Examination of Witnesses (Questions 140-159)
DEPARTMENT OF
TRADE AND
INDUSTRY AND
ADVANTAGE WEST
MIDLANDS
20 MARCH 2006
Q140 Mr Curry: I am talking about
people bidding for the niche business, not SAIC.
Ms Bell: If a niche bidder had
come forward, then the cash requirements of any niche bidder would
clearly have been different from someone looking at the whole
of the business. Equally, it was true on Sunday 10 April that
the administrators had not at that stage been able to establish
how much unencumbered cash there was in the business, because
they had only taken charge of the business on the Friday lunchtime
and they had not yet been able to make that assessment.
Q141 Mr Curry: You say that, if there
had been an issue of another loan in order to sustain the interest
of a niche bidder, that would have been much smaller, because
by definition they would only have gone through part of the company.
That would have been quite difficult really, would it not, if
90% of the workers were told they were not going to keep their
job and 10% were? This might not necessarily have been easy to
separate out. Do not forget that the structures of this group
were not exactly a model of transparency, were they?
Ms Bell: Those were real dilemmas
in this very difficult commercial negotiation. At the same time
it was very clear that we should have needed to press the intent
of any bidder very hard indeed. The further point to bear in mind
in all of this is that under the EU state aids regime it was well
known to absolutely everybody that running the capacity on for
an indeterminate period of time was simply not possible; it would
not have been legal. In that sense there was a window of a week
and beyond that it would have been very difficult to continue
to run capacity forward.
Q142 Mr Curry: So you believe that
it is to all intents and purposes inconceivable that that loan
or any part of that loan might have been extended beyond that
week.
Ms Bell: This is hypothetical.
We had to consider a wide range of possibilities with limited
knowledge on Sunday 10 April. If there had been a bidder for Powertrain,
it could have been a relatively self-contained proposition. If
there had been a bidder for some other part of the business it
would have been messier, you are right. In terms of the range
of possibilities we needed to consider, set against the known
cost to the taxpayer of £150 million and rising for the full
regeneration package, that was the equation which needed to be
weighed. I judged it a risk worth taking.
Q143 Mr Curry: Actuarially as it
were, the chances of there being either a full or a mini rescue
were indeed very small, were they not?
Ms Bell: I do not share your view.
I do say that it was quite difficult for all the interested players
to calibrate quite what that risk was.
Q144 Mr Curry: It is difficult to
find any observer who would calibrate it as anything other than
a very risky proposition, is it not? A very doubtful proposition.
Ms Bell: It is certainly true
to say that at that time all stakeholders thought that it was
a good thing to create a breathing space for a week: the administrators;
all the political parties at both national and local level.
Q145 Mr Curry: Let us then go back
a little bit. The Report is redolent with evidence that the directors
really did not want to tango particularly: they were withholding
information; they were not sharing things with the Department
and you were finding it difficult to help them. Let us put it
that way. Of course there are difficulties with the way the company
was financially structured. As I understand it, a significant
part of the BMW inheritance seems to have found its way to the
non-operating parts of the group, to the MG Rover part of the
group. This was a company which had been rescued from the ashes—you
had reasons to be doubtful to start with about a company called
Phoenix. However, you had been in constant communication with
it, it had been earmarked as a potentially failing business for
quite a long time, it had to have a strategic partner as opposed
to any other sort of partner and yet it was cheerfully carrying
on running its own affairs in a way which you must have been a
bit bothered about, were you not? Were you not a bit anxious about
the way this managerial behaviour, the directors' behaviour was
taking shape?
Ms Bell: I do not think I can
add to what Sir Brian has previously said about the behaviour
of the directors. It remains the case that we need to await the
outcome of the Companies Act investigation. It would not be prudent
to add to that.
Q146 Mr Curry: No, I realise that
an investigation is taking place but there was a huge amount of
public comment about what the directors were doing, even while
the minister was still defending them as heroes of entrepreneurial
risk taking. Was there not a sub-layer of anxiety or discussion
saying "Hang on, don't you think you need to sort things
out"? Or were you completely content with the way the business
was run?
Ms Bell: It clearly would have
been desirable for the directors to be prepared to share more
information with us so that we could make the best assessment
of the way forward. We sent accountants in to Rover to look at
the books on 17 March. I thought it was extremely important that
we should do that, having regard to the fact that there were potentially
public resources at risk.
Chairman: There is probably very little
more we can get out of this. It has been a very good hearing but
there are some quick supplementaries.
Q147 Mr Bacon: I shall try to be
very brief, at the risk of flogging a dead horse. The question
of the circumstances in which the £6.5 million loan might
make a difference is what interests me. You said that there was
a changed situation; plainly there is in legal terms because it
is a new situation once it goes into administration. The administrators
themselves told you on 10 April—we see that in paragraph
2.44—that any deal might take three months to complete.
Any deal with a niche buyer of, for example, the sports business
or Powertrain or anything else, could not have been completed
inside one week either. What I am at a loss to understand is what
the point was of £6.5 million for one week. It just does
not seem to make sense. All you seem to have done, apart from
paying the wages at £3 million for one week, which might
have been money better put into the benefits package with the
other £3.5 million, was to enrich the administrators.
Ms Bell: If a bidder had come
forward, if a niche bidder had come forward, it would have been
for that bidder to consider whether they wanted to bring forward
cash with their interest to run the business on. Given what I
have already said about the view of the Government and also the
EU state aids regime, if they wanted to come to conduct long due
diligence they would have needed to consider what cash they wanted
to put behind that to support, on a going-concern basis, whatever
part of the business they were interested in.
Q148 Mr Bacon: You were talking about
SAIC and saying there was a fair prospect that they might come
in and make a bid. SAIC already had a huge amount of information
about the company, as you said, and they had already told you
that the £110 million bridging loan was not going to sway
them one way or the other.
Ms Bell: On that point, I regard
that as an observation on a negotiating dialogue and no more than
that.
Q149 Mr Bacon: One more question
about the administrators' fees. You said they were not out of
line; £1.2 million for a week's work sounds to me quite expensive
even for PricewaterhouseCoopers. Is it possible that either the
Department or the NAO could send us some information about other
figures of what administrators have been paid for comparable insolvency
situations?[4]
Ms Bell: We shall be very happy
to do that. We have looked at precisely this question.
Sir Brian Bender: Yes.
Sir John Bourn: Yes.
Mr Bacon: In conclusion, may I say that
perhaps we can tell the Cabinet Secretary how helpful we found
Ms Bell and, moreover, that it does not appear to me, although
I have been listening very hard, that the sky has fallen in.
Chairman: It rarely does unfortunately;
or fortunately perhaps.
Q150 Greg Clark: May I echo that?
Given that Catherine Bell no longer works in the Civil Service,
I think she has been very frank and helpful. It seems clear to
me from the overview of the evidence that actually, whilst we
might have some concerns about the £6 million, the officials
in the DTI stepped in quite appropriately with public funds to
prevent a much worse fate at a time of great pressure. It is reassuring
that they did that. For future learning purposes there is the
question of the £6 million and that was the one chink which
went a bit beyond what was appropriate. There are several statements
from the Report which I think summarise the position here. Paragraph
2.43 says "Immediately prior to administration the Department
had ... understood that SAIC's internal deal team had been stood
down". The Report goes on to say "... soundings taken
by the administrators through SAIC's advisers Rothschilds ...
were negative". The administrators themselves, Tony Lomas
the administrator at PwC, said that they became very sceptical
as to the potential to close the deal with SAIC and, if it could
have been done, how long it would take. They thought it highly
unlikely and they were not prepared to venture any of the funds
available to them. The Report also says that all of the key public
bodies would have been ready individually to provide the support
needed by 8 April. So the £6 million was provided against
the judgment of everyone concerned, who would have taken a different
position, all of the public bodies could have stepped in at short
notice, they did not need the week's breathing space; no doubt
it was beneficial to have it, but they did not need it. Just on
this one chink I think we should learn for the future that a slightly
greater degree of rigour might have saved £6 million of public
monies. I do accept that the Department has prevented the waste
of a large amount of public funding which might have gone down
the drain.
Sir Brian Bender: A lot of the
questioning has implied that SAIC had no interest whatsoever after
April. Let me read to you from a press notice the administrators
released in July. "Until late last week SAIC had offered
to acquire only the Powertrain assets. On Monday of this week
SAIC submitted a conditional bid for all of the MG Rover and Powertrain
assets". So there was clearly some interest still from SAIC
in the period after it went into administration. It was then a
question of what was practicable at the end of that and it turned
out that nothing was practicable. There was continued SAIC interest
according to the public statement of the administrators in July.
Ms Bell: May I just have the opportunity
to comment, particularly on the measure I took, on what the administrators
said, having been in charge of the assets for 48 hours, and particularly
their assessment of the Chinese position? I repeat again that
we had been tracking Chinese intentions at the level of SAIC,
where we were aware that there were differences of view within
the company, as very often happens when a big joint venture is
in contemplation. We were aware that there were differences of
view from time to time at the NDRC level and quite possibly differences
of view from time to time at the Chinese Government level. The
administrators brought forward to us one piece of evidence that
the negotiating team had been stood down. They would, would they
not, if they wanted to get the assets out of administration at
the best possible price? It could have been a negotiating tactic.
I simply make the wider point that there was a lot to interpret
in terms of the total Chinese position. I should not myself take
the view that the administrators' perspective ... As they themselves
said to us on the Sunday morning, this was a first cut for them
and it was not a definitive view. I just want to put that on the
record.
Q151 Kitty Ussher: I just want to
make sure I have understood something properly. You said that
before Rover went into administration the sticking point with
the Chinese was very much the large level of their liabilities
and that is why they said, even with this putative, hypothetical
bridging loan, that it would still be a problem because of the
large level of liabilities. I am not an expert on what happens
when companies go bust, but it is quite possible, as you have
just hinted, that that would no longer be a factor once the company
had gone into administration, because the administrators could
do a deal where they could buy the assets without taking on the
liabilities. Is that correct?
Ms Bell: In the interests of a
short answer, yes.
Q152 Kitty Ussher: I am glad that
we are going to get a note on the administrators' fees because
it does sound very complicated. I got the impression, am I right,
from an earlier answer that although this is written in the Report
as fees, it was actually the cost of keeping the company going
as a going concern? Because the company was running at a loss,
obviously it was going to cost money to keep it going rather than
it going straight to the bottom line of the administrators. Is
that correct?
Sir Brian Bender: The £1.2
million was for the administrators.
Mr Alty: There is a line for the
administrators' costs themselves and then on top of that there
are the costs of the wages for the workforce and so on.
Q153 Kitty Ussher: Do they add up
to £1.2 million?
Mr Alty: No, they add up ultimately
to £6.5 million.
Ms Bell: We shall provide a note.[5]
Sir Brian Bender: A note will
clarify.
Q154 Kitty Ussher: You said a few
minutes ago that all political parties had agreed the loan.
Ms Bell: No. I was asked what
support there was for the provision of the £6.5 million loan
to provide the breathing space for one week. I simply observed
that at the time all the stakeholders, including national and
local politicians, universally supported the provision of this
breathing space.
Q155 Kitty Ussher: Correct me, if
I am wrong. Is this because we were in an election period so therefore
there was communication, was there? Or was it publicly supported?
Sir Brian Bender: These were public
statements. This was not a question of getting agreement in those
terms; these were public statements.
Ms Bell: These were public comments
on what the Department had done.
Sir Brian Bender: What it is important
to say briefly for the record is that strenuous attempts were
made during this weekend by ministers and the private office in
the DTI to inform the Opposition parties, consistent with election
rules.
Kitty Ussher: That was to inform, not
to seek consent.
Q156 Chairman: By way of light relief,
I am intrigued by this reference in paragraph 2.42. I know perhaps
we were not doing very well in the election, but why could you
not find HM Opposition? Were they not findable?
Sir Brian Bender: I regard that
as a rhetorical question Chairman. There was a conversation. Jacqui
Smith did brief her opposite numbers on 1 April. On the weekend
in question there was a conversation between the Secretary of
State's Principal Private Secretary and Stephen O'Brien in the
middle of the day, but later on in the day when Patricia Hewitt
tried to speak to Stephen O'Brien, she had to leave a message
because he was not around at that time or immediately around that.
She did speak to him the following day.
Q157 Mr Mitchell: How did you know
that they were thinking what you were thinking? I am not going
to join in the general song of praise because it seems to me that
you ended up with the worst of all possible worlds, but I should
not mind yes/no answers to a few questions. The main problem for
the company was new models; they had none. Was there no possibility
of stashing some money into research projects or into some type
of institute or some other way of giving them new models to increase
sales in the future? Was that totally ruled out?
Mr Alty: Any research funding,
which of course we would look at with that company as any other,
would not have been anywhere near enough to cope with the problems
they had in terms of their cash. That is the simple answer.
Q158 Mr Mitchell: You could have
given money if it had been to draw in overseas investment. That
was quite a possible route for investment. Why did you not do
that?
Mr Alty: Again, only if an investment
is taking place which qualifies for support and there are rules
for that scheme. Any investment we were aware of from the Chinese
was not going to generate anything like the sum of money that
Rover would have needed.
Q159 Mr Mitchell: How did you know
that?
Mr Alty: Because we had some information
about what the Chinese plans were.
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