Force India team principal Vijay Mallya has told the Formula 1 team’s staff Sergio Perez and sponsor BWT are behind the legal proceedings which led to the team being placed in administration yesterday.
As RaceFans revealed yesterday administration proceedings began following an application from a company linked to Perez and his manager, which was backed by BWT and the Daimler/Mercedes group, all of which claim they are owed money by the team.
FRP Advisory, which handled administration proceedings involving Marussia in 2015 and Manor in 2017, were appointed as Force India’s administrators yesterday.“Force India Formula One was placed into ‘administration’ today by the court based on a petition filed by none other than our driver Sergio Perez,” said Mallya in a letter to the team’s staff.
“Surprisingly BWT jumped in and claimed that their sponsorship amounts were loans which is ridiculous as our entire car is pink with BWT branding,” he added.
Mallya said the team will keep running and its holding company will hold sway in a decision on its future.
“Our holding company is the largest creditor by far with over £159 million outstanding and the largest of the smaller creditors has an outstanding of less than £10 million. The administrator is obliged to recognise this ratio.
“So what does this actually mean. The administrator must secure creditor interests and find a viable financial solution going forward. Our holding company will work with the administrator to take the team out of administration or sell the team at the best possible price which the administrator is obliged to do in any case with a creditor vote where our holding company is by far the largest.
“The team keeps running and hopefully performing and both [deputy team principal] Bob [Fernley] and myself are in our positions.”
Geoff Rowley, joint administrator at FRP Advisory, said “we shall be engaging with key stakeholders on an urgent basis to secure the best outcome for creditors.
“In the meantime, the team will continue to operate as normal, including racing in Hungary this weekend. Our aim is for business as usual whilst we assess options to secure the future of the team.”
Advert | Become a RaceFans supporter and
2018 F1 season
- McLaren staff told us we were “totally crazy” to take Honda engines in 2018 – Tost
- ‘It doesn’t matter if we start last’: How Red Bull’s junior team aided Honda’s leap forward
- Honda’s jet division helped F1 engineers solve power unit problem
- McLaren Racing losses rise after Honda split
- Ricciardo: Baku “s***show” was Red Bull’s fault
hunocsi (@hunocsi)
28th July 2018, 11:02
I’m sure some of you already read this tweet from that energy drink company that was previously rumoured to be buying the team, but is this credible? Sounds a bit weird to be this open if it actually happened.
Keith Collantine (@keithcollantine)
28th July 2018, 11:17
@hunocsi That was covered in this earlier story:
https://www.racefans.net/2018/07/27/perez-behind-legal-proceedings-force-india-administration-over-4m-debt/
AC
28th July 2018, 11:15
Where would the 30M come from?
bosyber (@bosyber)
28th July 2018, 11:40
Yeah, don’t blame people who think that drink is some sort of scheme by VJ, this doesn’t seem the right time to bring that info out.
Garns (@)
28th July 2018, 12:17
Seems a tactical move from Checo. He knows there are other buyers and wants a change at the top as he probably realizes he hasn’t anywhere else to go at the moment.
ajpennypacker (@ajpennypacker)
28th July 2018, 14:00
@garns Perhaps, although it seems most misleading and disingenuous for Mallya to blame Checo and BWT. I suppose it’s always “tactical” for them to take steps to be paid what they are owed. Vijay is the one that mismanaged the hell out of his companies. He’s the one with an arrest order in India. He’s the one who ran the team into debt. If anything I’m kind of glad this is finally happening. Force India is an extraordinary team with incredible technical staff. They’ve been cash strapped for several years and still managed to perform. Hopefully, now with a cash injection they can get even better. Hopefully also, it’s not Stroll’s dad the buys it.
Garns (@)
28th July 2018, 15:21
@ajpennypacker
Hi Art Van DaLay,
Yes its certainly Checo going against his boss and not them acting together. VJ is wanted by authorities for a certain reasons. Force India would get a great team to buy for any Billionaire looking to become a Millionaire 😀😀
Jokes aside this team are world champions based on points per budget- outstanding performances for the last few years, but it looks like Stroll is buying it.
Sridhar
28th July 2018, 12:24
No tears will be shed VJ when you didn’t know how to run your business. Conning one too many is the proverbial straw that broke the FI’s back. Stop looking for exuses. Your team’s brand value increased because of Check and Hulk not the other way round. Sutil and his ilk gave you zilch
Sush meerkat
28th July 2018, 12:30
My dad used to wear that aftershave.
Is Checo gonna be in the car?
forcef1 (@forcef1)
28th July 2018, 12:34
I hope they resolve it within the next few weeks. Mallya has expertise in prolonging legal battles and hammering out the best possible outcome for himself.
Its also interesting that Mercedes decided to take part in the process. Has any F1 engine manufacturer ever done that before against its existing customer?
David Searle (@searlo)
28th July 2018, 12:45
Not entirely sure, and slightly tangetal – but Minardi did sue Cosworth back in the mid-nineties for supplying an average engine.
anon
28th July 2018, 13:29
@forcef1, yes, and in fact it would not be the first time in the history of this team that it has happened – back in the 1990’s, when the team operated as Jordan, Ford sued Jordan and tried to have them placed into liquidation after claiming that Jordan had defaulted on payments for their engines.
In that case, the court case failed – Jordan successfully arguing that Ford was massively overcharging for rebuilds when compared to what their contract stipulated they should cost – but it still came close to ruining the team due to the cost of defending the case.
Franton (@franton)
28th July 2018, 12:42
Check just killed his F1 career dead, if not his motorsport career. Doesn’t matter if he’s right or not, he’ll be carrying the reputation for doing this forever.
Andrew in Atlanta
28th July 2018, 13:55
Not even close to killing his career, real teams with proper management understand where this is coming from and how it has to be filed. He can NOT give up his rights and let the team do whatever they want as there are time limits is when he can file his claims. Think MB is not going to have teams buying their equipment more that they have filed as well?
Seems more like you think it’s an offense teams’ will take personally. It’s business and real teams with proper funding and fewer financial criminals at the top understand that
Peter Scandlyn
28th July 2018, 19:12
+1
Dewald Nel (@ho3n3r)
28th July 2018, 17:02
Would you just leave it if you were owed millions of Euros? I don’t know any self-respecting human who would.
Gary
28th July 2018, 12:46
So, Mallaya used a holding company to provide the team funds in the legal form of “loans”, so that in the event of the team (i.e. Mallaya) screwing over creditors, e.g., Mercedes engine payables, Mallaya could claim that he is not only the primary shareholder but more importantly the largest creditor and thus retain control in a bankruptcy. Once a dirt ball always a dirt ball. And yet brilliant at the same time.
Todfod (@todfod)
28th July 2018, 13:08
Mallya might be an extremely shady character, but he’s also a brilliant scam artist. It’s amazing how he managed to borrow billions for his airlines and circulate it between different businesses/shell companies (Force India included) and yet manage to have a contingency plan for bankruptcy.
As you mentioned, making himself the principal creditor in his own racing team is a brilliant way of recovering as much as he can once the racing operation wraps up.
I still hope he goes to jail though… I’d fully expect him to con inmates while he’s there.
anon
28th July 2018, 13:35
@todfod, there are quite a few other teams which operate, or used to operate, in a similar fashion though – for example, I believe that the Caterham F1 team also had a separate holding company that then contracted the race team to undertake work for them under a similar arrangement.
Gary
28th July 2018, 13:57
The issue is supplying cash to the operating company, I.e. the race team, in the form of a “loan”, almost certainly a PIK loan, in order to become the largest creditor, even though the cash investment really has the characteristics of, and is intended, as equity.
Frankly, and in fairness to Mallaya, private equity firms do this when their operating companies become unstable.
It is up to the creditors, e.g., Mercedes, to the due diligence on the capital structure.
Michael (@freelittlebirds)
28th July 2018, 14:22
@todfod interesting, can an owner masquerade as a creditor so as to ensure that he gets paid in the event of a bankruptcy? This means that an owner should never make a direct investment into their company but structure the investment as a loan.
However, I think that not only should he not be able to do that but it would be a clear attempt to defraud other creditors. I believe he should be forced to pay penalties to the other companies and face jail time. It’s something that should simply not be allowed.
JohnBt
28th July 2018, 18:08
@todfod – your posting is true of Mallya.
He’s wanted man but in this modern day business cheating becomes easier with all sorts of configuration for big time con due to different rules across countries and he took advantage of every condition he could.
Basically it’s dishonesty whichever way he paints the picture.
Todfod (@todfod)
28th July 2018, 13:00
What a mess at Force India. I’m surprised Checo took such a drastic step with BWT to put his team in that situation. Although I do understand that as a person who needs to get paid by his organisation, he’s fully entitled to take on legal proceedings, yet, he could have just sucked it up like many other drivers have in the past.
I think this reflects extremely poorly on Perez. Teams such as Williams, Haas, etc. could also find themselves in a situation like this, and the last think they’d want is their own driver being a detriment to the team. Effectively, Perez has just shut himself off as an option in a few midfield teams. Now he better pray that the people who take over Force India want to keep him around, or else, it’s game over for Perez in F1.
Garns (@)
28th July 2018, 13:38
I see your point but the way I took it is that Checo knew there are buyers so saw this as a way to get VJ out. He would not do this if the team couldn’t continue surely ??
Michael (@freelittlebirds)
28th July 2018, 14:14
I think he’s in a very tough spot. He’s not only competing with Ocon but now there are 2 billionaires both with sons who are drivers who could buy the team and take one or both seats.
Todfod (@todfod)
28th July 2018, 14:26
Exactly! That’s why I’m surprised by his actions. He could have played nice and stood by his team owners side instead of suing them. Doesn’t inspire confidence in any future owner to have your employee turn against you.
Bernie's Lizardman Grandpa
28th July 2018, 15:48
Perez isn’t the one playing dirty here.
CharlieHustle
28th July 2018, 15:49
Vijay and his “creditor” put Perez in a very tough situation. Mercedes and WDT would have not supported the motion if it wasn’t a good idea. There had for sure been communication between the parties to finally oust VJ before he destroyed the team. Imagine he liquidates his holdings or owned percentages and Perez is left out having to go sue VJ for his compensation after VJ runs away with the cash and files for bankruptcy to restructure assets? People saying that Perez should suck it up and just wait to see what happens. Heck no, it’s been almost a year and still they have not paid his dues meanwhile he brings in almost 30 million in sponsorship money for the team. Years from now they’ll be thanking Perez for having the cojones to make the move and save the team.
Kringle
28th July 2018, 14:21
Here’s a question, has a team ever gone into administration with a higher championship standing and points tally?
David Not Coulthard (@davidnotcoulthard)
28th July 2018, 16:28
Glasgow Rangers (close enough?)
MazdaChris (@mazdachris)
28th July 2018, 14:22
While this may seem on the face of it like madness, I think it’s important to understand how these relationships actually work.
It’s easy to think that the relationship between team and driver works like a normal employer/employee relationship. But that’s incorrect. Contracts between these parties are necessarily complicated and involve several other parties (sponsors, investment funds, holding companies, and so on). Most teams won’t simply pay their drivers directly. Drivers will have deep relationships with third party companies, sometimes acting as owners/shareholders, and alongside the driver contract will be agreements for monies to be paid in both directions between the team and these companies. You’d think of them as sponsors, but in practice the relationship works more like a business partnership with cross-promotion. At the heart of this of course is not having to pay taxes on income. Drivers don’t have salaries, they draw down from their own investment funds, paid for by third party companies who in turn have deals with the team to run branding as a form of nominal sponsorship.
Think about Alonso and the Kimoa fashion brand. Kimoa make licensed McLaren merchandise; they pay McLaren an amount of money to be able to do this. In turn they have logos on the cars, and Alonso wears Kimoa hats every race weekend. Yet Alonso owns Kimoa so gets money himself through this deal. He also gets money from that brand being involved with Toyota, so it’s not exclusive. So Alonso makes money through an agreement with McLaren – something tied to his driver contract – but not through being paid by them directly. It works because Kimoa sells a lot of hats because Alonso is very popular and it’s a great platform to promote the brand. But don’t forget that Kimoa is also tied to a long supply and manufacture chain, with employees at every level. See Kimoa then not just as a single entity but rather as a meeting point in a web of transactions, with money moving continually between different companies.
This is why the arrangement works well for VJ – FI and most of its partner firms are essentially owned by him. He can dump a load of money into the ‘system’ through one or more companies, in the form of loans, knowing that the capital is going to remain circulating within those companies. In the worst case scenario, one of those companies goes belly up and is liquidated – he still gets his money back. But it’s not a truly closed system because drivers have these relationships with other companies, and there are major suppliers who also need to be paid – e.g. Mercedes.
Think then of a pinboard, and you have a few pictures pinned to it – one of each driver, one of Force India, one for every commercial entity which works as either supplier or commercial partner, then between each pin you tie string from each entity to every other one. Every piece of string represents the flow of money back and forth between entities. Some of the pins are just black boxes – shell companies in offshore locations and tax havens where there’s no visibility. Some bits of string just disappear off the board completely. Pull out a pin and suddenly the whole web collapses. This is the issue facing Force India. Once one entity stops paying another, suddenly the whole system collapses. So yes, BWT, acting with Checo as essentially the contract holder and broker, are demanding monies owed. But that’s because if they don’t get their money, then the money can’t flow from them to their other partners. The system becomes broken. This is why it’s important not to think of it as just an employee not being paid – it’s not. It’s entire companies whose future is being put at risk because of nonpayment. Checo is at the centre of it, for obvious reasons, but he has no choice here. It’s not for him to simply tighten his belt – he’s really not the one at risk.
I really think this is one of the reasons why F1 contract negotiations have become so drawn out in recent years, and one of the often unspoken reasons why there are so few major sponsors willing to commit to F1 – because F1 simply doesn’t work like that any more; it’s not just a case of one company giving another company some money to have their brands appear on the car. This is about major companies committing to becoming part of a huge interlinked financial system which allows money to flow between companies. Avoiding taxes and ultimately allowing for free investment to make more money for shareholders. Who are also the investors, the team owners, and the drivers.
Sorry, bit waffly, and I suspect @dieterrencken could explain it better and poke some holes in how I’ve explained it. But that’s it in a nutshell. Or a shell corporation at any rate.
BlackJackFan
28th July 2018, 17:35
Wow… thanks for all that…
One thing nobody seems to have mentioned is: when the wheel stops spinning, and FI belongs to a couple of playboys and (another?) drinks company… Who Will Actually Run FI…? And if it’s, for example, Mr Fearnley, will he be allowed free rein…?
And, if not, when will many (of the better) FI staff be looking for alternative employment…?
And THEN what will happen to FI…? I can’t help fearing the worse, at least from 2020 onwards.
faulty (@faulty)
28th July 2018, 14:24
I hope a partnership between Carso and Daimler takes over Force India.
faulty (@faulty)
28th July 2018, 14:32
Something along the lines of what Haas (Carso) as a brand looking for exposure did with Ferrari (Mercedes).