---

MG Rover

Those who have seen ““The Rotters' Club”” on the television or read the book may understand a little more about my links to MG Rover. Jonathan Coe, the author of the book, which is semi-autobiographical, travelled on the same bus as me to school in my teenage years, and we used to pass the Longbridge plant. The historic importance of Leyland and MG Rover in Birmingham cannot be denied. My history with the Phoenix consortium goes back to 2000, when I brought it together. The original arrangement was that I would chair the consequent company, but from the first meeting on 31 March 2005, in the offices of Old Mutual—previously Albert E. Sharp—it was clear that John Towers did not want any community or workforce scrutiny on the board, and although there was agreement for the work force to have shares, they ended up disfranchised and the shares were essentially worthless. In April, community scrutiny was pushed out using the argument that BMW would not do the deal if community representatives remained involved. I considered what might be needed to enforce a scrutiny process in 2003; I got no external support, but did receive legal threats from one of the Phoenix Venture Holdings directors. I have been known not to be positive about John Towers and his leadership of the company for five years. However, it is wrong simply to blame the directors for today's situation. Errors were made, but it took quite a few cooks to spoil this particular broth. The insolvency caused massive problems in the west midlands, not least because it was unexpected. The deal with Shanghai Automotive Industry Corporation had been running smoothly for some time. It involved a payment of more than £200 million to MG Rover, which would have enabled us to discover the holy grail of a stable and profitable company working as part of an international manufacturing partnership, which is what everyone sought. Insolvency is a complex aspect of company law. The issue that matters is not whether a company is insolvent on a particular day, but whether the directors believe that it will be able to pay its debts. The important legal issue is wrongful trading; if the directors believe that the company would be wrongfully trading because it could not pay its debts, it should go into some form of insolvency. If they believe that things can come good, however, it can continue trading. At a board meeting held on 17 December 2004, it was recognised that the company was balance-sheet insolvent, and therefore depended on the SAIC deal being likely to happen in order to continue trading. A letter of intent was signed on 17 December 2004 that specified completion milestones. SAIC had paid £37 million in September 2004 and £30 million on 13th January 2005. There were people from Birmingham who had gone across to China. The deal was going forward. The intellectual property is of no value without the people who know how to do things. One could not do anything in isolation. This is where the Department of Trade and Industry got involved. Obviously, the company was burning cash, and a bridging loan was needed to handle its position until the Chinese Government could go through the regulatory processes and agree the deal. A due diligence exercise was undertaken by the DTI's accountants and lawyers, and the facility was approved in principle. Loan documentation was prepared and circulated. Within that period, on 28 February 2005, a revised letter of intent was signed by SAIC, Nanjing Automotive, the company and PVH, agreeing to a further cash amount of £201.5 million, which would be paid progressively over a period. On 8 April in Shanghai—which was 7 April in Birmingham—the DTI indicated to the Phoenix directors that they did not think that the conditions they had set for providing the loan would be achieved. Without the loan, the deal with SAIC could not go through. As soon as the deal with SAIC was unlikely to happen, the company was in wrongful trading. That is the key issue: how we got from a position in which a deal would have sorted everything out, to one where it went all wrong. There were a few very odd things that came from the DTI—and this is where, to an extent, I agree with the hon. Member for Bromsgrove (Miss Kirkbride), although I disagree with her idea that we always knew we would end up here. I very much agree with what the hon. Member for Birmingham, Northfield (Richard Burden) said about there being no no-go areas for the inquiry, and the idea that nationally, MG Rover has been talked down. It was not the case that we always knew that we would be here. It would have been entirely possible for the deal with SAIC to continue. The fact that the interest there remains shows that that was entirely possible. I now come to the odd behaviour of the Department of Trade and Industry. The first thing was going public about the bridging loan on 1 April. That was a massively sensitive piece of information. It had the effect of undermining credibility in the company, of increasing the working capital requirement by about £50 million, and of leading traders to refuse to trade with the company the following week. That information should not have been made public. Secondly, the DTI announced that the company was going into administration. It is not up to the DTI to make that sort of decision. It is not up to the DTI Minister to tell the company to go into administration. Ministers may have a view, but they should keep it to themselves. They should not hold a press conference saying that the company is going into administration. It is a decision for the board to take.