failed to engage.

If you agree to buy a business, you must pay its bills. They have breached that promise and now, sadly, it is others such as the employees and the fans of the Caterham F1 team that will suffer if the team ceases to race. I sincerely hope that this will not be the case and that a solution can be found.”

Graham Macdonald, Caterham Group CEO:

“We genuinely believed, at the time, that the sale of the team was the best route for the staff and creditors of the Company, as we felt it secured its long term future. The whole agreement with Engavest was based around a low consideration for the business, with easy payment terms so that creditors and staff could be paid. The buyers were made fully aware at the time of all outstanding liabilities. However, it appears to me that they never had any intention of paying these liabilities. I go on to question how anyone who was interested in the long term future of the business would appoint one of their cleaners – Constantin Cojocar – as the sole director and shareholder of the UK operating Company?

We continue to see claims and counter claims from the F1 team which are totally unfounded. Not only have they failed to pay the creditors (and have even left our shareholders to pay some of the creditors on their behalf), but they have failed to pay us anything for use of our factory and site, or anything for the use our brand name. In short the new owners have paid us nothing and now the administrators have been appointed they want to walk away from their liabilities.”

Oct 23, 2014 – 12:59 GMT

STATEMENT ON BEHALF OF ENGAVEST SA

On 29 June 2014 Engavest SA signed a Sale and Purchase Agreement with Tony Fernandes and the Caterham Group to acquire the shares of 1Malaysia Racing Team/Caterham F1.

Engavest SA has fulfilled all the conditions precedent, including paying the purchase price for the shares.

The shares have not been transferred and therefore Mr Fernandes remains the owner of Caterham F1 and is fully responsible for all its activities.

A court document published last night on Adam Cooper’s F1 Blog, shows that Caterham F1 (under Fernandes’ stewardship) owed more than £256,000 in unpaid legal fees to law firm Macfarlanes LLP. While not unusual for a going concern to accrue debts and include these in a sale, the amounts date back over 4 years to May 2010.

Despite the sale of Caterham F1 Team / 1MRT in June 2014, the legal transfer of shares never took place. This contrasts with announcements made by Caterham Group that they were no longer connected with the team – although Fernandes then contradicted this in his tweet last night.

The Buyer, who we now know as the Swiss company Engavest SA, were therefore left in “..the invidious position of funding the team without having legal title to the team it had bought.”

CSL provided much of the engineering resources and infrastructure to support the Formula One licence holder 1Malaysia Racing Team Sdn Bhd (1MRT), also known as Caterham F1, but were in fact a separate legal entity.

Although the F1 team remained based at Leafield Technical Centre (alongside CSL), they set up a new company, Caterham Cf1 Grand Prix Limited (CCF1), into which around 200 staff from CSL were recently transferred. It is unclear whether this transfer was in fact legal, given that it leaves CSL with debts of £15 million ($24.19 million) and no ongoing operational business to service them. The administrators are therefore leaning on the assets at Leafield, using them as a bargaining chip to agree the best solution for all parties.

“Clearly, the parties who bought the business from Tony Fernandes have been unable to fund this company,” said Finbarr O’Connell, restructuring and recovery partner at Smith & Williamson. But according to Engavest, the position they were placed in by Fernandes has had a ‘devastating’ impact on the team’s prospects and undermined their attempts to fund a business which they did not yet own.

They are now taking legal action to pursue Fernandes for the costs and damages which they have subsequently incurred, accusing him of not honouring agreements despite “operating the Caterham F1 Team in good faith.”

Shortly after last night’s announcement, Caterham F1 team boss Manfredi Ravetto stepped down from his role and tweeted, “22 Oct 2014, Caterham F1 Team: proud having led such an extraordinary group of people although for just a few weeks!”

It now looks unlikely that the team will compete at the next grand prix in Austin on October 31st. The cars were due to leave the factory and fly out this weekend, but O’Connell has said he will not allow them to remove the cars unless an arrangement can be reached for Caterham Sports Limited to continue (for the benefit of all creditors) – since 1MRT are in effect the company’s sole customer.

According to BBC Sport, F1 ring-master Bernie Ecclestone is trying to resolve the dispute and help Caterham F1 compete in the last 3 races of the season.

“We’re trying to help in any way we can, which we do with anybody that has run into a bit of difficulty,” said Ecclestone. “All I know is what I’ve been told. Not sure it’s all true either.”

BBC Sport said Ecclestone has discussed the situation with both sides (presumably Engavest and Fernandes) but says the matter is “.. a little too complicated to be able to say anything with any real knowledge.” He went on to say he would “rather not lose teams” from the grid.

* * *

Oct 22, 2014 – 19:09 GMT

CATERHAM F1 STATEMENT

On 29 June 2014, Caterham Enterprises Ltd, Caterham (UK) Ltd and Sheikh Mohamed Nasarudin (Seller) and their shareholders Tony Fernandes and Datuk Kamarudin Bin Meranun entered into a Sale and Purchase Agreement (SPA) with Engavest SA (Buyer) with regards to 1Malaysia Racing Team Sdn Bhd/Caterham F1 Team.

Since the date of the Agreement, the Seller has refused to comply with its legal obligations to transfer their shares to the Buyer. The Buyer has been left in the invidious position of funding the team without having legal title to the team it had bought. This is in total contradiction to the Seller’s press release of 3 October 2014 which stated that Mr Fernandes and his Caterham Group had no longer any connection with the Caterham F1 Team.

The administrators of Caterham Sports Limited have been appointed on behalf of Export-Import Bank of Malaysia Berhad (Exim), a creditor of Mr Fernandes and the Caterham Group. The Buyer has no connection with Exim. Caterham Sports Ltd was a supplier company to the Caterham F1 Team. Very regrettably, the administrators’ appointment has had devastating effects on the F1 Team’s activities. Since their appointment, the administrators have released various press statements which have been severely detrimental to the management of the Caterham F1 team.

After three months of operating the Caterham F1 Team in good faith, the Buyer is now forced to explore all its options including the withdrawal of its management team. Lawyers have been instructed by the Buyer to bring all necessary claims against all parties, including Mr Fernandes who, as an owner, will run the F1 operation.

Written By

Steve Davies

Steve is an investor, private equity advisor and former Partner at KPMG, PwC and Bain. Most importantly he's a life-long car enthusiast, mountain biker and active sports enthusiast. He designs and builds technology platforms and is the architect behind Transmission.