Fraud office to investigate the collapse of MG Rover

Lord Mandelson orders SFO to report on British car company's bankruptcy
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The Independent Online

The Business Secretary will today ask the Serious Fraud Office (SFO) to investigate the demise of the British car-maker MG Rover, four years after its collapse brought about the loss of an estimated 15,000 jobs.

Lord Mandelson will tell Parliament that he is passing on the findings of a four-year inquiry into the closure of the Midlands-based group, adding that there are grounds for an investigation into whether any criminal activity was involved. The report will not be made public until the SFO has completed its investigation.

In 2000, the German car-maker BMW, which then owned MG Rover, threatened to close its subsidiary, based in the Birmingham suburb of Longbridge. After the Government intervened, BMW eventually agreed to sell to the company to the so-called "Phoenix Four" – the venture capitalists John Towers, Peter Beale, John Edwards and Nick Stephenson. Their Phoenix consortium paid a nominal £10 for MG Rover's assets, including unsold cars, with the help of BMW, which provided a loan of £427m to facilitate the sale. However, in April 2005 the car-maker, which had earlier acquired much of British Leyland's operations, slid into administration with debts of more than £1bn.

It is thought the Phoenix Four earned as much as £40m in pay and pensions during their tenure. Yesterday, the SFO refused to comment on the nature of any investigation. Lord Mandelson's department confirmed only that he would be making a statement to Parliament, but declined to say whether it would give details of any criminal investigation.

"We have received and studied the report, and there will be a statement in Parliament [today] when members will be updated," the spokesman for the Department for Business Innovation and Skills said.

Any referral to the SFO is likely to cause difficulties for the Government. Tony Blair's administration supported Phoenix's takeover of MG Rover and offered £6m in state aid in 2005, after a failed effort to resurrect the group.

The Government initially asked for the findings of the inquiry, written by Gervase MacGregor, a senior partner at the accountants BDO Stoy Haywood, and the barrister Guy Newey QC, to be presented within 12 months.

It is now more than four years since the report was commissioned and its results will be withheld until the SFO completes any investigation. Fraud investigators would have to consider evidence from a vast number of sources, and the conclusions are unlikely to be delivered until after the next general election.

The Phoenix Four are believed to be incensed by news of the SFO's involvement, and are likely to cite a report written by administrators at Price WaterhouseCoopers six months after MG Rover collapsed which dismissed the idea of improper conduct by the Phoenix Four.

"Four years and £16m of taxpayers' money has been swallowed up on this inquiry, and the directors' major concern is that it will fail to get to the heart of the matter, which is why the Government withdrew its offer of a loan to the company at the 11th hour, allowing 6,000 workers to lose their jobs.

"Four years on, any suggestion of another further investigation is frankly ridiculous and smacks of kicking this issue into the long grass," the four said in a statement yesterday, querying why the Government has "flatly refused requests under the Freedom of Information Act which would have revealed correspondence and documents the directors believe would have shed some light on the Government's role in the affair."

More than 6,000 workers lost their jobs at MG Rover's Longbridge plant in 2005, with an estimated 9,000 others employed by suppliers also forced out of work. Some employees were saved when the MG sports car marque, which is still assembled at Longbridge, was bought by China's Shanghai Automotive Industry Corp.