High Court Orders Formula One Racing Team to Bite the Insolvency Bullet

Hope springs eternal and directors of ailing companies understandably often cling to forlorn prospects of better times ahead. However, in placing a company that ran a Formula One racing team into administration, the High Court found that the bullet finally had to be bitten.

An administration order was sought under the Insolvency Act 1986 by a creditor who was owed about £4 million. The matter was particularly urgent as the company was also facing a winding up petition and its bank accounts had been frozen, jeopardising its ability to pay its 400 employees.

The creditor’s application was supported by others who were owed very substantial sums and who viewed administration as a better alternative to the company being wound up. It was hoped that the company could be preserved as a going concern, at least to the extent necessary to enable its eventual sale, and that an administration would allow it to continue to claim prize money.

In resisting the application, the company argued that it would imminently receive £30 million in sponsorship money. However, in granting the order sought, the Court was satisfied that the alternative of a winding up order would be disastrous. The company’s balance sheet showed current liabilities of £46 million, and £30 million would be insufficient to make a difference to its dire financial position.

The application had galvanised the company’s directors into confronting the crisis and they had acknowledged that it was heavily insolvent. The company’s lawyers urged a ‘wait and see’ approach to the matter, but the Court found that an immediate administration order was necessary to preserve the interests of its creditors.