Phoenix four hit back at 'whitewash'

The so-called Phoenix Four hit back immediately today describing the report into the collapse of MG Rover as a "witch hunt".

John Towers, John Edwards, Nick Stephenson and Peter Beale, also defended their own pay packets while they were running the doomed firm, insisting it was all "above board".

This is what 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.

"The Government has spent £18 million of taxpayers' money on a report - many millions more than they ever gave MG Rover. Not surprisingly, they have got a version of events that suits their interests. There is no explanation for the Longbridge workers why MG Rover collapsed. As we predicted, it has failed them. Our remuneration was not the reason for the collapse. The real reason is the government bungled the last chance to save MG Rover.

"The script for this report had been written before the process started. The Inspectors were not interested in hearing about any of the fundamental business issues, and in virtual denial when it came to discussing the role of government.

"The government also tried to accuse us of fraud by referring the matter to the Serious Fraud Office - a tactic that failed. The latest indications are that Ministers will pursue disqualification proceedings against us, despite the fact that it is very well known that there is no possibility of us ever again considering this sort of role in the UK. It is political grandstanding.

"This report says nothing new about our remuneration - everyone knew what we were paid. It was never a secret. They did not have to spend £18 million to find that out. Our remuneration was all in the company accounts and signed off by Deloitte, one of the world's most respected firms of auditors. It was entirely legal, above board, and much less than similar payments in large car companies.

"Swept aside in this report is the fact that, in April 2000, the padlocks were going on the gates at Longbridge. The mighty BMW was closing the company and thousands of people were staring the dole in the face.

"That didn't happen because, when no one else wanted the job, we were not prepared to let it happen. The team we built succeeded in drastically reducing the company losses where BMW could not. We secured hundreds of millions of pounds of new investment and most importantly, secured employment for a workforce who received almost £1 billion in wages over five years whilst Chancellor Brown banked £450 million in taxes.

"Our greatest regret is that the company could not ultimately be saved. All of us had strong links to the company. Saving MG Rover was why we took the challenge on in the first place, not personal gain. The suggestion that we put personal gain ahead of the interests of MG Rover is utterly offensive and a complete travesty of the truth.

"One point which has been conveniently overlooked in the report, even though it was widely known, was that we agreed to put £10 million of our own funds back into the business to ensure the future of the company.

"We tried our best and to this day we are bitterly disappointed that when the moment came for the government to step up to the plate to help MG Rover, it didn't."

The directors went on: "Our motive for getting involved with MG Rover from the start was to do what we could to save the company and the jobs of thousands of workers.

"This was recognised widely in West Midlands at the time. We did not have a clue what our remuneration would be at the time we took over.

"We reject the accusation that we did not take risk. We were not particularly wealthy people and £240,000 for us was a significant commitment and we firmly believed we were liable for at least a proportion of the professional fees which eventually came to over £7 million.

"Our risk and commitment cannot just be measured in cash. We were successful professionals and we changed our whole lives.

"Our remuneration packages were in-keeping - or less - than the leaders and owners of other similar sized companies in the automotive industry and other industries.

"The report compares our remuneration with the likes of the people running Morgan cars. It is a ridiculous comparison - like comparing a supermarket with a local delicatessen.

"We find it offensive and untrue that we acted improperly in relation to remuneration. Everything was legal, fully disclosed and arranged in consultation with lawyers and corporate governance experts to ensure our remuneration was in order."

The four also defended their track records, under the headline 'Character Assassination'.

They said: "The government inspectors have attempted to portray us as being unqualified to run MG Rover and were motivated primarily by personal gain. Nothing could be further from the truth.

"John Towers, a CBE, had already successfully turned the Rover Group from loss to profit as a former managing director, John Edwards' family had been associated with the company since 1916, Peter Beale was a respected accountant, and Nick Stephenson, holder of the MacRobert Trophy, was regarded as one of the UK's most talented automotive engineers. He also led the team that designed the new Mini.

"During their investigations the inspectors deliberately rejected all evidence from us in relation to our achievements for the company during our tenure.

"Instead, they pursued a pre-ordained strategy of character assassination and ignored all evidence put to them to the contrary which didn't fit the picture they were trying to paint.

"They failed to establish any breach of fiduciary duty by us and failed to make any case that anything that had been done was illegal. There is no basis whatsoever for the government to seek our disqualification as directors.

"We could equally challenge the inspectors' competence to run such an inquiry. They continually demonstrated a complete lack of knowledge or understanding of the motor industry and very little understanding of business in general."

The directors said there was no alternative to the Phoenix Consortium's bid for Rover at the time.

They said: "The report itself makes clear that the so-called bid by Alchemy had been withdrawn. It also states that had the Alchemy bid gone ahead, Alchemy would have been paid £500 million by BMW, which was to have funded huge immediate job losses.

"The stark reality of the situation is that at the time, the BMW liquidation team had arrived at Birmingham Airport and were about to prepare for the closure of Longbridge - the end was that close and it is a day we as directors will never forget."

On the role of the Government and the then Department for Trade and Industry, the four said Rover received just £5 million in public subsidies while they were running the firm.

They said: "The Government has spent more money on this deeply flawed report than it ever put up to help MG Rover. MG Rover received less than £5 million in subsidy during our tenure as directors.

"In 2004, the DTI was already planning for the collapse of MG Rover - they called it contingency planning.

"News of this quickly got around the business community. The effect of this was to create the equivalent of a run on the bank by suppliers and dealers and seriously affected our business.

"This was commented upon by an investigation and report by the National Audit Office, which has been ignored completely in this report.

"Instead of planning for closure, the DTI could have helped MG Rover and its workforce by actively trying to help the company keep going."

The four said a £100 million government loan could have saved MG Rover.

They said: "From the outset we made it clear that MG Rover needed a joint venture to secure long term survival.

"After several attempts we were on the verge of securing a deal with Chinese car makers.

"The report's inspectors understood little about the actual deal being negotiated in China.

"They continually refer to SAIC (the Shanghai Automotive Industry Corporation) and its advisors Rothschild whereas the deal was actually being negotiated with a joint venture company, Donghua. This joint venture was set up on the insistence of the Chinese Government.

"The report supposedly details the final hours of the collapse of negotiations with the Chinese car manufacturers.

"However, it is clear from the report that officials in the DTI did not want to offer MG Rover the £100 million bridging loan even though Patricia Hewitt (the then trade and industry secretary) and Tony Blair (who was Prime Minister at the time) believed it should be done if possible.

"The report manifestly fails to explain the full role of the Treasury, the then Chancellor Gordon Brown and Shriti (now Baroness) Vadera, a treasury adviser, both of whom had a key role in the final decision on the loan.

"The Chinese only indicated they would not go ahead with the deal when they knew the UK government would not be making the loan to MG Rover.

"It is our firm belief that a combination of civil servants opposed to the loan and the failure of Brown and Vadera to openly support the proposal sent signals to the Chinese that the UK government was at best deeply uneasy about supporting Rover.

"In a country like China where government is central and very active with business and industry, this was the equivalent of a death blow. This, in turn, led the Chinese to halt negotiations.

"UK Government special advisors have been gently slapped over the wrists for leaking negative stories to the press at a critical stage in the proceedings. In reality this had a devastating effect on the business, creating an 11th hour stampede by suppliers. It was one of the final nails in the coffin.

"There was nothing more we could do. We had prolonged the life of Rover so that the supply chain could massively reduce its dependency on the company so that even were it to fail the consequences would be far less.

"We delivered the joint venture partner we always maintained would be required to ensure MG Rover had a long term future. We presented a deal that was so advanced that these government inspectors agree in their report it was there waiting to be done. We had guaranteed an unprecedented request from our government for £10 million of our own money to make it happen.

"For its part, our government had indicated it would lend the required bridging money: just £100 million. All that was required was that our government fulfilled its promise to push the deal over the line. That it could be relied upon not to dither and do a U-turn. It could not. And the workers at Longbridge and the UK taxpayers who support them have been paying the price since.

"Surprisingly, the government then offered MG Rover £6 million after the company collapsed, despite being told by the administrators that there was little possibility that the Chinese deal could be resurrected quickly. It was too little too late and reflected the DTI's lack of understanding of the process. The Chinese did eventually take over the business but at a human and financial cost that would have been very different had the original process been supported.

"It is also interesting that the inspectors have not commented on this issue of the £6 million despite much comment in the press."

On their running of MG Rover, the four defended the way it was restructured.

They said: "When we took over MG Rover BMW were suffering losses of £700 million a year. During our tenure we reduced those losses to £80 million per year.

"Other car manufacturers in the UK were being closed left right and centre. Ford closed Dagenham, Vauxhall closed Luton. Peugeot closed Coventry. The industry was going through a very difficult time. This is not reflected in the report at all.

"As directors, we secured more than £800 million of inward investment to MG Rover at the time from foreign investors, which was the biggest investment achieved in Europe.

"We have been accused unfairly of having a complex company structure. The criticisms of the structure of the company ignore business realities and ignore similar structures in other car companies.

"Protecting profitable areas of the company simply makes good business sense and is commonplace, and was done on the advice of the company's professional advisors.

"The group already consisted of 20 companies when it was taken over from BMW. Other companies were created to enable joint ventures and acquisitions, to reflect changes in shareholder structure and to protect intellectual property. The structure of (holding company) PVH was simple relative to other car companies.

"At the time BMW had 250 companies worldwide and 30 in the UK, DaimlerChrysler had 500 companies worldwide and PSA had 300. The inspectors deliberately ignored these comparisons because they did not fit their pre-decided narrative. They also ignored the fact that our structure and the transparency of our reporting meant that people knew more about the detailed activities of the company than ever before in its history. And to suggest that the structure made information about the group more difficult to discern is to ignore completely that all information such as that on remuneration was readily available in the notes to the accounts of the parent company every year.

"Profits made by other parts of the group were poured into the manufacturing activities to help their survival, for instance £23 million of profit resulting from the MGR Capital transaction was ploughed into MG Rover to help its operating costs. This was ignored by the inspectors, as was the fact that Xpart sale proceeds were sought and provided to fund MG Rover.

"It would be absurd to suggest that we did not make mistakes. For example, our efforts to seek a joint venture partner in China got off to a bad start, subsequently realising we had failed to comprehend fully the complexities of doing business in China. We succeeded in remedying the situation but it cost us valuable time. We learned from it. We also failed to engage properly with the media in the early days. Whilst we were reactive to negative PR we failed to understand the importance of positive PR to inform others of what we were trying to achieve with our business strategy. Hindsight is a wonderful thing but we learned from our mistakes and focused our concern at all times on the survival and future prospects for MG Rover - a company we were proud of, with a workforce for which we had the utmost respect."

In conclusion, the four said: "The directors submitted 325 pages of defence documents covering every aspect and every criticism in the report.

"These have been almost entirely ignored. The result of that is a report which is seriously flawed, prejudiced, incomplete, slanted towards Government and which - most damning of all - completely fails to explain why MG Rover was allowed to collapse."