UPDATE 2-British fraud office to probe MG Rover collapse

LONDON, July 6 - Britain's Serious Fraud Office will decide whether a criminal investigation should be launched into the 2005 collapse of carmaker MG Rover, the government said on Monday, as it delayed the publication of its own inquiry.

Britain's last major independent carmaker went into administration in April 2005 with debts of almost 1.3 billion pounds ($2.1 billion) and the loss of 6,000 jobs.

"There has been a comprehensive and thorough investigation into the events which led to the company failing, workers losing their jobs and creditors not getting paid," said business minister Peter Mandelson.

"The SFO must now see if there are grounds for prosecution."

The report, the result of a four-year probe into the demise of the now Chinese-owned plant, was completed by inspectors on June 11, but the government said its publication could prejudice any potential criminal case.

A quartet of executives, known as the Phoenix Four, took over the company in May 2000 after buying it for a nominal sum of 10 pounds with an interest-free loan from previous owner BMW .

The four say there is no basis for an SFO investigation.

"MG Rover was dead in the water when it was taken over by the Phoenix Four," their spokesman Ramsay Smith told Sky News.

"At all times they said that a joint venture was necessary to secure the future of the company and that's what they were working towards."

Opposition politicians have said the delayed government report will show Labour, in power since 1997, wasted millions of pounds of taxpayers' money propping up the car company in the run-up to the 2005 election.

A parliamentary committee criticised the government in 2006 for its handling of the collapse, specifically its lack of dealings with the company's new owners and for a lack of preparation before the firm went bust.

To read a column on the collapse, click on (Editing by Simon Jessop/Will Waterman)