The Morgan Grenfell investment bank has become the latest institution to take the ailing Arrows Grand Prix team to court, claiming that the Leafield operation 'diluted' its stake through financial restructuring designed to secure its future in Formula One.

The bank's lawyers will argue that Arrows and team boss Tom Walkinshaw knowingly created three new categories of shares in its holding company Arrows Grand Prix International [AGPI] while attempting to raise capital to strengthen the team's financial position, weakening a stake originally brought about by a 'substantial' equity investment and secured loans for the team in 1999.

Lawyer Ewan McQuater, representing Morgan Grenfell, revealed that the team and its parent company were in 'serious financial difficulty' as long ago as last year, and that negotiations had taken place about a possible financial restructure. Arrows and Walkinshaw claim that the talks led to a binding agreement between the parties - something the bank vehemently denies. The case judge will thus be asked to decide whether a binding agreement exists, and whether previous financial guarantees remain in place.

"Steps were taken in breach of the claimants' rights under the existing finance documents, and they have potentially caused serious prejudice to their interests," McQuater told Reuters.

Arrows was, last week, barred from entering next year's F1 world championship, having failed to contest six of the last seven races of 2002. All staff were formally made redundant in wake of the rejected application.

The hearing is expected to last at least a week.