Diversion tactics on MG Rover’s collapse?

Posted on 7 Jul 2009 by The Manufacturer

Business Secretary Peter Mandelson has called in the Serious Fraud Office (SFO) to investigate whether the collapse of MG Rover should be subject to a criminal probe.

“There has been a comprehensive and thorough investigation into the events which led to the company failing, workers losing their jobs and creditors not getting paid. The SFO must now see if there are grounds for prosecution,” Mandelson said in a statement to parliament.

However, SFO director Richard Alderman insists that his agency will not be pressurised into bringing criminal prosecutions against the Phoenix Four – former MG chairman John Towers, and partners Peter Beale, John Edwards, and Nick Stephenson – consortium, which bought Rover from BMW for a nominal ₤10 in 2000.

MG Rover formally entered insolvency proceedings in 2005, the initial ₤427m interest-free loan from BMW doing little to stave off debts when it entered administration of over ₤1.2bn.

A government report into the collapse that cost ₤16m – which led to the loss of 6,000 jobs, and adversely affected thousands more workers in the supply chain – was delivered to Lord Mandelson in June 2009, a mere five years after Rover’s annus horribilus.

Recent allegations that messrs Towers, Beale, Edwards and Stephenson withdrew more than ₤40m in remuneration and pensions, while a company that once bestrode UK automotive manufacturing systematically crumbled, further whetted public appetite for the report to be published.

Given the – arguably convenient – proposed SFO involvement, however, its publication will be delayed yet further, so as to “ensure any potential prosecution is not prejudiced,” said Mandelson in a statement to parliament.

It wouldn’t be the first time that Gordon Brown’s scandal-ravaged government has sought to kick its latest political hot potato into touch until the general election, whenever that may be.

On his blog today, BBC business editor, Robert Peston, questions that if Mandelson believes that the SFO’s fine-toothed comb is needed now, and only at the culmination of a protracted inquiry, would it not have been prudent to involve the agency at some point during the ‘comprehensive and thorough’ investigation, even if only to assess the relevance of criminal proceedings?

Regarding the parties employed to lead the government’s inquiry, accountants BDO Stoy Hayward and leading QC Guy Newey, Peston also states that “it is not unreasonable to assume that they are better qualified to than most to spot prima facie evidence of a crime.”

Shadow business secretary Kenneth Clarke pounced on the chance to accuse the Government of delaying the investigation to obfuscate its handling of Rover’s dying days. “Doesn’t this show that the government’s consistent approach to difficult questions about the car industry has always been to put them in the long grass?” he said.

A spokesperson for the Phoenix Four made similar noises, telling the Financial Times that: “We suspect this is a government ruse to conceal its own failings.”

“There has never been any suggestion of improper conduct by the directors, and this was confirmed in a report by the administrators PricewaterhouseCoopers six months after they took over the running of the company,” the statement issued on Monday read.

And as to the matter of the Phoenix Four’s seemingly disproportionate salaries, the spokesperson said that their “pay and remuneration has been open and transparent for years – there’s no secret and there never has been.”

Is Peter Mandelson seeking to ride the wave of public anger regarding disproportionate corporate salaries? For surely this, while deeply unpleasant, is not the crux of MG Rover’s collapse. Indeed, he would do well to remember that the public are cogent enough not to be distracted by the almost daily parading of inflated executive pay cheques, when the more important issue of government inadequacies hangs heavy over proceedings.

The last word, unsurprisingly, goes to Peston: “What does seem unsatisfactory is that taxpayers have spent a colossal sum trying to understand more about why a major employer collapsed, and yet we remain none the wiser.”

Is the SFO involvement in MG’s collapse a distraction to cloud what was a badly executed investigation of a poorly managed company failure? Or does the SFO’s involvement now have any merit?

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Edward Machin