Court reserves judgment on bid to appoint inspector to DCC

THE HIGH Court has reserved judgment on the application by the Director of Corporate Enforcement for the appointment of an inspector to DCC, following a Supreme Court finding of unlawful insider dealing by DCC and its former chief executive Jim Flavin in the €106 million sale of the DCC stake in Fyffes in 2000.

The director, Paul Appleby, believes there are "clear and compelling grounds" to appoint an inspector to DCC and its subsidiaries, SL 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 in February 2000 suggest, he believes, potential breaches of the Companies Acts and the potential involvement in that misconduct of senior persons connected to DCC.

An inspector's report could provide the basis for disqualification proceedings against persons involved in the 2000 share sales or in the 1995 transfer, 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 the appointment of an inspector was whether there was a real and substantial need and, whether a benefit could be gained.

The director failed on both counts, he said. The normal situation is that an inspector's appointment is sought where there is a lack of knowledge of issues, but there was no lack here, he argued.

There was already a lengthy High Court judgment and transcripts of the hearing, a Supreme Court judgment and files of documents. Counsel said there was a "startling and unexplained" change of position by the director, who earlier this year said all information necessary for the courts to consider disqualification orders was available, but who 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 other persons, counsel said. Given that finding, there was no evidence to support the director's suggestion that other persons had involvement in these events. It was wrong to characterise the share sales as a fraud on the market, counsel added. The sales were illegal because Mr Flavin had price-sensitive information at the time, but neither Mr Flavin nor the DCC directors believed it was price-sensitive. DCC lost its case because the law provided that there did not have to be intentional use of the information - just possession of the information and dealing.

Closing the case for the director, Brian O'Moore SC said that, contrary to what DCC asserted, there was "a real and pressing need" for the appointment of an inspector, and a substantial benefit to be gained from same. It would address public concerns and establish whether the legal basis for the governance of companies was adequate.

The director wanted an inquiry into how the dealing happened and who was responsible and culpable for that, as the High Court had heard "a limited story".

When the director asked the courts to consider disqualification of their own motion, while he did not name any person, he felt "a benchmark" was reached that would justify disqualifying the individual who was a defendant in that action, counsel said.