FRC tribunal rules against Deloitte over MG Rover collapse

DELOITTE has lost an appeal over its involvement in the MG Rover Group and the car firm’s ultimate collapse.

The Financial Reporting Council (FRC) found that the accountancy firm had failed to manage conflicts of interest in its advice to MG Rover Group and the “Phoenix Four” directors who bought the UK carmaker before it collapsed.

The FRC’s tribunal found that Deloitte and former M&A partner Maghsoud Einollahi had shown instances of “persistent and deliberate disregard of the fundamental principles and statements of the ICAEW’s code of ethics” in relation to the matter.

It said Deloitte and Einollahi’s conduct over the matter fell short of the standards reasonably expected of a member of the ICAEW.

Paul George, the FRC’s Executive Director Conduct said: “The outcome of this tribunal sends a strong clear reminder to all accountants and accountancy firms that they have a responsibility to act in the public interest in the work they undertake. The result in this case underlines the FRC’s commitment to promote public confidence and ensure the integrity of the accountancy profession by upholding the standards expected of members.”

The final written report from the tribunal will be published by the FRC in due course.

MG Rover was put into administration in 2005 with debts of £1.4bn and the loss of 6,000 jobs. Four of its directors – John Towers, Peter Beale, Nick Stephenson and John Edwards- had set up Phoenix to buy the loss-making carmaker for a token £10 five years earlier.

Deloitte said it was surprised and very disappointed with the outcome of the tribunal and disagreed with its main conclusions.

A spokesperson for Deloitte said: “Deloitte’s advice, which itself was not criticised, helped to generate over £650m of value for the MG Rover Group, keeping the company alive for five years longer than might have been the case and securing 5,000 jobs in the West Midlands during this period.  We take our client and public interest responsibilities extremely seriously and are proud of the value we helped create for the MG Rover Group.
 
“The quality of our work has not been criticised, but the tribunal found against us on a number of points which could have negative implications for the advice that can be provided by ICAEW member firms and members, both within the profession and business.

“This could have adverse consequences on adviser: client relationships more broadly, reduce the choice and quality of service delivered and be detrimental to UK business at a time when the focus on jobs and growth is paramount. “

It said that given the time the review had already taken, the firm was now looking to move on.

“However, the potentially serious implications of the judgement mean that it may be in the interests of broader business for us to appeal certain aspects of these findings.  We intend to discuss this with other interested parties such as the ICAEW and CBI over the next few days,” added the spokesman.
 
He said there needed to be a wider discussion about some of the issues examined by the tribunal, including what constitutes the public interest.

An inquiry into the collapse of MG Rover, commissioned by then Business Secretary Lord Mandelson and carried out by the National Audit Office, was published in 2011.

It was heavily critical of MG Rover’s parent company Phoenix Venture Holdings and the Phoenix Four.

The report revealed how the quartet, together with former MG Rover chief executive Kevin Howe took £42m in pay and pensions during their five-year ownership of the group.

It is estimated the car group had debts of around £1bn at the time of its collapse.

The Phoenix Four are currently banned from serving as company directors.