A director who destroyed documents in anticipation of a government investigation may not be subject to any penalty for the bare act of destruction divorced from any actual proceedings against him or his company. If that is indeed the position, there will be calls to change it. Bad cases make bad law.

I will not try and make sense for you of the story of how the Phoenix consortium acquired carmaker MG Rover for £10 in 2000, departing five years later as millionaires when the company crashed into administration. You will get the picture from the Sunday Times headline How the Phoenix gang plundered MG Rover and from the paragraph in the article which reads:

While it stops short of accusing the Phoenix directors of fraud, it paints a picture of a group of men happy to pay themselves tens of millions of pounds, much of it stashed in an offshore trust, while the carmaker ran up big losses and ultimately ran out of cash, throwing 6,000 people out of work. They ignored corporate governance guidelines, switched valuable assets out of the car company into their own names, lied to MPs about the nature of their dealings, and bawled out the few advisers who dared to question the legality — or morality — of their actions.

I do not understand it myself, any more than Stephen Byers or Patricia Hewitt did. Byers was Secretary of State at the Department of Trade and Industry (DTI or Department of Timidity and Inaction, as Private Eye called it) when the deal was made, and subsequently achieved notoriety as “Liar Byers” when he admitted in court in the Railtrack shareholders’ action that he had misled Parliament about the government’s plans to cheat the shareholders. Patricia Hewitt, who succeeded him at the DTI, and who went on to be known as the “worst Health Secretary in the history of the NHS” appeared to be oblivious of MG Rover’s pending demise right down to the moment that it went into administration; she went out through the lucrative “revolving door” to take her NHS contacts list straight into a private healthcare company – it seems unlikely that she got her non-executive directorship on the strength of her abilities. Throw in the allegedly intimate relationship between one of the Phoenix Four and a Chinese lady engaged to facilitate a deal between MG Rover and a Chinese carmaker and you have all the elements you could want of business intrigue, sex, ministerial incompetence, and personal profit at the expense of government, investors and workers.

The story surfaces now because an investigation costing £16 million has just completed its 830-page report. Amongst the interesting points to emerge, and the one with which the Sunday Times story leads, is the fact that one of the Phoenix Four hastily acquired a copy of Evidence Eliminator and ran it on his computer before the inspectors got to it. The Sunday Times report says:

He later told the inspectors the files he deleted were purely personal, although they discovered that one folder called “MG Rover” had been erased. They were scathing, saying Beale had been “untruthful” in his evidence, and that he bought and ran the program “with a view to deleting material from his computer before it was accessed by us”.

It will be interesting to see where, if anywhere, this story goes. As was presumably the government’s intention, the appointment of investigators kicked the story off the pitch for long enough for Byers and Hewitt to become history. The DTI itself has gone – bizarrely, it became the Department for Productivity, Energy and Industry after the 2005 election and reverted to its former name less than a week later. Another attempt to slough off its miserable history by re-branding was made in 2007 when it became the Department for Business, Enterprise and Regulatory Reform before becoming, in 2009, the Department for Business, Innovation and Skills under the egregious and ubiquitous Lord Mandelson.

Mandelson is simultaneously the only member of the government to understand anything about business, and the one least qualified to cast stones in the moral greenhouse, having twice had to leave government because of questions over his own conduct (no, not the least qualified perhaps – there is no suggestion that he has ever fiddled his expenses or evaded Capital Gains Tax, so two enforced resignations leaves him quite clean compared with some of his colleagues; it is a funny world). He has apparently instigated an attempt to have the Phoenix Four disqualified from acting as company directors – a somewhat empty gesture since they have already pocketed enough of other peoples’ money to retire on. Mandelson has plenty on his plate anyway, with the dead-weight of a dithering and discredited Prime Minister above him and a pack of also-rans and nobodies around him, an economic crisis to handle more or less single-handed, and Labour’s worst election defeat in history round the corner. It seems unlikely that he will have much time for a bunch of, er, people like the Phoenix Four.

We gaze in bemusement sometimes at what appear to be over-reactions on the part of US authorities to purely technical breaches. I cannot help feeling, however, that our laid-back, laissez-faire attitude to corporate governance and directors’ conduct will make us a laughing-stock on this occasion. This is, after all, a government which purports to micro-manage every aspect of business and, increasingly, of personal life, and which has created more statutory offences on a wider range of subjects than any government in British history. This government sent a large party of policemen to raid the Parliamentary office and the home of an opposition spokesman, seizing his documents and computers for no better reason than his opposition to government policy. It is not, therefore, above over-reaction when it feels like it.

Well, you might think, if this government cannot find grounds for pursuing a company director who, er, was remunerated on a generous scale from a failed government-endorsed scheme to save 6000 jobs, perhaps the evident ministerial incompetence is merely a cover for something else. After all, this is a party which traded exemptions from the law for contributions to party funds and which sold peerages for cash; its peers received payments to amend legislation; its ministers made patently false claims for housing expenses and  more than one of them tried to evade tax on profits made with those expenses; it employs union officials in civil service posts in return for union contributions to its electoral funds. Perhaps there is something worse than incompetence to hide in the MG Rover story.

Probably not or, rather, the failure to pursue the evidence-eliminating director is not by itself a pointer to ministerial snouts in the MG Rover trough. The deletion of documents relating to a company’s business by a company director in the circumstances described by the inspectors would, if proven, probably be a free-standing offence under the US Federal Rules of Civil Procedure and in the State of Victoria (where the Document Destruction Act makes it an offence to destroy documents which are  “reasonably likely to be required” in any legal proceedings). It would potentially invite contempt of court proceedings in the UK if done with the intent of destroying evidence required by a  Court in the context of civil or criminal proceedings. It may well be, however, that outside that context, no offence has been committed because a government investigation does not have the status of court proceedings.

I am not sure that I would change that position. The director in question is left with the investigators’ conclusion that he was “untruthful” and that he had deliberately destroyed evidence. If further proceedings ensue, whether civil or criminal, then the court hearing those proceedings will presumably arrive at the same conclusion and its findings will reflect that. The problem with catch-all requirements to keep documents is that they militate against sensible document retention policies, causing companies to keep vast quantities of irrelevant material. If the occasional, um, person who has received a lot of money which used to belong to somebody else destroys documents in circumstances where the propriety of doing so is not tested in wider civil or criminal proceedings,  then that is an acceptable downside compared with the burden of a free-standing offence of document destruction. Calls for a an equivalent to the Victorian Document Destruction Act should be resisted.

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