Tuesday, 14 April 2015

Deloitte stung by its MG Rover failures

Accountants Deloitte has been fined £3 million for failings with regard to the collapse of UK carmaker MG Rover a decade ago.

It is believed the penalty is the largest issued by the Financial Reporting Council against a firm of accountants.

The collapse of MG Rover and the loss of 6,000 jobs hit newspaper headlines at the time. The company had been purchased for £10 by a group of investors who became known as the Phoenix Four – four businessmen who formed Phoenix Venture Holdings (PVH) or the Phoenix Consortium.

Phoenix Venture Holdings was formed by John Towers, Peter Beale, Nick Stephenson and John Edwards. It was a device the four used to buy Rover group from BMW.

Following BMW’s break-up of Rover Group, the German carmaker used a financially complex deal that involved BMW making available a £500 million "dowry payment" to the purchaser of Rover Group to help with the transition following acquisition.

PVH purchased the Rover marque in May 2000 for the notional sum of £10, and relaunched the car company as MG Rover.

All four men previously had been directors of Rover Group so were well acquainted with the running of the company – its strengths and weaknesses.

However, in a surprise move five years later, MG Rover and its related companies were placed in administration on 8 April 2005. The men who seemingly knew Rover Group so well had managed to run the company into the ground, for one reason or another.

Four years later and after spending £16 million, the UK Government finally released a report investigating the collapse of the company. The report, concerned only with dealing with the directors and their actions while MG-Rover Group was still trading, revealed that the five executives involved extracted £42 million in pay and pensions from the troubled firm before it collapsed.

What angered MG Rover workers was the revelation that when the company collapsed, it was reported the carmaker had debts totalling £1.4 billion, while it was alleged the Phoenix Four managed to syphon off £42 million from the company.

Last October, in a further twist of the knife for ex MG Rover workers, it was reported that the 'Phoenix Four’ group of directors, who were heavily criticised in the collapse of MG Rover nearly a decade previously, were due to receive more than £1 million pounds each from the ruins of the car maker.

Towers, Stephenson, Beale and Edwards were reported to be in line for the pay-out stemming the liquidation of MGR Capital, a car finance joint venture set up with UK bank HBOS, which is now part of Lloyds. John Towers had been head of Rover Group.

The liquidator, Paul Stanley of Begbies Traynor, had banked more than £23 million from MGR Capital after MG Rover collapsed in 2005, but the cash remained trapped   legal limbo while the pensions regulator prepared a claim.

That deal was struck and the Phoenix Four, along with MG Rover’s former chief executive Kevin Howe, received millions of pound thanks to their 49.9 per cent stake held in MGR Capital. Intriguingly, the stake was held through a trust owned by Beale and Edwards.

In the latest move involving Deloitte, the firm of accountants which audited the accountants of MG Rover, was found guilty of five of the 13 charges brought against it.

The professional services company was also given a ‘severe reprimand’, a permanent ‘stain’ on its character which could hamper it from winning further business.

It is understood that initially a fine of £14 million was proposed but Deloitte managed to have this reduced by a factor of nearly five by lodging an appeal.

Initially, Deloitte had been found guilty of all 13 charges, including continued deliberate serious misconduct and acting against the public interest. But eight of the charges, including these two were struck off by the appeals court.

It would seem that this most recent move will draw a line under the MG Rover affair.

But will it? For, possibly more to the point, in 2017 the ban on each of the Phoenix Four holding directorships of UK companies will expire.

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