Examination of Witnesses (Questions 40-59)
DEPARTMENT OF
TRADE AND
INDUSTRY AND
ADVANTAGE WEST
MIDLANDS
20 MARCH 2006
Q40 Mr Khan: A week earlier?
Ms Bell: A week earlier; Monday
11 April.
Q41 Mr Khan: Just to be clear, a
similar question to one I asked previously. With hindsight, if
you were to make the judgment again, would you give the same advice?
Ms Bell: I would give the same
advice.
Q42 Mr Khan: As far as the help given
to ex-employees is concerned, Sir Brian talked about the supply
companies and the fact that there was a need in the preceding
months and years to diversify the work that they do. How successful
has that been?
Mr Edwards: In 2000 somewhere
in excess of 150 companies were heavily dependent on the Rover
plant at Longbridge. By the time we get to 2005, that figure dropped
to just over 50 companies which were dependent on MG Rover at
Longbridge, so in the intervening years we had managed to move
a significant proportion of the West Midlands automotive supply
base away from dependency on MG Rover to supplying a range of
other automotive companies and other companies with similar products.
We had through those years made a significant positive difference
in the supply chain in the West Midlands.
Q43 Mr Bacon: I should like to start
with the bridging loan of £110 million. In the offer letter
which was shown to SAIC, the DTI said, and I quote "I am
now in a position to confirm my Government's willingness to extend
to MG Rover a bridging loan facility of up to £110 million
to the end of May 2005. We believe this facility will provide
you and MG Rover with the time in which you can resolve the outstanding
commercial issues, including Phoenix Venture Holdings' solvency
post completion". What was the response of SAIC to that offer?
Ms Bell: SAIC continued to say
that they had concerns about the liabilities which might attach
to the joint venture company and hence there was no conclusion
to those negotiations.
Q44 Mr Bacon: The letter of 5 April
referred to on page 65 is the letter in which SAIC responded to
this offer from the DTI of the £110 million, is it not?
Ms Bell: There was very frequent
correspondence. I should state on the record that the letter that
you refer to from the DTI was a draft letter. That is an important
point in the sense that these were negotiations.
Q45 Mr Bacon: You showed it to them
as a letter that you were minded to send to them. It was not actually
sent and signed, so to speak.
Ms Bell: It was sent as a draft
for further discussion. That of course is an important point.
In terms of the responses which came back from SAIC, as I said,
they continued to repeat their concerns about liabilities which
might attach to the joint venture company and hence no conclusions
to the negotiations.
Q46 Mr Bacon: Sir Brian, is it possible
you could send copies of this correspondence to the Committee?[3]
Sir Brian Bender: Of course Chairman.
Q47 Mr Bacon: Ms Bell, I am looking
at the response of 5 April in which it states that SAIC believes
the decision whether or not to make the bridging loan to MG Rover
and the responsibility for the consequences arising are entirely
ones for the UK Government. It is independent of and does not
influence SAIC's assessment of the proposed joint ventures. That
is correct, is it not?
Ms Bell: That was the statement
made by SAIC at that point in the negotiations.
Q48 Mr Bacon: In other words the
£110 million putative bridging loan was not going to influence
their decision one way or the other. That is what they are saying
in that paragraph, is it not?
Ms Bell: That was their negotiating
statement.
Sir Brian Bender: As we understand
it, Mr Russell was the one closest to the negotiations which related
to the scale of the liabilities. That appeared to be their primary
concern: the scale of liabilities that would remain in the joint
venture if the deal went ahead.
Q49 Mr Bacon: The SAIC letter goes
on to say that the personal financial contributions, which Sir
Brian you referred to, by the Phoenix Venture Holdings' directors,
while a welcome gesture, do little to reduce the overall quantum
of financial risk. Basically, we were looking at £110 million
that the Department was considering making as a bridging loan.
There was an offer letter, as a draft, unsigned, suggesting that
this was a route that the Government might go down. You asked
SAIC for their comments on this and they said that it would not
influence their decision one way or another because they would
still deem the financial risk to be far too large. Is that right?
Ms Bell: They made those statements
in response to that point in the negotiations.
Q50 Mr Bacon: In paragraph 2.44 on
page 41 it states "The administrators had informed the Department
on 10 April that any deal with SAIC might take three months to
complete". You were told on the Sunday that it might possibly
take three months to complete a deal. The administrators estimated
that around £70 to £100 million could be required to
keep MG Rover fully running and afloat over this period, although
your own putative offer letter talked about a loan only until
the end of May. I take it you were expecting that in such circumstances
that loan would be repaid by the end of May.
Ms Bell: Certainly the discussions
about the bridging loan related to covering the cash flow difficulties
to the end of May and, by the end of May, there would need to
have been a conclusion to the negotiations.
Q51 Mr Bacon: May I ask whether you
asked for a direction about the £110 million loan?
Ms Bell: No loan was made.
Q52 Mr Bacon: That was not my question.
Ms Bell: If a loan had been made,
I would have asked for a direction.
Q53 Mr Bacon: If a loan had been
made, you would have asked for a direction. Under the Blue Book
rules, you would have thought that it would not have been correct
to have made the loan, is that right?
Ms Bell: There would have been
two concerns. One of them was the risk to public funds; the second
was the potential impact of the making of that loan on the other
programmes in the DTI budget.
Q54 Mr Bacon: Yes; in other words
resources that in your view could perhaps be better used elsewhere.
Ms Bell: That was a judgment for
ministers to make, but it was very clear that a sum of that scale
would have a severe impact on other programmes.
Q55 Mr Bacon: It was going to create
a big hole.
Ms Bell: Yes.
Q56 Mr Bacon: Which leads me on now
to the £6.5 million loan which was agreed on Sunday 10 April
because, as we just heard a minute ago, all that did was delay
the redundancy notices by one week. I know you mentioned that
the fact that it had gone into administration changed the situation
but, from a buyer's point of view, you are not going to buy liabilities
if you do not want to. What evidence was there that you could
achieve a quasi-going-concern sale in one week from Sunday 10
April onwards that would merit a £6.5 million loan?
Ms Bell: There were two considerations.
First, in relation to SAIC, it opened the door for them, if they
so wished, to take assets and leave the liabilities with the administrators.
So from their perspective it was a fundamentally different opportunity
and an opportunity which addressed, from their perspective, the
very thing which proved to be the sticking point in the negotiation.
Q57 Mr Bacon: Hang on, they told
you a minute ago that £110 million was not going to make
a difference to their stance, so why would you think that £6.5
million would make a difference?
Ms Bell: You need to consider
what the scale of those liabilities was. First of all, they were
making a negotiating statement in terms of their response to the
draft letter. Secondly, in terms of the scale of the liabilities
which concerned them, these potentially ran into hundreds of millions
of pounds. So this was a materially different situation for all
bidders to look at.
Q58 Mr Bacon: May I go into the breakdown
of the £6.5 million? It says at the bottom of page 41 in
paragraph 2.46 "The £6.5 million provided by the Department
was used to cover £3.0 million for the salary and wage cost
of employees" and then there were various other things including
"general operating costs of £0.6 million, legal and
other fees of £0.4 million and £1.2 million for the
administrators' fees". It is not usual to lend money to the
administrators to pay their fees, is it? They got £1.2 million
for a week's work from a loan that you gave them.
Ms Bell: The administrators, because
of the decision taken by the Government, needed to run the business
on for a week. That was negotiated as their professional fee in
that situation. We have no reason to think that that was out of
line with payments which might have been made in other circumstances.
Q59 Mr Bacon: Not normally from loans
by Government. Traditionally in an insolvency situation they come
off the top line of the creditors. They are first in the queue;
they do not expect to come along to HMG and ask for a loan.
Ms Bell: The consequence of the
Government's decision was that they needed to run the business
on for another week.
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