As the furore over Marussia's possible return to the grid continues, could a little known rule cause further problems?

Writing for Forbes, Christian Sylt reveals the financial crisis the Banbury-based outfit was in last year, a crisis which saw it going into administration and missing the final three races of the season.

With debts of £63.9m, the team went under in October, its creditors including Ferrari, owed £16.6m for its engine supply, and £7m to McLaren for wind-tunnel and simulator services.

Indeed, in total, the team, or rather its operating company Manor Grand Prix Racing (MGPR), owed money to over 200 companies. Even Timo Glock, who in mid-2011 signed a new three-year deal with the team but was dropped at the end of 2012, is owed £617k.

So bad was the situation, in its report on the financial situation at MGPR, administrator FRP Advisory reveals that some unpaid creditors who had taken possession of MGPR assets demanded "duress payments" before handing them back over. This at a time the team was still hoping to attend the season finale in Abu Dhabi.

In his report (top, right), which reveals that in the eight months to the end of August 2014 MGPR made a £29.2m net loss on revenue of £24.7m with total net liabilities coming to £41.5m, Geoff Rowley, managing partner at FRP, says; “by reason of its outstanding liabilities and cash position, the company was insolvent on both a balance sheet and cash flow basis.”

In order to compete in F1, the operating companies behind the team are required to sign two essential agreements. The first is the entry form lodged with the FIA which gives the team a place on the entry list. The second is a contract, known as a Team Agreement, which is signed with the F1 Group, the sport's commercial rights holder.

According to the prospectus for the stalled stock market flotation of F1, under the Team Agreements, the teams “have agreed to participate in the World Championship from 1 January 2013 to 31 December 2020.” In return, the teams share in F1’s prize money, which in 2013 came to $797.5m.

This prize fund is made up of 47.5% of the F1 Group’s underlying profits and is paid to the top ten teams on a sliding scale, while the best performing teams also receive bonuses which bring the total payment to around 63% of profits.

However, one of the key conditions of receiving its share is that the team must remain solvent. This is made clear on page 179 (lower, right) of the prospectus, where it reads that “a team’s rights and obligations under its Team Agreement terminate if it… is insolvent.”

Therefore, ignoring the ongoing row over whether Manor should be allowed to start the season with a 2014 car, whether it should be allowed to miss the first three races - which it can do under the rules - and whether it or its rivals should get the £34.1m prize money, the fact is that according to the sport's own rules its insolvency in 2014, in terms of balance sheet and cash flow, effectively bars its way.

Chris Balfe

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READERS COMMENTS

1. Posted by namb, 09/02/2015 15:46

"The Russian owner ran away without paying the debts. He had promised to clear the debts but didn't.....who would trust the Russians?"

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2. Posted by ARL, 09/02/2015 15:33

"Apart from whether they have entitlement to the prize money, there is also a small matter of the directors being potentially in breach of the UK Insolvency Act through, at the very least, wrongful trading - i.e. " (Section 214) at some time before the commencement of the winding up of the company, that person knew or ought to have concluded that there was no reasonable prospect that the company would avoid going into insolvent liquidation". Knowingly trading while insolvent is even more serious and I believe can lead to director disqualification. In the UK you cannot buy your way out of such proceedings, not sure why I mentioned that.

Giancarlo Minardi was right in stating that F1 needs the small teams, but it categorically does not need teams that are going to leave a trail of multi million pound debt through various incarnations.

The blame for the funding of F1 small teams being in such a parlous state, while the owners of F1 and big teams are starving out these minnows at the back of the grid, is another subject altogether."

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3. Posted by namb, 09/02/2015 11:47

"Need to be very careful here....I suspect some of the other teams are not technically 'solvent' so equally not entitled to anything if the insolvent clause is invoked. Staff and suppliers not being paid on time.....I think a contract needs to be enforced formally before a clause is actually invoked. Contracts don't need to be in the public domain so its not surprising isn't public knowledge - most are private documents and that's normal practice in commerce. The question needs to be asked....where did the copy seen on the internet come from? Someone 'accidently' released it??.....for what reason?? Malicious?"

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4. Posted by Growler2, 09/02/2015 10:02

"Where has this 'prospectus' been published? Since the flotation was never formally declared, this can only be a draft version. Or is it merely a document which Ecclestone selectively reveals to a favoured few to promote his own interests?

I have grave misgivings over a FIA 'World Championship' where the rules are confidential and are individually negotiated between each competitor and the commercial rights holder.
"

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5. Posted by Joop deBruin, 09/02/2015 2:08

"Pay off all creditors who are not key F1 players. Then if anything is left over, give it to Haas."

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6. Posted by Kiwikaze, 08/02/2015 23:46

"This situation is ridiculous... give 'em the flick already. Either that or get someone to manage a merged team of Caterham/Marussia-Manor for the year until Hass shows up."

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Is Marussia actually entitled to 2014 prize money?

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