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September 11, 2009

UK: Government trying to ‘disqualify’ former MG Rover directors

The UK government has ordered lawyers to gather the necessary evidence required to ban former directors of defunct MG Rover Group from holding company office in future.

The UK government has ordered lawyers to gather the necessary evidence required to ban former directors of defunct MG Rover Group from holding company office in future.

On Friday it published the report of an independent investigation into the 2005 collapse of the manufacturer of Rover and MG cars, which went into administration on 8 April owing creditors about GBP1.3bn and the loss of about 6,000 direct jobs.

The company’s brands, technology and much of its assembly machinery ultimately found their way to China with the equipment – including an engine factory – being moved to Nanjing Auto in what was dubbed the ‘lift ‘n’ shift’ operation.

Nanjing began building updated versions of MG’s TF roadster and ZT sedan in China while rival SAIC built a variant of the Rover 75. The Chinese government later forced a merger of the two operations while Nanjing set up a small TF assembly operation on a leased section of MGR’s once-huge site at Longbridge, near Birmingham. Most buildings have now been demolished to make way for a business and technology park.

UK government business secretary Lord Mandelson has also sent the report to the Financial Reporting Council, the regulatory body for auditors, accounting and corporate governance.

In a statement, he said inspectors found inaccurate and misleading explanations were given to MPs and others, including some evidence given by one of the directors to the select committee set up to investigate the collapse.

Gervase MacGregor and Guy Newey were instructed to investigate the affairs of MGRG, its parent company Phoenix Venture Holdings (PVH) and MGR Capital Limited between the purchase of MGRG from BMW in May 2000 and the date of it entering administration.

The inspectors investigated the actions of the directors of PVH throughout their five-year ownership – particularly Peter Beale, John Edwards, Nick Stephenson and John Towers, known as the Phoenix Consortium or Phoenix Four.

They also investigated restructuring changes within the group which led to the creation of 33 separate companies throughout that period; the scale of financial rewards made to the directors and the events which led to administration itself.

This included the role of the government to secure bridge finance while take-over discussions took place with Shanghai Automotive (SAIC).

The inquiry studied the role played by professional advisors including auditors and corporate finance advisers Deloittes and lawyers Eversheds; aspects of corporate governance; and financial statements and audit arrangements including the transfer of assets.

According to the government, the inspectors also investigated the purchase, installation and operation of computer software to eliminate evidence held by one of the directors, Peter Beale, the day after the inquiry was announced.

The inspectors also looked at explanations the directors had given to MPs and found that Beale gave “inaccurate and misleading explanations” to the Trade and Industry Select Committee on 30 March 2004 about why the Phoenix Partnership was involved in the MGR Capital joint venture.

Mandelson said: “This has been a painstaking enquiry by independent inspectors. It was important to get all the facts into the open so that workers who lost their jobs and creditors who were not paid know the truth. 

“Action is being taken. Based on this report, work has been commissioned to start legal proceedings to seek to declare relevant directors unfit to hold office and to disqualify them from management of any company in future.

“I have today written to the Business and Enterprise Select Committee to ask them to look into the serious findings in the report that one of the MG Rover directors, Mr Beale, misled their committee about the reasons for setting up a joint venture with MGR Capital. It will be for the committee chair to decide whether any action should be taken.

“I am asking the Financial Reporting Council to review the report to see whether changes to audit or accounting standards or guidance should be considered.”

Mandelson said he had been advised that the findings, if supported by the underlying documents, were such that a court was likely to find that at least some of the directors were unfit to be concerned in the management of a company.

The report has also been sent to the Accounting and Actuarial Discipline Board (part of the Financial Reporting Council) which is currently investigating the work done by Deloitte’s for the Rover Group. The AADB will review the inspectors’ report to see whether there are issues which need to be followed up.

This may lead to changes in auditing and reporting standards applied to UK companies, the government said.

The report notes that directors were each paid a GBP250,000 annual salary with GBP500,000 bonuses being paid on top for each of the first two years. During the period from acquistion from BMW to collapse over GBP17m was paid via a Guernsey trust but there was no suggestion any of this was illegal.

In total, the five executives took about £42m in pay and pensions during their time in charge.

“During the five year period, the members of the Phoenix Consortium and [chief executive Kevin Howe] obtained large, and we say unreasonably large, financial rewards, totalling tens of millions of pounds. They also undertook a number of transactions to allocate assets to companies in the group other than MGRG and in which MGRG had no interest,” the report said.

The Phoenix Four, plus Howe, described the report to the BBC as a “witchhunt” and a “whitewash for the government”.

“Our remuneration was not the reason for the collapse. The real reason is the government bungled the last chance to save MG Rover,” they added.

The Serious Fraud Office (SFO) has said it does not intend to launch a criminal investigation into the collapse.

The 850-page report took four years to produce and cost about GBP16m.

See also: For the British masochists out there

GOLDING’S TAKE: The Phoenix Four forfeit

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