High Court reserves judgment on application for DCC inspector

THE High Court has reserved judgement on the application by the Director of Corporate Enforcement, Paul Appleby, for the appointment of an inspector to DCC.

The hearing follows a Supreme Court finding of unlawful insider dealing by DCC and its former chief executive, Jim Flavin, in the €106m sale of DCC’s stake in Fyffes in 2000.

The hearing of the two day application — the first ever by the Director of Corporate Enforcement — concluded yesterday under Mr Justice Peter Kelly.

Mr Appleby believes there are “clear and compelling grounds” for appointing an inspector to DCC and its two subsidiaries, S&L Investments Ltd and Lotus Green Ltd. The circumstances of the 1995 transfer of the DCC stake in Fyffes to Lotus Green and the sale of that stake on three dates in February 2000 suggest, he says, potential breaches of the Companies Acts and potential involvement in that misconduct of senior persons connected with DCC.

An inspector’s report could provide the basis for disqualification proceedings against any persons involved in the 2000 share sales or in the 1995 transfer to Lotus Green. That transfer was effected to avoid payment of capital gains tax on any subsequent sale of the shares.

Yesterday, in submissions for DCC opposing the application, Donal O’Donnell SC said the test for appointment of an inspector was whether there is a real and substantial need for such an appointment and whether a substantial benefit could be gained. The Director failed on both, he said.

The normal situation is that an inspector’s appointment is sought where there is a lack of knowledge about issues but there was no lack of knowledge here, he argued. There was a lengthy High Court judgement and transcripts of the 87-day hearing, and a Supreme Court judgements. The Director wanted to go over the same ground covered by the High Court but to get a report of evidential significance.

Counsel said there was a “startling and unexplained” change of position by the Director, who earlier this year told the High and Supreme Courts there was all the information necessary for the courts to consider disqualification orders, but was now saying he needed more information. Seeking an inspector for the purpose of future disqualification proceedings was not contemplated by the Companies Act.

The High Court had found the price sensitive information in Mr Flavin’s possession at the time of the share sales was not used by him and not transmitted to others. Given that finding there was no evidence to support the Director’s suggestion that others had any involvement in these events.

It was wrong to characterise the 2000 share sales as a fraud on the market, counsel added. The sales were illegal because Mr Flavin had price sensitive information at the time, although neither Mr Flavin nor the DCC directors believed it was price sensitive. DCC lost its case because the law provided there did not have to be intentional use of the information — just possession and dealing.

Closing the case for the Director, Brian O’Moore SC said that, contrary to what DCC asserted, there is “a real and pressing need” for the appointment of an inspector and a substantial benefit to be gained from it. The appointment would address public concerns and establish whether the legal basis for the governance of companies was adequate or if lessons could be learned.

The Director just wanted an inquiry into how the dealing happened and who was responsible and culpable for that, as the High Court had heard only “a limited story”, not the full story.

The Director had not said the courts had all the information needed, but rather there was enough information to consider disqualification orders.