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Sir John Bourn, head of the National Audit Office, has reported on the support provided to MG Rover by the Department of Trade and Industry (DTI) and other public bodies before and during the Company’s collapse in 2005, and on the effectiveness of plans to deal with and mitigate the consequences of the firm’s closure.
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Around £146 million is likely to be spent on the support package put in place after the collapse to help the local economy. Other costs will include, for example writing off a loan made by the Department to the administrator to keep the Company going in its first week of administration (£5.2 million), and a proportion of the outstanding tax liabilities.
It is also likely that the Company’s failure will result in a large call on the Government-created but business-financed Pension Protection Fund.
The report records that the cash problems at MG Rover had been recognised well in advance by the Department,
which identified in April 2004 a series of scenarios for the Company.
It focused its initial contingency planning on how it and other public agencies might respond if the Company were to close as it saw this as the most likely outcome.
The report notes that there were a set of risks around MG Rover which justified, at an early stage, the preparation of a contingency plan covering a full range of eventualities, scope for assistance, and possible ways forward.
This could have helped the Department follow through some potential circumstances, for example the possibility of support to MG Rover’s administrators.
On 10 April 2005, with MG Rover in administration, the DTI announced a loan of £6.5 million to sustain the business for a week while the administrators sought to sell the Company as a going concern.
If a sale could not be achieved, the loan was intended to assist the position of MG Rover’s workforce to be resolved in an orderly manner.
In the report the NAO makes a number of recommendations to improve
decision-making, contingency planning, and the delivery of training and support
in the event of a large-scale company failure.
Sir John Bourn commented: "MG Rover held an important position in the local
economy and local communities of the West Midlands. It was therefore
particularly important for the Department, and other public bodies, to be able
to respond effectively when its difficulties became clear. This was no easy
task.
"The Department did well to identity a series of scenarios that it might face,
working up plans for how it and other public bodies would respond if the Company
were to close. The Department’s decision making could, however, have been easier
if it had been founded on earlier and more comprehensive contingency planning
for other scenarios that could well take place, and in this case did.
"When the Company collapsed in April 2005, the various agencies at local level
responded well to meet the immediate large increase in demand for their
services. The prompt processing and payment of statutory redundancy pay and
social security benefits helped many former employees and their families at a
particularly stressful time."
Source:
RedAlert
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