DCC told share transfer to Lotus not notifiable

A solicitor has told the High Court he advised DCC plc that, while a provision of the Companies Act 1990 read "on a strictly literal basis" required notification to the market of the 1995 transfer of ownership of DCC's stake in Fyffes to a DCC subsidiary, he took the view, and had so advised DCC, that the transfer did not have to be notified.

Alvin Price, a partner in William Fry solicitors and long-time legal adviser to DCC, agreed that Section 67 of the Companies Act is a provision that requires notification of the transfer of any interest in excess of 5 per cent in a public company. He agreed it applied to a "beneficial interest".

He also agreed that failure to comply with Section 67 was a serious matter because, in the event of such failure, the person or entity to whom any interest was transferred would lose rights and entitlements.

He also agreed that the notification requirement in Section 67 was aimed at ensuring that public and listed companies would know who their shareholders were.

He agreed that DCC had sought advice from him in 1995 as to whether it was required to notify the transfer of the beneficial ownership of the 10 per cent DCC stake in Fyffes to Lotus Green Limited, a DCC subsidiary set up in Ireland in 1995 but which later that same year transferred residency to the Netherlands. The court has heard the shareholding was transferred to Lotus Green to avoid payment of capital gains tax on any subsequent sale of the shares.

Asked by Mr Brian Murray SC, for Fyffes, why he had concluded the transfer was not notifiable under Section 67, Mr Price said that, following research into the issue carried out after he received the query from DCC in April 1995, he found such notifications were generally not made.

It seemed to him the non-notification was based, not on the strict legal wording of the section, but on a "purposeful interpretation" of what the purpose of the legislation was, to prevent people from hiding shares through ownership of shareholdings.

He agreed transfers of beneficial interests of more than 5 per cent of the share capital of a plc as between companies of a group would not be a common phenomenon but said it was unlikely to be unique.

Asked what distinguished a transfer from company A to company B, which companies are not in the same group, from company A to company B who are in the same group, he said: "Nothing, I don't believe."

Asked, insofar as Section 67 was concerned, what distinguished one transfer from being notifiable and another from not being notifiable, he said this was because such notifications were never done and possibly the reason why it was not done was, so far as the purpose of the legislation was concerned, if a plc was already known to be the holder of the 5 per cent plus shareholding, there was then no purpose in announcing that continued to be the case. That was the rationale for his advice.

Mr Price said he had received indications that Fyffes would not favour notification because that could have affected its share price. He said DCC would also have been concerned at the impact of notification on the price of the shareholding it held in Fyffes. He agreed it was his view the shares were owned within the DCC group.

He agreed DCC had sought more specific advice from him in 1995 on the matter and said he believed some of its concern was to "get me down off the fence". He agreed his advice of April 1995 was fairly unequivocal but said that, overall during the period, it was a point that had troubled him and his letter of April 1995 had a touch of "on the one hand and on the other hand" about it. He thought DCC would have had a preference of there not being a requirement to notify.

Asked about a 1995 memo from DCC compliance officer Michael Scholefield to DCC chief executive Jim Flavin in which Mr Scholefield wrote that: "On reflection, Alvin agreed with my original conclusion that the transaction might technically be construed as insider dealing but only if you were in possession of price-sensitive information in your capacity as a director of Fyffes.

"If you are in possession of such information, Alvin thinks we would need to review very seriously whether the transaction should be undertaken at a time when that was the case."

Mr Price said he did not know what the phrase "on reflection" referred to. He would probably have had the view it was fanciful to be overly concerned with the insider dealing Act in relation to a transfer within the DCC group. He believed that if there was no price-sensitive information in existence, there was no problem.

He said the practical matter was that Mr Flavin had confirmed there was not in existence any price-sensitive information and, after that, everything else was a theoretical discussion. He did not understand the last sentence in the memo.

Asked about handwritten notes of Mr Scholefield which included the phrases: "There is a dealing, don't think we will be prosecuted. Technically unlawful. Not too concerned. No price-sensitive info", Mr Price said he did not know if those notes might be a record of a discussion between him and Mr Scholefield. He thought it was "very unlikely" he would have used the phrase "don't think we will be prosecuted".

Mr Price was being cross-examined by Mr Murray on the 58th day of proceedings by Fyffes alleging "insider dealing" in relation to the €106 million sale of the DCC shareholding in Fyffes over three days in February 2000.

The action is against DCC, Mr Flavin and two DCC subsidiaries - S and L Investments Ltd and Lotus Green Ltd. The defendants deny the claims and plead the share sales were properly organised by Lotus Green.

Earlier yesterday, in direct examination by Mr Kevin Feeney SC, for DCC, Mr Price said Mr Flavin had phoned him on January 31st, 2000, three days before the first of the Fyffes share sales.

Mr Price said the primary issue raised by Mr Flavin in the call was whether, under Stock Exchange regulations, the DCC group would need to obtain the prior consent of the Fyffes chairman before accepting any offer for the shares. Mr Price said he had confirmed advice, previously given by him to DCC in 1998, that approval would not be required. Mr Flavin had said that was his own understanding but that he had felt it appropriate to check the issue with Mr Price.

Mr Price said that, in the same call, he had discussed with Mr Flavin whether Mr Flavin had any price-sensitive information regarding Fyffes. Mr Flavin indicated he had already considered that question and had concluded he had no price-sensitive information. Mr Flavin had mentioned that trading in the first two months of Fyffes financial year (beginning November 1st, 1999) had been poor but Mr Flavin had said he did not consider that particularly significant and referred to previous patchy periods in otherwise good years.

On the basis of that assessment, Mr Price said it was his view the DCC group would be free to deal in the Fyffes shares at that time.

Because of the "strained relationship" between DCC and Fyffes in recent years, Mr Price said he had asked Mr Flavin what was the likely reaction of Fyffes if DCC was to reduce its shareholding. He said Mr Flavin had said he himself could not entirely predict what Fyffes attitude would be.

The case continues today before Ms Justice Laffoy.