NOVEMBER 13, 2002
Arrows aims for Chapter 11!
The laws of insolvency differ from country to country but in most systems there exists a procedure by which a company can gain protection from its creditors for a period of time in order to hold a business together while plans are formulated to rescue the firm. In America this is called Chapter 11. In Britain it is known as "administration" and Arrows legal teams told the High Court today that the team is to ask the court to protect it. This came up during a hearing brought by Heinz-Harald Frentzen and other creditors to have the comapny wound up by the courts.
What it means is that if the administration petition is successful a licensed insolvency practitioner will be appointed as an administrator by the Court under an administration order. In order for an administrative petition to be successful the court must be convinced that the company will be worth more as a going concern than it will be being broken up.
If the petition is successful, the company will be placed under the day-to-day control and management of an administrator. He must then formulate proposals and present them to the creditors at a creditors' meeting, usually within
three months. The administrator has a great deal of power at his disposal. He can hire and fire employees and directors and enter into contracts on behalf of the company's behalf.
The winding-up petition brought by Frentzen and others has now been adjourned and the two petitions will be heard together at the same time at a court in Birmingham in December. The request for administration could become redundant if a deal is in place to rescue the team.
This may all work out but as Arrows has to submit its applications for next year's World Championship by the end of the week there seems to be little hope that it will be accepted unless the the new owner is willing to start a completely new team. That has serious financial implications including a $48m deposit with the FIA and no benefits under the Concorde Agreement for three years. It also means that the team has no political voice in F1 until it earns its place as a signatory to the Concorde Agreement.
It is possible that the Adminstrator will sell the team's assets to other parties but it is fairly clear - based on what happened last year with Phoenix - that the rights and benefits of Arrows no longer exist. This however may not stop people trying to claim them.
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