Page last updated at 15:47 GMT, Monday, 6 July 2009 16:47 UK

MG Rover in fraud investigation

Lord Mandelson: SFO investigation into MG Rover is a "necessary step"

The Serious Fraud Office (SFO) is to investigate the circumstances surrounding the demise of Birmingham-based carmaker MG Rover in 2005.

Business Secretary Lord Mandelson said in a statement that the SFO must see if there are "grounds for prosecution".

It follows a four-year inquiry into the collapse, which led to 6,000 job cuts.

A spokesman for the four executives in control of MG Rover at the time called the decision "mystifying" and said there was no evidence of fraud.

Lord Mandelson told the BBC: "The inspectors have done a very thorough job - it's certainly taken a long time - and they need to place their analysis and their conclusions to the SFO for them to examine and reach their own view."

"I don't think it's going to take an excessive amount of time but it's a necessary step to take."

A spokesman for the MG Rover directors said: "The announcement today is mystifying given that at no stage during the last four years of the government inspectors' investigation has there been any suggestion of fraud or criminal activity of any kind.

"Both the National Audit Office and the MG Rover administrators, PWC, carried out thorough investigations into the company's affairs and concluded there was no evidence whatsoever of any wrongdoing."

2000: Sold by BMW to the Phoenix Four for £10
2000-2004: Made losses of £611m in the first four years
2004: Started talks with Shanghai Automotive Industry Corporation (SAIC)
2005: SAIC pulled out of a deal to save the whole company and MG Rover goes into administration
2006: MG Rover's assets sold to Nanjing Automobile
2007: Nanjing resumes MG production at the Longbridge plant

When the MG plant at Longbridge, Birmingham, closed, the government announced a £150m support package for those losing their jobs and for the estimated 12,500 people affected in subsidiary firms.

The Business Innovation and Skills Minister Ian Lucas faced tough questioning in the House of Commons from opposition MPs as to why the initial inquiry will not be made public.

Conservative MPs Ken Clarke, Julie Kirkbride and Andrew Mackay all pressed the minister on the matter.

Mr Clarke said that "the government's consistent approach to difficult questions about the car industry has always been to put them in the long grass."

Mr Lucas said that following legal advice, the results of the initial inquiry would "not be published at this time in order to make sure any criminal investigation will not be prejudiced."

He repeatedly stated that it would not be appropriate to comment on the inquiry.

Report delayed

The new investigation comes after the completion of a four-year inquiry under section 432 of the Companies Act by inspectors appointed by the Department for Business, Innovation and Skills.

Part of that investigation was supposed to find out what had happened to the more than £400m left to Phoenix Ventures when it took over MG Rover from BMW in 2000.

The publication of the report by the business department's inspectors will now be delayed pending a decision on whether there will be criminal prosecutions.

But Professor David Bailey, director of Coventry University Business School, said he did not want to see the report stalled any further.

"I'd like to see that [report] in the public domain because workers, suppliers and communities affected by this do deserve some answers."

He added that while it was right that the SFO was brought in if there was "inappropriate behaviour or the suspicion of it", he was surprised that it had taken four years.

Phoenix Four

MG Rover went into administration under insolvency procedures in April 2005, with debts of more than £1bn. Its assets were sold in 2006 to China's Nanjing Automobile, which revived the MG sports car brand.

Ramsay Smith, speaking for the Phoenix Group: 'There is no basis whatsoever for an investigation'

A quartet of executives known as the Phoenix Four had taken control of the company in May 2000 after originally buying MG Rover for a nominal £10.

The business came with an interest-free loan of £427m from BMW, the previous owner.

BBC business editor Robert Peston said that John Towers, Nick Stephenson, Peter Beale and John Edwards had taken an estimated £40m in pay and pensions in the years before the business went down.

But their spokesman said the figure was actually closer to £30m, made up of £8.5m in pay and bonuses, £12m in pensions and £10m from the sale of a 60% stake to dealers and employees.

The Commons public accounts committee criticised the government in 2006 for being too distant from Phoenix Ventures and not sufficiently prepared for its demise.

Professor Bailey said that the inspectors' inquiry that has yet to come out should be critical of the government and its industrial policy as well as the company.

'Critical government role'

"People will inevitably wonder why, after four years of investigation costing the taxpayers' £16m, we are now facing another protracted period of investigation," said a spokesman for the directors.

There are likely to be questions raised about why the case has been referred to the SFO only after completion of the inspectors' inquiry
BBC business editor Robert Peston

"The government's role in this whole affair was critical and the 6,000 workers who lost their jobs deserve to know what part ministers and their advisers played in the decision-making which ended in the collapse of MG Rover.

"People, particularly in the West Midlands, want to know why the government withdrew its offer of a loan to the company at the 11th hour which would have helped secure a deal with Chinese carmakers and gone a long way to saving MG Rover."

They also said the government had refused more than 30 requests under the Freedom of Information Act that would have revealed correspondence and documents.

They said these would have "shed some light on the government's role in the affair".

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Irish Times Rover report due in 20 days - 6 hrs ago
Mail Online UK Gordon Brown was 'responsible for letting MG Rover go bust' - 7 hrs ago
Financial Times Government denies MG Rover allegations - 9 hrs ago
Times Online MG Rover ex-directors accuse Brown - 9 hrs ago
Channel 4 News confirms Rover investigation - 18 hrs ago

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