€1.87m O’Reilly payout defended

The board of Independent News and Media (INM) was within its legal rights to make a €1.87m payment to Gavin O’Reilly to secure his agreement to stand down as chief executive, the Commercial Court was told yesterday.

But lawyers for a non-executive director of INM, who brought a legal challenge to the payment, insists the law states that payments of this type are prohibited.

Paul Connolly, a Denis O’Brien-nominee to the INM board, says the payment should first have been put to a general meeting of shareholders in accordance with Section 186 of the Companies Act 1963.

Mr Justice Brian McGovern reserved his decision.

Paul Gallagher, for INM, argued the payment to Mr O’Reilly was in compliance with the law because it had been approved on the basis of settling an employment dispute and in order to avoid litigation.

Mr Gallagher said the directors of a company are empowered to enter into a bona fide compromise of legal, and in particular contractual, claims and have a broad discretion when doing so.

He said the law does not remove this entitlement and it is well established that such agreements are outside the scope of Section 186 of the Act.

Even if it did there was also an exception to such payments provided by Section 189(3) of the Act which allows the payment for damages for breach of contract entered into on foot of legal advice and in the best interests of a company, Mr Gallagher said.

Mr Gallagher added that Mr Connolly’s claim that such an exception did not apply because the payment was partly for loss of office was based on a misunderstanding and a failure to appreciate that the position of CEO is “an office”.

INM is also challenging Mr Connolly’s standing in bringing his action. He could not bring proceedings of this type in his capacity as a shareholder, having regard to case law which established the principle that where a company has been wronged, it is the company, and not its shareholders, that can bring the case, Mr Gallagher argued.

Mr Connolly had proper standing in bringing the case because this was about the usurpation of power of shareholders by directors, counsel argued.