With an intended deal with a Chinese automaker falling through, and a hoped-for government loan failing to materialise, the company announced on Thursday that it was filing for chapter 11 bankruptcy. 

PricewaterhouseCoopers LLP was appointed administrator of MG Rover after the Shanghai Automative Industrial Co, concerned about the extent of the financial problems it had recently discovered at the British company, pulled out of emergency talks in China about its planned takeover.

The political implication

However, Prime Minister Tony Blair - wary of the political pitfalls of the collapse of Rover just four weeks ahead of a general election - said he and Treasury chief Gordon Brown talked with their Chinese counterparts on Friday and believe a deal could still be arranged with SAIC.

"It is possible that there may be the opportunity to do something with the Chinese company, although not the original prospect," Blair said after talks with PWC and union officials at Rover's Longbridge plant in central England.

"We will do everything we can to keep car production and as many jobs as possible at Longbridge," he added. 

Rover was pushed to the brink on Thursday as news of SAIC's cold feet was leaked, and the company shut down production at its Longbridge factory after spooked suppliers stopped providing parts.

About 6000 workers from the factory are now facing a tense wait over the weekend while PWC examines Rovers' books, including reports of a $750 million "black hole" in the pension plan, to discover whether the iconic company can be salvaged or whether it will be broken up and sold off to repay creditors.

Government assistance

The government has been heavily involved in the proposed takeover, attending emergency talks between SAIC and Rover officials and the Chinese government  - which needs to approval any deal - that fell apart in Shanghai on Thursday.

Blair also talked by telephone with Chinese Prime Minister Wen Jiabao on Wednesday night and government officials had offered Rover a $188 million bridge loan to keep the company solvent to assist the deal. However, the government said that loan was always dependent on the deal going ahead.

"Once there was no prospect of a deal there was of course no possibility of a bridging loan," Trade and Industry Secretary Patricia Hewitt said.

"We will do everything we can to keep car production and as many jobs as possible at Longbridge"

Prime Minister Tony Blair

SAIC said it had put significant time, effort and resources into discussing the partnership, but considered it "imprudent to enter into a transaction in which the insolvency risks of its joint venture partner could have transferred significant financial liabilities on to the proposed UK joint venture."

Bad financial shape

"It was not until the detailed due diligence was undertaken that the full extent of the financial liabilities of MG Rover became apparent," SAIC said.

"In spite of the possibility of the British government making available short-term bridging finances, SAIC's fundamental concerns relating to the ongoing financial state of MG Rover were not resolved."

PWC joint administrator Ian Powell said the accounting firm would look at ways to continue operations.

"To the extent that there is an opportunity for us to pursue a sensible business then we'd like to do that, we just can't commit to that," Powell said, noting that the administrators had already received interest from several quarters.

"As you can imagine at this point, in day one of a situation like this, there's a whole series of people who express a lot of interest in businesses," he said. "It's up to us to try to establish what's serious interest and what people are actually interested in."

Compant's future uncertain

Powell declined to comment further on the company's liabilities or the viability of keeping on employees.

Rover spokesman Stephen Farmer said the company had not ruled out the possibility of further discussions between SAIC and the administrators.

The government moved quickly to reassure workers in Britain's declining manufacturing industry, announcing a $72 million support package for companies that supplied Rover.

One such supplier, in-car navigation group Trafficmaster, watched its shares drop 5% Friday after warning that full-year sales of its satellite system, Smartnav, which it has an agreement to install in Rover cars, would fail to meet expectations if production does not resume at the
Longbridge plant.

Rover's debts

China's Wen Jiabao has been in
talks with Blair on Rover's future 

Trafficmaster said it was owed about $1.01 million in outstanding payments from Rover.

The government also pledged to work with unions and the administrators to secure further car production at the factory.

MG Rover had called on the government on Thursday to firm up the offer of the loan after it suspended production. Peter Beale, vice-chairman of Phoenix Venture Holdings, MG Rover's parent company, said directors had committed to providing $18 million of personal money as part of the deal to persuade the government to speed up its loan.

SAIC's acquisition of MG Rover would have required approval from the Shanghai city government, SAIC's controlling shareholder, and the National Development and Reform Commission, a Cabinet-level agency in charge of economic policy.