Supplementary memorandum submitted by
the Department of Trade and Industry
Question 31 (Sadiq Khan): The last time 6000 employees
were made redundant at one company
We have reviewed comparable large scale redundancies
over recent years. From this it appears that, in recent times,
MG Rover was the largest mass redundancy at a single plant by
some margin.
Larger numbers of employees were made redundant
by British Coal for example in the years 1983-04—17,805 1985-86—30,095 1986-87—27,131 1987-88—16,800
1993-94—21,300 but these will have typically been spread
over a number of different pits
From our research, we believe the last time
a single site saw a closure resulting in a loss of 6,000 jobs
or more was when British Steel closed the Shotton steelworks in
1980.
Of course, neither British Steel not British
Coal went into receivership like MG Rover so it is difficult to
draw a direct comparison with 2005, as the redundant workers in
these instances did receive some support from the companies.
Question 38 (Mr Sadiq Khan): Additional information
on the re-employment of former Rover workers
The rates at which all jobseekers recorded by
West Midlands Jobcentre Plus: a) stopped claiming JSA from March
2005; and b) returned to work, compared with the outcomes and
projected estimates for MG Rover workers are shown below:
| From date of claim
| Birmingham District and Solihull
| West Region | Midlands
| MG Rover estimates1 | MG Rover actuals[7]
|
| Stopped claiming JSA | Returned to work2
| Stopped claiming JSA | Returned to work[8]
| Returned to work | Returned to work
|
| Up to 13 weeks | 48% | 41%
| 65% | 55% | 20%
| 29% |
| Up to 26 weeks | 70% | 60%
| 78% | 66% | 50%
| 46% |
| Up to 52 weeks | 89% | 76%
| 93% | 79% | 75%
| 73%[9]
|
| | |
| | | |
The estimate in July 2005 (Closure of MG Rover—Economic
Impact Assessment—Interim Report, Regeneris Consulting,
July 2005) was that, taking into account the outline support package
in preparation at the time, 75% of MG Rover and supplier workers
would be back in work within 18 months. This was based on the
assumption that even with this additional support many would move
out of unemployment more slowly than `an average group of all
jobseekers.'
After an initial slow start up the projected figure at 52
weeks (mid April 2006) is now 73%, which is close to the average.
The reasons for the initial slower movement our of unemployment
have been well documented and outlined in the Regeneris Economic
Impact Report commissioned by the MG Rover Task Force.
— MG Rover employees lived in a concentrated area
within South West Birmingham and outlying districts;
— Lack of notice to enable workers to come to terms
with job loss and to plan for the future;
— Shock and the need for time to get over it;
— Lack of knowledge about the labour market and
how employers recruit;
— Time required to put an extensive programme of
training in place.
The unprecedented scale and circumstances of the closure
at Longbridge made it difficult for Jobcentre Plus to estimate
the comparative speed at which workers would cease claiming JSA.
A study prepared for the then Department for Education and Employment[10]
in 1996 looked at five case studies of large-scale redundancies.
This study found that at the time of the survey, on average 23
months later, 20% of people were unemployed. More recent national
data on the rate at which workers in major redundancies go into
new jobs are limited to the standard tracking period of 13 weeks
after redundancy and show that 22% are known to be in new jobs
after 13 weeks.
Question 149 (Mr Richard Bacon): Fees charges by the Administrators
1. At the time the fees were confirmed DTI did a check
on the fees and the hours and concluded that they were not at
odds with what might be expected or considered reasonable in the
circumstances. We have reviewed this since the PAC hearing and
the results of a comparison with another large administration
in 2005 are shown below. The figures support the original conclusion
regarding the fees for PwC.
2. The administration of the MG Rover Group of companies
has been the largest insolvency (in terms of the number of employees
affected) and one of the most complex in the UK for a number of
years. It is therefore extremely difficult to make meaningful
comparisons between the remuneration charged by the administrators
of the MG Rover Group with that charged by insolvency practitioners
in other insolvencies.
3. Insolvency legislation, seeks as far as possible,
to leave the agreement of the remuneration to be paid to administrators
and other insolvency office-holders (eg liquidators) with the
creditors. Where this does not happen the office-holder may have
recourse to statutory scale fees (in bankruptcies and liquidations)
or apply to the court to fix their remuneration (in administrations).
4. The basis for fixing the administrators' remuneration
is set by legislation[11]
as a percentage of the value of the property that the administrators
have to deal with, or by reference to the time properly given
by the administrators and their staff dealing with the administration.
The creditors determined that the remuneration of the administrators
of the MG Rover Group of companies should be fixed on a time-cost
basis.
5. Statement of Insolvency Practice 9[12]
(Remuneration of insolvency office-holders) sets out the information
that administrators are required to provide to the creditors when
seeking the approval of their remuneration, including the charge
out rate for the various grades engaged in the assignment where
the administrators remuneration is on a time-cost basis. The Statement
includes a suggested format for production of information so that
those receiving requests can make ready comparisons between cases
and an informed assessment of each application. The request for
approval is sent to the creditor (or other approving body). It
is not required to be filed with the Registrar of Companies.
6. Administrators are required[13]
to send creditors a progress report every six moths that includes
an abstract of their receipts and payments account. A copy of
the report is filed with the Registrar of Companies.
7. In the case of the receipts and payments accounts
filed in the MG Rover Group of companies the amounts paid to the
administrators in the 6 months from their appointment to 7 October
2005 (the only one due and available) show payments totally £6.6
million, of which it is understood £1.2 million was incurred
in the first week.
8. In terms of the number of employees, other recent
large administrations have been that of the Allders Department
Store group (involving about 2,300 employees) and Courts Plc (1,200
employees). In those cases the administrators, who were partners
in Kroll and KPMG respectively received the following remuneration
during the periods given below:
| Company/Administrator | Period
| Remuneration paid £ million |
| Allders (Kroll) | 27.01.05—26.07.05
| £2.7 |
| Courts (KPMG) | 30.11.04—30.05.05
| £3 |
| | |
Data is not available as to how much was drawn in the immediate
week or so following the administrations. Note the amounts in
the table represent the amounts paid to the administrators for
the period, which do not necessarily equate to the time costs
incurred.
9. The charge-out rates of Kroll and KPMG compared to
those of PricewaterhouseCoopers were as follows:
| Grade | Kroll @ 01.01.05
| KPMG @ 01.01.05 | PwC @ 11.04.05
|
| £ per hour |
£ per hour £ | per hour
|
| Partner/Director | 425 |
475-540 | 425 |
| Associate Partner/Director | 395
| N/A | N/A |
| Senior Manager | 350 | 390
| 320 |
| Manager | 325 | 310
| 247 |
| Experienced senior | 270 |
N/A | N/A |
| Senior | 240 | 220
| N/A |
| Administrator/Executive | 185
| 170 | 157-200 |
| Analyst | N/A | N/A
| 137 |
| Support staff | 75-125 |
100 | 68 |
| | |
|
10. Whilst as indicated above it is very difficult to
make meaningful comparisons between the remuneration charged between
administrations, particularly when the companies operate in different
sectors, the charge-out rates of PwC insolvency professionals
and staff in the MG Rover Group appear comparable with those of
Kroll in Allders Department Stores and KPMG in Courts Plc.
Question 153 (Kitty Ussher): Breakdown of the costs of the
loan to the administrator
On Sunday 10 April, the Department agreed to pay the operating
costs for keeping MG Rover and Powertrain operational for one
week. These costs were estimated at £6.5 million and this
amount was paid as two separate loans of approximately £5.2
million to MG Rover and £1.3 million to Powertrain. In the
event not all of this money was needed and as a consequence approximately
£1.3 million was repaid to the Department. The following
table sets out in broad terms the costs and the grounds for the
subsequent repayment.
Table of costs for w/e 15 April 2005 to which the loan to
the administrators was applied (figures are £000s)
| | MG Rover
| Powertrain | Totals
|
| Employee Costs | Gross wages
| 1,334 | 432 | 1,766
|
| Gross salaries | 1,003
| 225 | 1,228 |
| General operating expenses | Utilities
| 77 | 20 | 97
|
| ICT | 139
| 108 | 247 |
| Site maintenance | 61
| 26 | 87 |
| Production | 143
| 0 | 143 |
| Professional costs | Administrators' time costs
| 1,036 | 145 | 1,181
|
| Legal fees | 288
| 34 | 322 |
| Agents' fees | 43
| 34 | 77 |
| Total | | 4,124
| 1,024 | 5,148 |
| Value of loans | | 5,200
| 1,300 | 6,500 |
| Repayment made | | 1,076
| 276 | 1,352 |
| | |
| |
Question 166 (Chairman): Decision on making a loan to the administrators
The key factors that the Department had to take into consideration
when deciding on whether to make a loan to the administrators
to cover one week's operating costs at MG Rover and Powertrain
included:
Administration mean a completely new situation as regards liabilities
Purchasers would be able to choose assets they wished to
buy whilst leaving behind substantial liabilities, running to
hundreds of millions of pounds. SAIC had told us that this issue
was their biggest concern regarding the proposed joint venture,
so the opportunity for bidders to secure assets and leave several
hundred millions pounds of liabilities with the administrators
was a very material development.
Significant value in a "going concern" sale resides
in keeping the workforce together
The value of the business and the prospects of production
re-starting at any point would have diminished considerably had
the majority of the workforce been laid off on the Monday morning.
Net impact of a deal on Government expenditure
We knew that Ministers had already decided that if Longbridge
closed, they would want to bring forward a package of measures,
broadly modelled on what had happened in 2000, costing in the
order of £150 million—£175 million. This was an
important consideration in weighing the net risks. Our rule of
thumb was that each job loss would cost the taxpayer £10—15,000. The
certainty of these costs needed to be weighed in the balance against
the risk and potential benefits associated with the loan.
Bidders other than SAIC were showing interest in all and parts
of the business
Potentially interested parties had made contact with both
the administrators and the Department over the weekend of 9/10
April. Powertrain still had a contract to supply Land Rover with
engines and MG marque was a strong brand that had attracted many
in the past interested in producing sports cars. But these bidders
had had very little time to put bids together. A week would give
the administrators time to ascertain whether there were any serious
bids for the company or parts thereof as a going concern.
Positive soundings from diplomatic contacts
The Department was receiving some mixed information but there
did seem to be some encouragement from the Chinese Government
to SAIC to look positively at the new situation.
Administrators' position
The administrators had to be cautious in their approach.
They had only been in place for 48 hours and lacked clarity on
the cash position in the company. They therefore felt unable to
stake any of the creditors' funds on a going concern sale. The
Department had on the other hand been following the company's
progress for months and in particular was sighted on the progress
that had been made in negotiation with SAIC and the Chinese generally.
The position adopted by the administrators certainly could not
therefore be considered definitive.
Benefits from the orderly resolution of the workforce's position
Although the Department had worked with the various public
bodies concerned to prepare for the contingency of MGR's collapse,
those bodies had inevitably not had the opportunity to co-ordinate
with the administrators regarding the practical delivery of their
various services. The additional time provided by the loan ensured
that those made redundant immediately received the high quality,
joined-up support on the Longbridge site that had received such
positive feedback.
SAIC's negotiating team had been stood down
Whilst we knew that officially the SAIC team had been stood
down for a few days this had not prevented SAIC still carrying
on talks at a working level. The stance could also of itself been
a negotiating position designed to secure a better place.
Uncertain nature of situation
We were still in the very early stages of a new situation.
Much was uncertain over the weekend, but some of those uncertainties
were likely to resolve themselves over the coming week, particularly
the position of SAIC.
Ongoing need for support
The Department was clear that providing funding to keep the
company going for an indeterminate period was neither legal nor
desirable. This in itself would have been encouragement towards
a quick deal. However, if a genuine interest in purchase was expressed
there were alternative funding options available. The administrators
could have acted to reduce the costs of keeping the plant ready
to go back into production well below £70—£100
million estimate made at the weekend. Clearly a niche part of
the business would require less funding, which the administrators
might have been prepared to support either from their own funds
or on the basis of a loan secured against the assets—indeed
the administrators did not give up on the prospect of recommencing
production at Powertrain until they were unable to secure unanimous
supplier support at a meeting on 29 April. A bidder may also have
wanted to advance monies to protect the investment and the assets
it wanted, and the PVH directors themselves had made an offer
of some limited assets, which the administrators may have been
able to utilise.
The Department therefore concluded that the measured risk
of a loan to cover the operating costs for one week only was a
valid option in value for money terms.
7
Figures for those finding new work, excluding those ceasing to
claim JSA for other reasons (at March 2006 MGR workers finding
new work represent 85% of all those leaving JSA). Back
8
Based on 85% of those ceasing to claim JSA. Back
9
Projected (63% actual at 14 February 2006). Back
10
Moore and O'Neill, Impact of Redundancies on Local Labour
Markets, 1996. Back
11
Rule 2.106 of the Insolvency Rules 1986. Back
12
Statements of Imsolvency Practice are adopted by the insolvency
regulatory authorities and set out procedures with which insolvency
practitioners are required to comply. Back
13
Rule 2.47 Insolvency Rules 1986. Back
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