Judge: Arrows Must Pay Cosworth to Race

The Arrows Formula One racing team will not be able to compete at Sunday's British Grand Prix unless they pay what they owe to engine provider Cosworth, the London High Court heard on Thursday.

Mr Justice Lightman said the company was in a "dire financial position", and if it misses a Grand Prix through insolvency it will lose the right to compete in Formula One competition. Arrows' lawyer Robin Potts QC, said the team's survival was "short of a miracle."

He said it would have to go into liquidation or administration unless a miraculous source of funding helped pay for new Cosworth engines to enable the team to compete at Silverstone.

Mr Potts's revelation followed the decision of Mr Justice Lightman to reject an application by Arrows to lift legal undertakings it made to a number of creditors in the Deutsche Bank group of companies, in an ongoing legal battle launched to protect their interest in the racing team.

If successful, the company formed by Tom Walkinshaw had hoped to sell its rights to receive payments to race in Formula One, which it holds under the 'Concorde Agreement' with the FIA, the other F1 racing companies and Formula One Administration Limited, to Red Bull GmbH and Red Bull North America Inc.

The judge said this was the company's "prime asset", and that the order sought by Arrows "may be critical to the future of the Arrows Racing Team". At Silverstone, Walkinshaw failed to turn up for a mandatory media conference on Thursday afternoon and faces a fine, while there was no sign of the Arrows cars.

"The cars are not here and they will not be here until outstanding issues have been resolved between (one of the team's creditors) Morgan Grenfell and Arrows," a team spokesman said on Thursday.

Arrows have scored just two points in this season's World Championship, both by German Heinz-Harald Frentzen. Brazilian Enrique Bernoldi is the team's other driver.

The judge said Arrows "will be unable to participate in the Silverstone Grand Prix due to take place on Sunday if its supplier of new engines, Cosworth, insists on payment up front of 3.25 million pounds ($4.96 million), unless it can raise this sum elsewhere.

"Under the Concorde Agreement it would appear that, in default of agreement between the parties to the contrary, Arrows' entitlement to participate in the Championships and payments may terminate immediately if Arrows fails to participate in any Championship race due to its insolvency," he added.

Court Hearing

He said the undertakings which Arrows sought release from were made following a court hearing on May 29 in order to protect the entitlement of one of the creditors, Morgan Grenfell Private Equity Ltd, to a charge over the Concorde Agreement asset.

The Court was told its consent to releasing Arrows from the undertakings was required if the company was to sell its rights arising under the Concorde Agreement to Red Bull.

The judge said that the claimants in the case were all companies in the Deutsche Bank group, and that one of them, Morgan Grenfell Equity Partners, had made a "substantial investment in the team which now totals some $60 million".

He said: "The court is faced on this application with a threat by Mr Walkinshaw not to pay for the engines needed for Sunday's race with the dire consequences of loss of the benefit of the Concorde Agreement unless the Court blindly agrees to authorise entry into the proposed agreements and orders the sale of the benefit of the Concorde Agreement.

Disastrous Loss

"Whilst the Court must be anxious to avoid the potentially disastrous loss of the benefit of the Concorde Agreement if this is reasonably practicable, it cannot and should not allow itself to be dragooned into making the orders sought unless satisfied that the applications are made in good faith, supported by credible evidence and that the preconditions for an order for sale are satisfied.

"I am not satisfied that any of these conditions are satisfied," he added. "I think that if the management of Arrows is placed in competent and honest hands, (e.g an administrator, liquidator or receiver) something of real value may be salvaged for Morgan Grenfell and other creditors.

"I am concerned for all the creditors of Arrows, and this includes the trade creditors.

"The management of Arrows however are responsible for the prolonged insolvent trading and if Arrows goes into liquidation, administration or receivership, as appears practically inevitable, creditors may have to seek relief against the directors in proceedings for wrongful or fraudulent trading."

The last Formula One team to go out of business were Prost, who were declared bankrupt in January.