A director destroyed computer files as investigators headed towards his office, a boardroom colleague had an "intimate relationship" with a consultant the company had handed a lucrative contract, and bosses paid themselves millions of pounds "out of all proportion to the incomes which they had previously commanded".
Investigators yesterday painted a damning picture of the performance of the so-called "Phoenix Four" – the men who ran MG Rover until the car-maker collapsed in 2005 with debts of £1.3bn and the loss of 6,300 jobs. One of them paid a woman who was his lover £1.7m for just over a year's work. Another propped up his own car dealership with payments from Rover.
The four – John Towers, Peter Beale, Nick Stephenson and John Edwards – awarded themselves "unreasonably large" salary and pensions packages worth £9m each during the five years of their control, after buying the Birmingham-based company from BMW for a nominal £10 in 2000, the 850-page report said. They still stand to make a further £3.2m each from share schemes and dividends.
Investigators found that Mr Beale, the company's vice-chairman, bought "Evidence Eliminator" software to delete material from his computer hard drive the day after the inquiry into Rover's downfall was announced. Mr Beale insisted he was only "concealing personal documents" but the investigators, who accused him of giving "untruthful evidence" about the incident, said he probably deleted material pertaining to the collapse.
The probe was led by Gervase MacGregor, a partner at the accountants BDO Stoy Hayward, and the barrister Guy Newey QC. They reported that the four directors also supplied "inaccurate and misleading" information about Rover's finances to MPs, and singled out evidence Mr Beale gave to the Commons trade and industry select committee.
They expressed concern over the "plainly excessive" fee of almost £1.7m paid to Dr Qu Li for advice she gave the Phoenix management about potential business partners in China. For some of the time Dr Li was paid by Rover, she and Mr Stephenson were having an affair. The report protested about the poor "corporate governance" of the Phoenix team: some board members were not invited to several board meetings and inaccurate minutes were taken of discussions.
The investigators criticised the complicated company structure put in place after the Phoenix Four acquired Rover, and the switching of assets from one division of the business to another.
They spotlighted the £5.9m of backing given to Edwards Cars, a dealership owned by Mr Edwards and his wife, as not commercially justified, and concluded: "Without the financial support it received, Edwards Cars would have incurred very large losses and been most unlikely to be able to continue trading."
Despite the failure of MG Rover between 2000 and 2005, the Phoenix Four continued to pay themselves generously right up to the group's demise in 2005. The quartet, along with the group's chief executive, Kevin Howe, took home more than £42m in pay and pensions despite the company never recording a profit.
Mr Towers, who led the buyout, was paid £8.96m, Mr Stephenson £8.98m and Mr Edwards received £9.02m. Mr Beale, who is accused of misleading the parliamentary inquiry into the company's collapse, was paid £8.98m over the four years, while Mr Howe pocketed £5.71m.
The report cleared ministers of blame for Rover's demise – a conclusion angrily dismissed by the former Rover chiefs, who accused the investigators of doing the Government's bidding and conducting a whitewash.
Although the Government was considering a £100m bridging loan at the time the company was declared insolvent, the inspectors said they did not believe ministers could have averted the collapse. However, they took a swipe at a special adviser working for Patricia Hewitt, the former Trade and Industry Secretary, for "irresponsibly" briefing journalists that takeover talks between Rover managers and a Chinese consortium had stalled.
"We question whether it was appropriate for the Government, unattributably, to brief the press ... without consulting, or even informing, the group," the report said.
In a blistering counterattack, the Phoenix Four said: "The report is entirely as we expected – a witch-hunt against us and a whitewash for the Government. It drips with the hallmarks of this Government: spin, smear and point-blank refusal to take any responsibility for their own actions.
"We criticised the Government for failing to help MG Rover. As we have seen elsewhere, there is a price to be paid for criticising this Government and for us the price is this report."
But Lord Mandelson, the Secretary of State for Business, Innovation and Skills, retorted: "The directors are showing brass-neck nerve in the light of these findings of a very thorough and painstaking report to suggest that it is a whitewash or a witch-hunt, when the finger of blame and responsibility points so clearly at them. I think, in the circumstances, they would be better offering some humility and even an apology to those who lost their jobs and the creditors who lost money as a result of this company's collapse."
He insisted that the Government would press ahead with plans to disqualify the four as company directors.
The Independent revealed last month that the Department for Business, Innovation and Skills was told by independent lawyers that a court would be likely to find "at least some of the directors are unfit to be concerned in the management of a company" following their role in the demise of MG Rover.
But banning the four from working as directors is unlikely to console the workers at Longbridge who lost their jobs and were disappointed when the Serious Fraud Office decided last month to not press fraud charges against the quartet.
Having seen the inquiry report, which took four years to compile, Lord Mandelson had asked the SFO to consider a criminal investigation.
The move drew derision from the Opposition and business leaders, who accused the Government of trying to create a smokescreen to deflect what was expected to be bad publicity contained in yesterday's document.
Kenneth Clarke, the shadow Business Secretary, said the inspectors were right to criticise the MG Rover directors, but added that ministers did not emerge with any credit from the "whole sorry episode".
"Unfortunately this report does not shed enough light on the Government's undoubted involvement in brokering the deal in the first place and failing to realise that the project was heading for disaster," he added.
Jon Moulton, the founder of the private equity investor Alchemy Partners, which tried to buy MG Rover in 2000 before losing out to the Phoenix Four, said he was not surprised by the SFO decision. He added: "It was a very odd referral in the first place and no doubt it was based on some level of smoke. The fact that the SFO [came] back in just four weeks makes the referral look even more bizarre." Lord Mandelson maintained that the referral to the SFO was justified, saying: "It was important to have clarity on whether or not this was a case the SFO should be investigating.
The workers who lost their jobs and the creditors who were owed nearly £1.3bn by the collapse deserved no less. They have waited a long time to see the findings of the report and the way is now clear for us to publish."
The Phoenix Four: Where are they now?
John Towers
*Where is he now: Retired in 2005, aged 57, to split his time between his home in the Warwickshire countryside, a £1.5m holiday villa on the Algarve and south-west France.
*Background: Frontman of the Phoenix Four who acted as chairman from 2000.
*Earnings from MG Rover: £8.96m
*What the report said: misled fellow board members and gave "inaccurate and misleading explanations" to investigating MPs.
Peter Beale
*Where is he now: Lives in a small village close to the Worcester and Birmingham canal. Has spent four years compiling evidence to defend the Four's actions at MG Rover.
*Background: Accountant and former company secretary of Edwards Cars.
*Earnings from MG Rover: £8.98m
*What the report said: He is accused of buying computer software package that "deep cleans" a computer's hard disk, days after the Government launched its inquiry in 2005.
Nick Stephenson
*Where is he now: Lives in "The Old Bakery" in a village near Stratford-upon-Avon: cost £500,000. He has tried to forge a career as a consultant.
*Background: Was technical brains behind the Phoenix consortium.
*Earnings from MG Rover: £8.98m
*What report said: Accused of having a "thoroughly unsatisfactory" personal relationship with a female consultant hired by Phoenix group.
John Edwards
*Where is he now: Lives in the Cotswolds village of Chipping Camden. Has worked in "general business consultancy" since 2005.
*Background: His car dealership, Edwards Cars, received £5.9m from the consortium in 2000.
*Earnings from MG Rover: £9.02m
*What the report said: on Edwards Cars: "We don't think that support on the very large scale provided can have been commercially justified"
Ashes to ashes: The collapse of Rover
MG Rover's absence from The International Motor show in October 2000 signalled that despite a rescue by the then championed Phoenix Four only months earlier, all was not well. "Actually, things are going rather well," insisted then deputy chairman Nick Stephenson. "We have made significant progress and we are delivering on our business plan." The business plan, it transpires, was to make himself and the other Phoenix Four directors as wealthy as possible.
The four were greeted as something close to saviours in 2000 when they took control at Longbridge after Rover's former owners, BMW, decided the operation was not viable. The German car giant took the Mini with it before selling off Rover to the Four for a nominal £10.
The evidence suggests the business was a basket case from the start. The four did manage to stem losses of £400m in 2000, to £80m by 2004, but it had lost too much money. Car sales continued to fall throughout Phoenix's five-year tenure, from 170,000 in 2001, to 120,000 three years later. Despite mounting losses and weak sales, the four continued to pay themselves handsomely, and when the Shanghai Automotive Industry Corporation (SAIC) signed joint venture agreements in 2004, the Four ensured value accruing from the deal would benefit them personally. When the group collapsed in 2005, Tony Blair's government, conscious of the coming election and that Longbridge was in the centre of Labour's West Midlands heartland, tried to persuade the Chinese group to take full control.
On 7 April 2005, then Trade Secretary Patricia Hewitt said the company was being put into administration and that a £120m loan to sweeten the deal with SAIC had been withdrawn. By week's end, the Government was again insisting that a deal could be done, and provided £6.5m to cover wages for a week. At the same time SAIC denied it had made an offer for the company. Others, including a second Chinese group, Nanjing Automobile Group and Sir Richard Branson were mentioned as potential suitors, but none made a substantive bid. Longbridge closed its doors later in the summer, with the loss of thousands of jobs.
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