Accountancy Firm sees MG Rover Fine Cut
The accountancy firm of Deloitte has seen its £14 million fine, which was imposed because of its dealings with the failed MG Rover car company, cut to just £3 million on appeal.
The substantially reduced penalty was the result of a successful appeals tribunal which overturned many of the charges that had been brought against the company by the regulator, the Financial Reporting Council (FRC). The appeals tribunal also reduced the fine given to Maghsoud Einollahi, a former Deloitte partner, to £175,000 from the earlier £250,000 that had been imposed. Mr Einollahi also had a three-year suspension from practising accountancy overturned, although both he and Deloitte were given a severe reprimand.
UK car maker MG Rover went into administration in 2005. It had debts of around £1.4 billion, and thousands of workers lost their jobs as a result of the failure. In 2000, the firm had been bought by a group of businessmen who came to be called the Phoenix Four. They paid just £10 for the company. In 2012 the FRC filed a complaint against Deloitte in connection with their dealings with the firm and the original fines were handed down in 2013. In January 2015, an appeal tribunal dismissed two charges relating to a scheme to get rid of MG Rover’s loan book but upheld five other charges, including the failure by Deloitte to properly identify a conflict of interest which was caused by the accountancy firm advising the Phoenix Four and MG Rover at the same time. The appeals panel also overturned all six charges in relation to a scheme in 2002 to offset losses in MG Rover for tax purposes.
The story of MG Rover is a complex one. The firm was one of the remnants of the giant publicly owned British car firm British Leyland (BL). In the 1980s, BL was privatised and MG Rover was sold to British Aerospace. The car maker continued to lose money, however, and in 1994 it was sold on to BMW. Over the next six years, BMW spent hundreds of millions of pounds keeping MG Rover afloat, losing £600 million in 1999 alone. After a bitter boardroom battle, BMW decided to split up the Rover Group, and in May 2000 a group led by John Towers, an ex-Rover boss, bought MG Rover for just £10. BMW retained the rights to the Mini brand and sold Land Rover to Ford for £1.8 billion. The part of the company that was now known as MG Rover immediately went on a sales offensive and cut prices across the range by 10% in June 2000. They lost more than £250 million in the first year of new ownership, but this was still less than the £780 million loss suffered by the firm under BMW’s ownership in the previous year.
Over the next few years, losses continued to fall but were still in excess of £100 million a year. At the same time, sales of Rover cars fell steadily. In 2004 the company signed a partnership with the Chinese car maker SAIC, but by 2005 the UK government had to offer a £100 million bridging loan, dependent on the company being sold to SAIC. In April of that year MG Rover called in the receivers. The assets of the company were bought by Nanjing Automobile, who in turn merged with SAIC in 2007. In August of 2008, the company started making the MG TF Roadster at Longbridge. Since then, SAIC has continued to build cars at Longbridge, and the new MG6 was launched in 2011. This was followed in 2013 by the MG3, a small hatchback model. In 2014 MG Motor (as the firm is now called) was the fastest-growing car maker in the UK, and the firm has also announced plans for a new SUV to bolster the growing range of MG cars.
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