In a tale of financial engineering and dubious corporate governance standards, the consortium of businessmen behind the collapsed British car company, MG Rover, face being banned as company directors following the publication of a Government report investigating their role in the company’s demise.
Former Rover executive John Towers, Rover dealer John Edwards, Peter Beale, a board director of Edwards Cars, and Nick Stephenson, an MG Rover director under BMW, the so-called “Phoenix Four”, bought the company for a nominal £10 from BMW in May 2000. The report reveals that as part of the original deal with BMW, the Germans had agreed to hand over an extra £75 million to cover warranty commitments. A number of schemes were then considered which would have given the directors personal options over the dowry.
The Phoenix Four expected BMW to pay the full amount up front, but only £10 million was ultimately handed to them in the form of loan notes. To make up for the shortfall the directors decided to pay themselves an average of over £1 million in salaries, pension and benefits in the five years before the company finally collapsed under the strain of its £1.3 billion debts.
Their compensation, the report said, was “out of all proportion to the incomes which they had previously commanded,” were out of line with compensation at other companies and “which were not obviously demanded by their qualifications and experience.”
The former directors have denied that their pay contributed to the collapse and have rebutted the report in the strongest terms accusing the Government of “bungling the last chance to save MG Rover”.
The 850-page report, which cost £16m and took four years to produce, clears the directors of any illegality or breach of fiduciary duty and does not explicitly recommend that they are barred from being directors. However, Business Secretary Peter Mandelson has taken independent advice from a QC and asked the Treasury Solicitor to begin proceedings against the four which would, if successful, lead to them being declared unfit to hold directorships.
In the meantime, Unite, Britain’s biggest trade union, is calling on the Phoenix Four to pay what was promised to over 6000 former MG workers. At the time the company 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. The value of the trust could amount to £22 million. However the directors decided to delay the payments into the trust, while the inspectors’ investigation took place into the actions of the former directors.
Unite’s joint general secretary, Tony Woodley said: “The one thing the report can not bring back is the jobs of 6000 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.”