Four directors in charge of car giant MG Rover when it collapsed with the loss of thousands of jobs face being banned from holding office again after a damning indictment today in a long-awaited report.
Business Secretary Lord Mandelson said work has started to begin proceedings against John Towers, Peter Beale, John Edwards and Nick Stephenson, the so-called Phoenix Four.
They bought the Longbridge-based firm from BMW for a nominal £10 in 2000 and paid themselves £9 million each between then and April 2005 when the firm went bust, with the loss of 6,300 jobs.
They also stand to make a further £3.2 million each from share schemes and dividends, it was revealed by inspectors.
The official report into the saga, which runs to two volumes, more than 800 pages and cost more than £16 million, claimed that MPs investigating what happened were given "inaccurate and misleading information" by one of the four directors.
The report also found evidence of questionable briefings to the press by Government officials.
Lord Mandelson said lawyers have already started work compiling evidence to bring proceedings against the four directors to prevent them holding company office in the future.
The former Rover directors immediately hit back.
They 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."
Inspectors revealed in the report that Mr Beale bought computer software to eliminate evidence the day after the Government announced the inquiry into Rover's collapse.
Inspectors looked at explanations the four directors gave to a select committee investigating the saga, and found that Mr Beale gave "inaccurate and misleading" explanations.
The report described the financial rewards to the Phoenix Four as "unreasonably large".
Bonuses were awarded by the directors to themselves for various "achievements" including "favourable performance of the company compared to the business plan" as well as establishing a joint venture partnership with a Chinese firm which did not proceed.
Justification given for the rewards was that they were comparable to the pay of young men in the City who were receiving substantial bonuses for contributing "very little", according to the report.
The inspectors also found that the financial remuneration given to a consultant appointed by the Phoenix Four was also excessive.
The report said the consultant appointed by Phoenix Venture Holdings, Dr Li, was having a personal relationship with Mr Stephenson.
She was employed on a full-time basis to provide consultancy services in connection with potential business collaborations and other opportunities with Chinese companies, said the report.
The inspectors found that Dr Li and companies associated with her received more than £1.6 million in the 15-month period up to April 2005.
Inspectors said they were given divergent accounts of how she came to be recruited in 2004, saying it was clear she was having a "personal relationship" with one of the directors, Mr Stephenson, in 2004.
One of the directors admitted there was no attempt to find out what the market rate was for services such as those provided by Dr Li and no one looked around to see what other consultants were available, according to today's report.
The inspectors found that a number of transactions to allocate assets away from MG Rover and to other companies were not for "management focus" but for the consortium's own benefits.
Statements made by the Phoenix Consortium, including to MPs and the select committee, said they had invested considerable sums and taken substantial financial risks when they had invested little and taken limited risks, the report claimed.
Concerns were raised about meetings and minutes of meetings that did not comply with formal requirements and in some cases this raised questions about the legal validity of certain transactions.
Directors of MG Rover, other than the Phoenix Four, were sometimes not given notice of, or even invited to, meetings so decisions were made on issues such as the establishment of Phoenix Venture Holdings that did not involve all directors.
Formal minutes of some meetings were incorrect and one particular presentation made to the MG Rover board was "inaccurate and misleading".
There were also occasions when decisions were taken by one or more members of the consortium alone without any board meeting being held or minutes produced, said the inspectors.
The report claimed that Mr Beale bought and installed software to delete material from his computer before it was assessed by the inspectors.
They also found that he ran this programme despite being aware of the inspectors' intention to review the contents of the computer for documents relevant to their work.
Particular aspects of Mr Beale's evidence in relation to this issue were said to be "untruthful".
And there was minor criticism of the role as auditor of Deloitte.
Labour MP Richard Burden, whose Birmingham Northfield constituency includes the Longbridge plant, said claims in the report that the Phoenix Four misled him as well as the select committee were "extremely serious".
He said: "If that is true, it means they not only misled me, but also my constituents, and the workers. They gave me certain assurances about the way the business was being run and said they were putting their hands in their pockets so it was reasonable to share in any profits."
Mr Burden said MGR Capital, MG Rover's finance and lease loan arm, is still in the process of being wound up and has assets of £22 million.
"That money needs to be used for the benefit of workers affected by the collapse of Rover. Part of it should go to the trust fund and money should also be reinvested in the redevelopment of Longbridge.
"I had hoped this would draw a line under the whole saga, but if they have misled MPs, these are serious allegations which need to be answered. If that means further proceedings, then so be it.
"The Phoenix directors have not answered these allegations. I want to know if they misled me."
Tory MP Julie Kirkbride, whose Bromsgrove constituency is home to many Longbridge workers, criticised the Government for allowing the Phoenix Four to buy MG Rover in the first place.
"This £16 million report has no surprising conclusions," she said.
"It was always obvious that the Phoenix Four pulled the wool over the eyes of the Government in having the company sold to them - as a result of which they were able to enrich themselves enormously.
"What is very sad is the naivety of ministers desperate that the company be sold to the Phoenix Four without understanding that it would make them into very rich men and the workers eventually redundant.
"There was a much better offer on the table at the time from John Moulton's Alchemy which would have involved making niche sports cars at Longbridge, employing some thousands of people and contributing to the automotive engineering base for which the West Midlands is famous."
Gemma Cartwright, the wife of a Longbridge worker who campaigned to save the jobs of those who were sacked, said the report would at least draw some form of line under the pain caused by MG Rover's collapse.
Liberal Democrat business spokesman John Thurso said: "After four years of delay and an eye-watering £16m of taxpayers' money, the lid has finally been lifted on the murky circumstances surrounding MG Rover's demise.
"This report tells an all too familiar story of greed and incompetence. Former Rover employees throughout the Midlands will be shaking their heads in disbelief at the colossal sums that the Phoenix Four made off with in pay and pensions. The Government needs to take action to ensure that this type of cynical asset stripping can never happen again.
"The one ray of light for those who lost their jobs is that the report's publication should now unlock access to a fund originally set up for the benefit of ex-employees. Lord Mandelson should immediately establish if this money can now be distributed among workers who lost their jobs.
"The Government's press briefings at a sensitive time in takeover negotiations were 'irresponsible' in the eyes of the inspectors. This is a damning verdict on the pervasiveness of New Labour's spin machine in the workings of Government."
A Downing Street spokesman said Gordon Brown has been briefed on the report and is keeping a "close eye on it", but said Lord Mandelson is taking detailed questions on its contents.
Asked about the evidence of questionable briefings by Government advisers, the spokesman said the "key point" was that the report said MG Rover would have gone into administration with or without the briefings.
But he added: "The Prime Minister always expects the highest standards from special advisers."
Peter Luff, Tory chairman of the business select committee, said he received a letter from Lord Mandelson drawing his attention to sections of the report that were likely to be considered by the group of MPs when they meet later this month.
He also said the committee would discuss what action could be taken if it had been misled.
"Given the committee's long-standing interest in the saga, it is unthinkable we would not take further steps in light of this report," Mr Luff said.
"We will determine what those steps will be when the committee meets in 10 days' time."
Unite called on the Phoenix Four to pay money promised to former MG workers.
Joint general secretary Tony Woodley said that when the firm went into administration, the Phoenix Four promised to put £2.5 million each into a trust for the workers, as well as money which was raised from the sale of assets including Studley Castle and MG Sports Tools.
It is estimated that the value of the trust could amount to £22 million.
Mr Woodley said: "The one thing the report cannot bring back is the jobs of 6,000 workers. What we are calling for now is the release of the money promised to workers and for it to be distributed fairly and evenly. We are asking the Phoenix Four and the bank concerned to act urgently."
GMB official Bert Hill said: "There is nothing in the report that we didn't know. We asked for an independent report and this isn't.
"The members think it's a cover-up. Lord Mandelson put all this to the Serious Fraud Office and nothing has been done. So why did he do that in the first place? What has happened to the hardship fund that the employees were promised and have not seen?"
Lord Mandelson said the Phoenix Four had "brass neck nerve" to describe the report as a witch-hunt and urged them now to "do the decent thing" and formally disqualify themselves from holding any future directorships.
In an interview with the Press Association, the Business Secretary said: "I think 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 their money as a result of this company's collapse."
Lord Mandelson rejected the former Rover directors' suggestions that the Government "bungled" the last chance to save the company, and that Gordon Brown had questions to answer about his role as chancellor in the decision not to provide a bridging loan.
"I think what is clear from the way in which these directors have spoken today is that they would say anything and do anything to cover up their own mistakes," he said.
"Even when the company collapsed, one of the directors bought computer software - Evidence Eliminator - to remove the evidence from his own computer of what had happened in the company.
"Another director lied to a select committee of the House of Commons, another director gave misleading information to Companies House.
"I am afraid that they have nowhere to turn and there is no point in them trying to shift the burden of responsibility in any direction except themselves.
"I think what they should do is go to Companies House and voluntarily disqualify themselves from acting as a director in future. If they don't, I shall start proceedings in the courts, but it would save time and effort and taxpayers' money if they could do it voluntarily."
Lord Mandelson said the completion of the inquiry should mean that funds held in Rover's employee trust fund should now be freed to help workers who lost their jobs.
"What I would like to see is the employee trust fund that was set up, which contains money that should have been disbursed already to them, now being opened up and the money distributed," he said.
"The directors have hidden behind this inquiry now for four years in not allowing this trust money to be used. I hope they don't drag their feet any longer and allow that money to go to where it properly belongs, which is with the former employees of Rover."
Lord Mandelson said it would have been improper for him to attempt to require the inquiry to report any quicker than it did.
"Of course, I am never happy for a report to take so long and cost so much, but equally I can't interfere and say 'you can only have so much money and you can only take so long'," he said.
"It would be quite improper for me to do that.
"Remember, they are covering an inquiry period that spanned five years, hundreds of thousands of pieces of paper had to be gone through and very many interviews by these inspectors.
"They have produced their report. They have reached their conclusions. They have pointed the finger of responsibility, I believe, where it is deserved. I hope the directors now will do the decent thing and disqualify themselves as directors in the future."
Shadow business secretary Ken Clarke said: "The inspectors quite rightly criticise the Phoenix Four and their chief executive, who seem to have enriched themselves at a time when MG Rover workers were losing their jobs.
"It is a pity that the inspectors did not think that the scope of the inquiry enabled them to go more precisely into the Government's role in the selection of the Phoenix bid.
"It is regrettable that they did not investigate the possible misuse of taxpayers' money when ministers put in £6.5 million in the middle of an election campaign to keep the company going beyond polling day.
"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.
"I can understand why Peter Mandelson was so reluctant for this report to come out because it reminds us of this whole sorry episode, from which Government ministers do not emerge with any credit."Reuse content