FORMER SMART Telecom chief executive Oisin Fanning has claimed before the High Court that businessman Brendan Murtagh threatened in October 2006 to put the company into liquidation unless all the directors who were not loyal to Mr Murtagh resigned and signed irrevocable proxies supporting his takeover of the company.
In autumn 2006, Mr Murtagh "manipulated and misrepresented" to shareholders the financial position of Smart, announced that a new investment vehicle with Mr Murtagh as shareholder would only invest if the shareholders agreed to him buying 90 per cent of the company for €1 with the alternative being liquidation, Mr Fanning claims.
This buyout was "a gross undervalue" as it did not take into account some €7.6 million owed by Mr Murtagh to the company or the €95 million value of an option to purchase 90 per cent of BBCL (Broadband Communications Ltd) from Mr Murtagh, he claims.
As a result of these actions, the assets and undertaking of Smart Telecom were transferred to Smart Yuroe Broadband Ltd, leaving Smart as "a shell", it is claimed. Mr Murtagh holds 50 per cent of the shares in Smart Yuroe with 40 per cent held by other investors and the rest by Smart, Mr Fanning said.
Smart Yuroe was in discussions with two substantial telecommunications operators to sell the business of Smart Yuroe "which strengthens my belief that the company was sold at a gross undervalue", Mr Fanning alleged.
Mr Fanning said the board of Smart was put under severe pressure at a meeting on October 5th, 2006, to accept Mr Murtagh's takeover proposal.
The following day, Smart chairman Kyran O'Dwyer had told Mr Fanning that Mr Murtagh was going to put the company into liquidation regardless of any previous assurances unless all the directors who were not loyal to Mr Murtagh resigned and signed irrevocable proxies supporting his takeover of the company, he claimed.
Mr Fanning said he initially refused to resign. However, after being told his €650,000 severance package and a €5 million loan secured on his home - which he claims Mr Murtagh pressurised him to take out - would be in jeopardy, he had resigned. Other directors who were not allied to Mr Murtagh also resigned under severe duress, he claimed.
Ms Justice Mary Irvine heard these and other claims in an affidavit by Mr Fanning read at the opening of his application for leave to bring an action aimed at overturning the management buyout of Smart on grounds of alleged unlawful and oppressive conduct of the affairs of the company by Mr Murtagh and others.
Mr Fanning needs the permission of the court to have the case heard as a derivative action - an action by a minority shareholder in a company where the company itself has not taken action.
Mr Fanning wants to have the business purchase agreement of October 2006 between Brendan Murtagh and Smart, under which Mr Murtagh purchased the assets of the company for €1 plus 10 per cent of the entire equity share capital of Smart Yuroe Broadband Ltd, declared null and void.
Mr Murtagh, of Dunheeda, Kingscourt, Co Cavan, and his sons Alan and Fergal are defendants and have asked the court to strike out the case as "opportunistic".
Mr Fanning claims Brendan Murtagh invested large sums in Smart and "effectively controlled" it from 2005. When Smart won the 3G mobile phone licence bid, which required it to put a bond of €100 million in place, he said Mr Murtagh had advised him to ring Seán Quinn group, which agreed to loan Smart €28.5 million.
ComReg had later rejected the €100 million bond. Mr Fanning claimed that, although the company was always short of money and Mr Murtagh was controlling it financially, Mr Murtagh had not repaid Smart a sum of €7.6 million. When Brendan Murtagh realised in 2006 that, in order to take the company private, he would be required to pay market price for it as advised by Davy stockbrokers, he had embarked on a course designed to jeopardise the cash flow of the company, Mr Fanning claims. He alleges Mr Murtagh was very unhappy with the advice from Davys and had instructed Mr Fanning to meet Liam Booth of NCB stockbrokers.
Davys had advised the management buyout would have to be done at a price of at least 18p sterling per share under Takeover Panel rules but Mr Booth had advised he believed the buyout could be done at 6.1p sterling or 8p sterling on the basis that, regardless of Smart's share price, if Mr Murtagh held off financing the company, it could be represented to the Takeover Panel that the price was fair given the alternative that the company would be wound up, Mr Fanning claims.
"Rather alarmingly, Mr Booth stated that a previous director of NCB was on the panel and that he was confident he could get it through at that price," Mr Fanning said.
