Vol 3 (2006) - Issue 1

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Re: British American Racing (Holdings) Ltd

Introduction

In December 2004, Mr Justice Evans-Lombe gave judgment on a fiercely contested administration application placing British American Racing (Holdings) Ltd (‘the Company’), the then sole shareholder of British American Racing GP Ltd (‘BAR’), which operated the British American Racing Formula 1 motor racing team, into administration.
The Company had been established as a joint venture vehicle by which the British American Tobacco Group, through BAT (Westminster House) Ltd (‘BAT’), and other investors participated in Formula 1. At the time of the Application, BAT owned 89% of the shares in the Company.
BAT, acting in its capacity as a creditor, applied for an administration order to be made against the Company.
The Application was opposed by certain of the Company’s minority shareholders (‘the Respondents’). The Respondents contended that:
(1) BAT was not a creditor of the Company;
(2) the Company was not insolvent; and
(3) the Application was an abuse of process.
The Respondents’ contentions were rejected and an administration order was made. Although much of the Judgment deals with the first two of the issues set out above, a great deal of the argument was addressed to the question of whether or not the Application was an abuse of process and it is the decision on that issue which is likely to be of most interest in future cases.
The Judge and the Court of Appeal both refused the Respondents permission to appeal.

Background

The abuse of process arguments cannot properly be considered without the background to the making of the application being set out in some detail:
The Company was established pursuant to a joint venture agreement (‘the JVA’) made on 15 October 1997 between BAT, Reynard Formula 1 Ltd, Mount Eagle Inc. (‘Mount Eagle’), the Company and various other investors. Initially BAT held 50% of the Company’s
issued shares, the remainder being held by other investors of whom the largest, Mount Eagle, held 35%. The Company was promoted as a vehicle for advertising.
The British American Tobacco Group advertised its Lucky Strike brand on BAR’s cars.
BAR had always been loss-making. By the end of 2003, its accumulated losses were in a sum of in excess of USD 300 million and BAR continued to make losses during 2004 – notwithstanding the dramatic improvement of its fortunes on the track. The losses were financed by advances made by BAT to the Company,primarily through the issue by the Company of convertible and unconvertible loan stock, the proceeds of which were lent on by the Company to BAR. BAT also advanced certain monies to the Company by way of loans repayable on demand.
As the Judge continued the story:
‘It seems that by the beginning of 2003 BAT was becoming increasingly disillusioned with its formula 1 racing joint venture to the support of which it was having to make continuous substantial advances. By reason of the restrictive provisions of the JVA it was unable, without the consent of the minority shareholders to reorganise the business in accordance with its wishes. An attempt was therefore made to buy out the minority shareholders by offers made to them in letters dated 14th March 2003. Those offers were rebuffed.