There was significant, serious and repeated misappropriation by Mr Paschal Phelan from his Master Meat Packers group of companies from 1985 to 1988, the High Court was told yesterday.
This fraud "was carefully planned in advance, executed with considerable ability and involved, in some instances, the rewriting of records", said Mr Paul Gallagher SC, for Mr Larry Goodman.
Mr Gallagher said he would be outlining 15 examples of fraud which directly or indirectly affected all the MMP companies. He would also be producing figures showing serious discrepancies in accounts produced and relied on by Mr Phelan over the period leading to the sale of Mr Phelan's shareholding in the MMP group in 1988.
Counsel said the fraud was carried out at a time when the MMP companies were in a "very perilous" financial situation. He said one instance of fraud involved a defrauding of the MMP plant at Omagh, Co Tyrone, of more than £400,000 (#507,900) for the purpose of "closing a hole" in the 1985 accounts of the MMP plant at Bandon, Co Cork.
The Bandon plant was the first factory opened by Mr Phelan and it was essential to the expansion of the business, said Mr Gallagher. There was a substantial hole in Bandon's accounts for 1985 which, if discovered by the banks and others, would have undermined the group's expansion.
Money was taken from the MMP plant at Omagh, dressed up as fictitious sales, and sent to Bandon which then appeared to make profits, he said. A mechanism was later devised to disguise the problem from the auditors.
The consequent hole in the Omagh accounts was tackled through the creation of a large number of false transactions, generated through fictitious sales, he said. Another fictitious transaction related to a payment of £145,000 sterling from Omagh, counsel said. This was done through writing an additional cheque for a cold store project which never went to the company unwittingly involved. This cheque went through several accounts and was later attributed as a personal investment by Mr Phelan in the Clonmel plant.
Counsel said £97,000 which was paid for the contents of a house bought by Mr Phelan was paid for with money from Omagh. He said there was a practice of creating two loans for the same amount, one of which would be repaid and another not. Because there were two transactions for similar amounts and one transaction would be genuine, this made it harder to trace the fraud.
Mr Gallagher said there was also a misappropriation of cattle cheques from Omagh in 1986 and this was used to finance a Paschal Phelan director's loan to the Bandon plant. There was also a £75,000 payment made to Mr Fintan Phelan, brother of Mr Paschal Phelan, in bogus cattle cheques, he said. When this was discovered, it was claimed it was a bonus payment.
A systematic falsification of weights had led to substantial underpayments to farmers who supplied the MMP Clonmel plant and this led to a fraudulent benefit for the company, counsel added. His side would further be contending dividends were unlawfully obtained at a time when the true financial position of the MMP group was perilous.
By December 1987, a profit projection of £4 million which Mr Phelan had put to the banks the previous April had turned to a loss projection of £5.7 million, counsel said. Borrowings were up by £7.3 million and the net worth of the company had not risen from £11 to £15 million but had fallen to £5.3 million. Accountants Coopers & Lybrand warned the companies had overtraded.
All the financial information on the firms was not available to the purchaser in 1988, he added.
Earlier yesterday, Mr Dermot Gleeson SC, also for Mr Goodman, said documents discovered in the legal proceedings were "instructive" as to how the MMP group was run. In particular, his side had gathered together documents indicating values ranging from £480,000 to £1.25 million were ascribed in 1986 and 1987 to a ship, the MV Bandon, in confidential documents and in accounts. Another ship, the MV Omagh, arrived with a value of £272,000 and was revalued in accounts in 1988 at £1.6 million.
Yesterday was the 28th day of the hearing of several actions involving Mr Phelan, Mr Goodman, a Jordanian businessman, Mr Zakariah El Taher, and others. Mr Phelan is suing Mr Goodman for £30 million damages and interest. He claims Mr Goodman conspired to force him out of the beef processing industry by secretly controlling a 50 per cent stake in MMP and that he was secretly "sold out" by Mr Taher.
Mr Goodman and Mr Taher deny any wrongdoing. For the purpose of the proceedings, Mr Goodman accepts he owned and controlled MMP since 1987. Mr Taher has alleged Mr Goodman acted to defraud and damage Mr Phelan with a view to eliminating MMP as competition to Goodman International or to establish a monopoly in beef processing.
The hearing continues today before Mr Justice Murphy.
