News : MG Rover’s Accountants face Disciplinary Tribunal

Carole Nash Classic Insurance Specialists

Keith Adams

Deloitte

Reuters are reporting that MG Rover Group’s Accountants, Deloitte, will face a Disciplinary Tribunal later this month – the independent panel will be examining the firm’s conduct as Advisers and Auditors of MG Rover Group and the Phoenix Four Directors from 2000, when they acquired the UK carmaker from BMW Group for a nominal £10, until the company went into administration in May, 2005.

The Financial Reporting Council (FRC), which regulates Accountants, has appointed the independent Disciplinary Tribunal which will be assessing Deloitte’s advice to the Directors and whether that created a conflict with the best interests of MG Rover prior to the administration.

In the aftermath of MG Rover’s fall into administration and subsequent closure, it emerged that the Phoenix Four had paid themselves a whopping £40m in salaries, bonuses and pensions and, although the four faced no criminal charges at the time, they were disqualified from being Directors of any company for up to six years. It was the wages they paid themselves that was the big story – during the life of MG Rover, the Phoenix Four were the highest paid Automotive Industry executives in the UK.

The Financial Reporting Council said in 2012 that Deloitte and an employee, Maghsoud Einollahi, had failed to manage conflicts of interest between the Directors and MG Rover. Deloitte and Einollahi were corporate finance advisers to MG Rover and the Phoenix Four at the same time that Deloitte was auditing MG Rover’s accounts.

Deloitte disagreed with last year’s findings and an initial hearing of the FRC’s Formal Complaint took place before the Disciplinary Tribunal in March. The FRC has now confirmed that the hearing will resume on 29 July. Deloitte and Einollahi could face huge fines if the Disciplinary Tribunal upholds the FRC’s original findings. The news comes in the lead-up to the European Union’s approval of new laws which would prevent potential conflicts of interest between the auditing and advisory work done by accounting firms from arising in the future.

Keith Adams

Keith Adams

Editor and creator AROnline at AROnline
Created www.austin-rover.co.uk in 2001 and built it up to become the world's foremost reference source for all things BMC, Leyland and Rover Group, before renaming it AROnline in 2007.

Is the Editor of the Parkers website and price guide, formerly editor of Classic Car Weekly, and launch editor/creator of Modern Classics magazine. Has contributed to various motoring titles including Octane, Practical Classics, Evo, Honest John, CAR magazine, Autocar, Pistonheads, Diesel Car, Practical Performance Car, Performance French Car, Car Mechanics, Jaguar World Monthly, MG Enthusiast, Modern MINI, Practical Classics, Fifth Gear Website, Radio 4, and the the Motoring Independent...

Likes 'conditionally challenged' motors and taking them on unfeasible adventures all across Europe.
Keith Adams

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38 Comments

  1. Seeing the mess left by SAIC letting the company fold, maybe it should be the government who should be looked at for not supporting MG Rover more. After all, just look at what Tata has achieved with Jaguar, MG Rover were there first and had the Government been more on their side we might see Tata owning BOTH Jaguar Land Rover and MG Rover.

  2. I’m not normally taken to outright anger but 40 million – I might make an exception here!
    For goodness sake how can these guys get away with that? If the whole bloomin thing had been the biggest success story of the decade – people would still have coughed – but to fail the men, the history, the name and the country so appallingly must be some kind historic record!
    Someone write a book dedicated to this fiasco – please.

  3. Well all i can say is so what? why enrage yourselves that four company directors of a private company so it is alledged enrich themselves to the tune of £40 million while in the stewardship of a company BMW could not wait to ditch due to pension liabilities,never mind the losses.

    I would be more angry that PWC raked off £30 million while dismantling the assets and fabric of the company when it went into administration -only doing their jobs mind just like Deloitte do,advising on tax loopholes and the like.

    What will happen? nothing at all,just like the banks.

  4. @7, We can all lament this sad story a hundred times over,the products was not selling enough to light the place never mind pay the wages. When Longbridge closed for the last time and those dejected workers was walking out of those gates i cried my eyes out,to this day i cannot explain why,it was like being defeated in a war.

  5. Now imagine if all that money had been spent on proper replacements for the Rover 45/MG ZS and their little brothers the Rover 25 and MG ZR. Would they be owned by the chinese? Maybe, but it might have been a stake instead of whole ownership.

  6. @6 There is no comparison between the JLR that Tata bought and MG Rover. Although struggling at the time JLR was very much a going concern with a healthy pipeline of new models to be launched within a short timescale. Rover was totally finished, running on air and with no new product except that hideous clay model of a Rover 75 based Hatchback thing. There is no way Rover could have attracted the investment that JLR has had and it would have been criminal for any Government to pump vast amounts of public money into the business just to keep production lines pumping out cars that no buyers existed for.

  7. These 4 (and if you include Kevin Howe), 5 business men started outbwith good intentions. Once they realised they were up to their necks in it, they took what they could.
    Rightly or wrongly, no more money should be spent picking over the bones of MGR’s failure. It was over 8 years ago, and the loss of 6000 jobs has been made up i am sure by JLR.

    As a footnote, I do not see the likes of Fred Goodwin et al being investigated in the same way as these 4 Brummie chancers, who without a doubt created far greater havoc that is still affecting us all even today…

  8. No5 on related posts is sure to be a good read, i have downloaded both parts and it shows the nuts and bolts of the fiasco including Alchemy partners etc.

    Which regardless of Towers and co,the whole saga is a fiasco.

  9. The previous Government is hardly blameless. BMW had a done a deal with Alchemy, but this was politically unacceptable due to job losses. Perhaps if Alchemy were successful with their bid, Longbridge would still be producing sports cars and not been used for storage of Chinese imports.

  10. A couple of points to remember from all this: the Directors of Phoenix Venture Holdings were advised to voluntarily disqualify themselves as being directors of any company for six years, rather than leave it to where they would actually be disqualified by any governing body. This they did. Secondly, the amount they paid themselves was not considered illegal, more morally excessive for a company that was still making huge losses.

    The full story of what has happened at MG Rover Group taking into account all perspectives has never been reported. After all, how many of us would love to hear the full (and complete) side of the story from the point of view of the Directors of Phoenix Venture Holdings? Then we could make a more rounded, academic judgement beyond the Government’s official report and the limited perspective the media has chosen to cover this story from.

    And before someone puts the boot in, I am not supporting what actions the directors of Phoenix Venture Holdings took, how much they paid themselves or excusing them for some highly questionable decisions they made along the way. The have been investigated and the decision made public. This latest news is about the accountants who had been entrusted to advise them.

    As for investing £40 million in the products, what would it have achieved in the long run? The products were ageing and, with the exception of the Rover 75, there was little left that could be done to inject further new life into them. The new car market and consumers knew that only too well. MG Rover Group was at the point where it needed genuinely all new products, but no confirmed strategy or funding to achieve this. On a tiny budget, a replacement for the MG TF would have cost £200 million, a new replacement for the 25/ZR with all-new bodies and platform nearer £300 million, and a similar amount for the 45/ZS replacement. £40 million, in terms of product development, was almost small change in relation to the real cost of designing and engineering all new models to give the company a continued competitive presence in the new car market.

  11. Stop defending the directors, instead of trying to fix the company, they kept it going long enough to trouser as much money as possible. For them to award themselves for that failure is an absolute disgrace, but it sums up too much of British business.

  12. @17 Its called commerce,however dirty it may be morally or otherwise,was BAE squeeky clean having bought the company for a tenner and then trousering short of a Billion out of BMW?
    As regard the directors disqualifying themselves-it was personal and politcal damage limitation because never ever in a million years could they legally be disqualified,never.

    £40 million quid? Ford spend that on door handle design,so why folk are up in arms now is beyond me,that the banks have bankrupted us and even worse me and you bail them out like its our fault is far more important-put all those bankers up against a wall for me,let off the hook by our own government.

  13. @9 That £40m came from BMW. BMW left MG Rover a Dowry worth £1bn in cash and unsold stock in 2000. It took 5 years to burn through that money and the proceeds from sale and leaseback of Longbridge from St Modwen properties. The £40m was salted away right at the beginning – The four knowing it was a lost cause from day 1. All they had to do then was sit back and wait for the rest of the money to run out before riding off into the sunset.

  14. @ Paul H:

    The Dowry given to the directors of Phoenix Venture Holdings comprised of £427 million in cash and up to 40,000 unsold cars. The cars could not be sold all at once, bearing in mind the negative impact it would have had on the residual values of existing MG and Rover cars at an uncertain period in the company’s trading. This number of unsold cars together with what was coming off the assembly line would have simply flooded the market. The existing stock of unsold cars had to be gradually sold through the dealer network over a few years (and at a discounted price) to help maintain some form of residual value stability.

    As for the £427 million dowry, MG Rover Group was on its own and this money had to cover the day-to-day running costs of what was still a medium-sized manufacturer, fund new development programmes (initially putting the 75 Tourer and MG Z derivatives into production) and funding marketing and promotion. This latter point also included in some export markets where the main national sales company had changed, due to Rover dealers having previously been linked in with Land Rover and/or BMW dealers.

    £427 million is actually quite a small amount of money for a medium sized independent car manufacturer to survive on beyond the short term with no collaborative venues or shared synergies in place. After all, look at how big the losses were for Saab in just two years of independent ownership compared to those racked by MG Rover Group and its associate companies over a near five year period.

  15. @19, The money did not come out of our pockets did it? As the post from David3500 so eloquently states they did not merely salt away money and reap the rewards-that would have been Alchemy partnerships plan,to break up the company,shut Longbridge and become a niche sports car maker-and up like TVR orin the shit like Lotus,i believe P4 really did want this to work right until the end,even though the Chinese swerved them.

  16. For all their perceived faults, BMW/MINI at least have the sensible approach to car production – build them when they are ordered. From what you have said in your above comment, David 3500, they still kept producing cars when 40,000 sat unsold, adding to the stockpile. Trying to sell them at a trickle only exacerbated the problem, so there was only ever going to be one outcome.
    For all the good intentions they had trying to save jobs, they should have been more ruthless and cut the cost base and reduced the manpower, producing cars at a rate that was realistic according to demand. You therefore could argue they took what they could for themselves despite demonstrating incompetent management judgement. In the end, they deserve a fair bit of the criticism they got

  17. @ 21
    I think you are right, and the Chinese did do the dirty, but by the same token they shouldn’t have signed anything until there were guarantees that the money was coming and couldn’t be stopped. I think they were so desperate to try and save the company they ignored all the rules of good business and paid the price in the end.

  18. @23, I think they was desparate,and setting personal failures aside,if i was in their shoes i would have sold my grandma to keep the gates open and not have to face 5000 staff and tell them i have let them down.

  19. Where do you start with this one? So many failures and mistakes for so many years. But if we look at the more recent decisions for example: HHR was a step backwards after the R8 and 600.

    Rebranding the already slow selling and expensive 200 and 400 as 25 & 45 and trying to convince car buying public these were brand new models was never going to work. Should have been a much more radical change, even if they had to borrow the funds. HHR being ditched first, with all that Honda IPR, part of the proceeds of the cars did sell went to Honda.

    When the P4 took over the model line up and staff levels needed immediate attention. Instead, they buy a failed Italian niche car company to make a halo model MG, set up a Le Mans MG team and develop the V8 rear drive Rover 75/ZT. Too much effort making cars no one was buying. Getting the bread and butter models right first should have been priority.

    Mind you, what do I know? I’ve never run a car company. I am a car consumer though, and I notice what people buy, did the P4?

    Maybe Alan Sugar should have been given a chance.

  20. I still belive the Alchemy way would possibly have saved MG Rover. 1st thing, kill the 25/45 day one. Keep the F and the 75. Federalise both, launch the MGF in the US, followed by the 75 and the ZT (V6 only for the US), then do the V8 and the SV, Both would work in the US. Once things were looking up start work on replaceing the 25 and 45, simple fatc is as they were those two models were damageing rovers credibilty

    In trying to keep ALL the jobs the P4 killed the company, I belvie had they done the above all the jobs lost by killing the 25 and 45 would have been returned by now

  21. @26, I think the more BMW looked into the Alchemy partners strategy the more even their eyebrowswas raised,they would have been worried by the job losses and the fall back on them. The plan had no legs.

    P4 tried their best i think and boy did it fail,having read the excellent book END OF THE LINE it changed my thinking on the whole matter, to keep Longbridge viable -which is all P4 really got in terms of factories the place had to produce and sell well over 350k units a year just to cover the overheads,wages etc.

  22. @ Stewart:

    Another issue of the Alchemy Partners strategy was to kill off the Rover name and focus on just the MG name. This would have likely been a flawed move as the MG name does not command universal appeal in all market territories, with the Rover name being well regarded outside the UK in a number of export markets.

    Also, as mentioned elsewhere on another story, if you do a like-for-like comparison between the MG Z saloons built from 2002 until 2004 (2002 being the first full year of production) and their Rover counterparts, the Rover models consistently outsold them by a sizeable margin, according to SMMT figures. Only in the last few months of MG Rover Group trading did the MG ZR suddenly become the company’s best-selling model.

    The Rover 25 was actually the company’s best selling model in 2000 and 2001, so it made no commercial sense to kill it off. The success of the MG ZR – nearly 80,000 examples built in just under four years – further confirms the appeal of this Supermini model.

  23. Let’s not forget that before the Phoenix Four got their grubby little mits on what was left, BMW had asset stripped anything worth anything at all from MGR, the trade off for MGR keeping 75 was the loss of Mini which BMW wanted all along anyway, and now look what’s happened there.

    They also sold the Rover brand to the Indians eventually, leaving the Chinese to set up the Roewe brand, and of course sold Land Rover to Jaguar (Ford) who sold all of that to the Indians.

    I think BMW saw something in MGR – but only MINI and had to save face by showing willing in the meantime till they could fill their faces and back out. SAIC stood back making a business decision knowing that NAC would pick up the pieces of what was left, and they would pick up NAC, as the overall organisation has since done with what was left of LDV.

    We can’t predict what would have happened, but MGR would have stood a fighting chance if BMW weren’t only in it for themselves – yes, this may be business, but that’s a lame excuse. To compound the problem, the Phoenix Four turned out to be no better than BMW – taking everything they could, and all of the above will forever wrankle with me.

    As for the Government, the Labour administraton wouldn’t do a thing tangibly, yet I now note that the current Government has thrown some money at Toyota. Lessons learned perhaps, but too late for MGR, best wishes to the Chinese who I really would like to stick one up at the Munich lot with their long game however frustrating it appears to many of us. (Pietschrider is excluded – (even though I know he’s long gone) I think he was the only one who gave a real damn for MGR)

    This latest investigation of Deloitte may be a little too late, but irrespective of the timing, these things cannot go on unchecked for ever and such things must be done.

  24. @12 here here. There’s no way that any sane person would pump good money after bad.. And I’m sure I read somewhere even Ricardo advised SAIC not to buy in the state it was in, pre-liquidation.

  25. I’d thoroughly recommend a read of the report “Who killed MG Rover?” by Matthias Holweg and Nick Oliver of the Cambridge-MIT Institute. Published in April 2005 – thus with no hindsight – it still gives, to my mind, the most persuasive and independent analysis of the company and the market in which it was (dis)functioning.

    Better still, our dear host is quoted and, at 30-odd pages, the report won’t kill your printer.

  26. It would be nice, if Deloitte are found to have been in the wrong, that a large percentage of any financial penalty was shared amongst those directly impacted by the closure.

    It sometimes feels like the public and the workers simply have to accept a kick in the teeth and deal with it whilst those at the top share the pot of gold.

  27. The government for years pumped money into BL/ARG and could not wait for BAE to buy it for a tenner-possibly Rovers best years with this company,France has the same problem with Renault,only if you let that company flounder you would have civil war.

    Business is a grubby affair sometimes,blaming BMW is too simplistic,its shareholders wanted out and fast.

  28. The £40M the Phoenix Four paid themselves was not some illegal matter, just excessive especially given the state of the company. Yet another case of bad management. The fact the accountants are now being investigated is a further question mark over management issues. It’s also incredible to think that PWC creamed off £30m from the whole mess.
    However, all this misses the fundamental point. MGR had ageing products (although not the 75 in 2000) and no funds to develop a new range of cars. MGR did not even have sufficient to offer in a joint venture deal (hence NAC, SAIC waited for them to go bust). Ultimately, the company was doomed when BMW pulled out. In many ways MGR did well to keep going for so long, the Zeds being a notable achievement as is the strong following their cars still have amongst many.

  29. @26

    Gotta disagree. Lived here for 31 years.

    No way they have afforded federalizing the 75 and MGF for the USA. Leyland, Rover, Sterling had already pulled the plug here too many times. No credibility here.

    Just setting up a dealer network would have been impossible, most state laws require that dealers be independent from the factories. No selling direct.

    The market for small sports cars is not large, only the Miata has survived . The Solstice died with Pontiac. Even Toyota couldn’t sell enough MR2’s here and cars like 75 would not have sold at a good enough margin. You need a 5-6 model range and lots of $$$.

  30. It really is time they laid this to rest, it’s over 8 years ago now, I’m as appalled at the whole sorry state of affairs as the rest, but fundamentally, whatever part certain people played, MG Rover simply didn’t make cars that people wanted, people didn’t buy them and the company went bust. What next? a public enquiry into the public’s part in the downfall? Let it go, this will undoubtedly be costing the taxpayer, you and I, yet more money for yet another enquiry into the bloomin obvious.

  31. The P4 bought MG Rover from BMW knowing full well that ONLY finding a larger partner would in any way ensure survival and said so at the time. They must have known the state of the market for their products and also knew they could not develop new ones without external cash and lots of it.

    BMW bought Land Rover technology and heritage for about the cost of developing their own 4-wheel drive themselves AND saved themselves at least four years in the process. They got a car company which they didn’t particularly want, too. Now Pietschrider and others in BMW must have thought let’s see what can be done with this freebie. And they certainly did have a go; developing the 75 and creating Mini (definitely a BMW, it was not the car Rover wanted).

    At the end of the day BMW knew they could close Rover, or better: asset strip and this they did. I reckon that over the whole time of BMW’s ownership BMW probably came out in profit. Sales to Ford, Mini, 4-wheel drive and their own sales growth in the UK since they got Rover. It all adds up nicely. By the time of 75s launch, however, it was over. A lack of UK government support ended BMW’s commitment and Pietschrider’s fatal announcement killed both the 75 and BMW’s involvement stone dead.

    The money P4 took for themselves was insufficient to influence new models or save jobs in any way. Their one strategy was to find a partner in an increasingly disinterested market. I think they did a remarkable job in developing the Z cars and releasing the 75 tourers. It showed life in the old dog in the way I’m sure they thought racing and supercars would also do. Everything designed to make themselves attractive to the partner who never existed.

    Selling the land and leasing it back must have been desperation and surely signalled to the rest of business how terminal the condition was. Probably nothing else to be done by then other than close which happened anyway as the Chinese took advantage of the situation.

    You can accuse the P4 of immorality or being insensitive or unethical or any number of other negatives, even being of being stupid and greedy. I don’t think they were stupid possibly they were naive – I don’t know I’ve never had to deal with big businessmen negotiating over millions of pounds. As to greedy, well how many of you would have taken a more moral stand knowing there was nothing you could do to save the company anyway? We live in a greed ‘Me’ culture after all.

    Maybe there were dirty dealings along the way; seems to me that’s about normal in business, where the only crime ever committed is being caught in the act. Perhaps, knowing their only hope was a partner, they simply did their best. Sadly it just wasn’t good enough.

    The accountants cream millions and often for giving the wrong advice. No bloody surprise there, then. And less surprise when little or nothing is done about them.

    ‘Rover’ was dying from the moment Leyland took over/merged with the cancer-riddled BMC all those years ago. And was taken off life-support by Thatcher getting her chum at BAC to hold the corpse for as long as it took to hide the politics under time and a facade of private enterprise. One of the shabbiest and most cowardly deals in the history of British business. Honda might have kept the name alive, in the UK at least, but that option was closed by BAC who had no interest outside their core anyway (and yes, I do know they had their own problems along the way).

    I think there are four or five big accountancy firms who basically run the profession here and make sure the government does it’s share to maximise their profits. Bit of a bugger all round. Leaves you, me and Rover nowhere.

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