Irish fruit giants' reputations at stake as old allies face insider dealing trial

LATER this week in the Four Courts, two of the biggest names in Irish business will square off against each other.

The McCann family, who control the fruit and vegetable importers Fyffes, will face their former friend and one-time investor Jim Flavin, the chief executive of sales and distribution group Development Capital Corporation (DCC), in the largest insider dealing case ever taken in the State.

At stake is not only the reputation of the two titans, but a claim for €85 million in damages.

Fyffes have alleged that Mr Flavin, who was once a director of the company, used sensitive information he had obtained to pass on to DCC and sold the 10% it once held at the top of the market just weeks before the Fyffes share price slumped on the back of a profit warning.

The fruit importers stunned the financial community with the claim against Mr Flavin, DCC and two of its subsidiaries - Lotus Green (the company that held the Fyffes shares) and S&L Investments - when it was launched in late January 2002, just days before the statute of limitations would have run out, preventing any action.

Rarely have two leading Irish business fought each other in the public arena.

The McCanns have built their empire over two generations, starting out from a warehouse on Dublin's north inner city in 1951. When patriarch Neil took the company to the stock market in 1981 it had sales of just €30m, but through a series of acquisitions he and his sons Carl and David have grown the business into the third largest banana distributor in the world.

Mr Flavin started out working in AIB's venture capital business in the 1970s before leaving to set up DCC as one of Ireland's first venture capital firms in 1976 and the company is now worth €1.2 billion.

Fyffes is alleging that its former investor breached Part V of the Companies Act, 1990, essentially a claim of insider dealing.

DCC have rejected this and maintain that the company and its executive have done nothing improper. It said that it viewed the action by Fyffes with "incredulity" and it would be "vigorously and comprehensively challenged".

When the case begins on Thursday, Fyffes is expected to argue that Mr Flavin, in his role as a director, was in possession of sensitive financial information and passed this back to DCC.

Over a few weeks in February 2000, DCC disposed of its entire stake in Fyffes, netting around e85m in profits. Soon after the sale of the shares, Mr Flavin resigned from the Fyffes board, which he had sat on since 1980.

DCC's defence is expected to argue that no sensitive information was passed by Jim Flavin to Lotus Green and that many other factors that affected the share price were well known.

A number of fresh produce companies, including Chiquita, were struggling because a glut of bananas was flooding the market and the strength of the dollar was also hurting Fyffes.

And the company will point out that Fyffes shares rose because of its investment in the trading platform worldoffruit.com, and that the burst of the dotcom bubble hurt Fyffes.

The hearing this week promises to expose the inner dealings of the world of high finance. Mr Flavin will give evidence, as will many of his other executives. David and Carl McCann and several Fyffes bosses will also testify.

Several of the country's top stockbrokers will also give evidence. Tape recordings of their conversations with the main players will be played in court.

A defeat for DCC would have serious consequences. As a sign of its belief that it did nothing wrong, the company has not set aside any provision in its accounts to cover any damages.

Several other Fyffes investors are waiting on the outcome before launching claims for compensation from DCC.

Whoever emerges the victor, one thing is certain, the reputation of one of Ireland's largest companies will be tarnished.