The administration of Force India

The last F1 teams to go into administration were Caterham F1 and Manor Racing in 2014 and 2017 respectively.

Waking up yesterday to read that Force India are now in that position made for sad reading.

From what was being bandied about on the media about it being at the instigation of one of their drivers, Sergio Perez, along with Mercedes and sponsor BWT read like they had been kicked when they were down by one of their own.

However, upon further investigation it appears Perez is not the villain he was painted.

Apparently, another creditor had taken Force India to court earlier last week in an effort to get paid. Their choice of attack was to try and get the company wound up. The subsequent action of Perez, Mercedes and BWT to place Force India into administration is actually the lesser or the two evils.

Why? What’s the difference?

Unfortunately, both processes can lead to the end of business for a company.

But, putting a company into liquidation (winding it up) involves immediate disposal of assets before dissolving the company whereas putting a company into administration gives the company an opportunity to find a buyer and explore all other funding options. It also puts a block on any legal action against the company within the administration period.

Who are Force India’s creditors?

The largest creditor is the team’s own holding company, ‘Orange India Holdings Sarl’, which is owed 159 million pounds and one of whose directors is Vijay Mallya. This holding company operates as a subsidiary of United Breweries Ltd whose chairman is Vijay Mallya.

The next largest creditors is Mercedes and Sergio Perez who are owed 10 million and four million pounds, respectively.

What next?

FRP Advisory, the team’s appointed administrators have eight weeks to send out formal administrative proposals to all of the company’s creditors. This generally consists a plan of action that the administrator will follow to repay all debts, information about the company’s current status and the anticipated outcome.

Could someone buy the team?

For a company in administration this can be one of the options recommended by the administrator. This is called a ‘pre-pack administration sale’ where all assets and business of the company are sold to a new company.

However, before such a sale can take place the administrator has to convince all creditors that this is the most beneficial option for all concerned.

How has this happened?

With the cost of running an F1 team for a year at an average of 250 million dollars, it’s not a cheap business to be in, which probably accounts for some of the smaller teams struggling and going broke, Caterham and Manor Racing to name but two.

But Force India is a strong mid-field team, coming fourth in the constructors’ championship in the previous two years and currently standing fifth, so how has it happened? Is it just down to lack of money or is it bad business management?

If this can happen to Force India, what of Williams and McLaren whose racing fortunes have taken a downturn in recent years? Could they be next?

In my opinion, it seems that a budget cap would seem the most sensible solution. What do you think?

As for Force India, I guess we’ll just have to wait and see what the next eight weeks bring.