The Government today published the results of an independent investigation into the collapse of the MG Rover Group (MGRG).
The inquiry was set up by the then Secretary of State for Trade and Industry after MGRG, the manufacturer of Rover and MG cars, went into administration on April 8, 2005 owing creditors nearly £1.3 billion.
Business Secretary Lord Mandelson today published the findings and announced that lawyers have already begun work compiling the underlying evidence required to bring proceedings against the relevant directors to prevent them holding company office in future. He also decided the report should be referred to the Financial Reporting Council, the regulatory body for auditors, accounting and corporate governance.
In addition he has today written to the Business and Enterprise Select Committee after the 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.
Gervase MacGregor FCA and Guy Newey QC 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 5 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 Government to secure bridge finance while take-over discussions took place with Chinese car manufacturers Shanghai Automotive (SAIC).
The inquiry studies 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.
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 Peter 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.
Business Secretary Lord Mandelson today 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.
“We are also determined to learn any lessons we can to ensure greater transparency about the impact of decisions which directors are making and the state of the companies they are running. To this end, 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.”
The Secretary of State has received advice from independent Queen’s Counsel that the findings made by the inspectors, if supported by the underlying documents, are such that a Court is likely to find that at least some of the Directors are unfit to be concerned in the management of a company. If successful this would lead to these Directors being disqualified from being directors or otherwise involved in the management of the company. Work has already begun on considering the underlying documents and compiling the evidence that would be needed to commence director disqualification proceedings. Thereafter, the usual procedures will be followed.
- The report has 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.
- The Inspectors suggested that improvements could be made to auditing and reporting standards that would increase transparency in financial statements. The FRC issued guidance earlier this year to companies and auditors on Going Concern issues in the light of current economic conditions and is currently consulting on updated core guidance on Going Concern. The FRC will now be asked to look at lessons from the Rover case and to consider whether any further guidance should be issued to auditors.
- The Inspectors suggest that although the transfer of assets and tax losses between companies with the Rover Group was in accordance with accounting standards, readers of the financial statements would have been better informed had the “true or potential value of these assets been explained”. They suggest that making such disclosures mandatory would improve understanding of a company’s financial performance. The UK Accounting Standards Board (also part of the Financial Reporting Council) will now be asked to consider the issues raised by the Report.
The report is available at: www.bis.gov.uk/mgrover-report