A chartered accountant and chairman of the audit committee of the Department of Agriculture and Food has told the High Court that DCC chief executive Jim Flavin possessed "insider information" at the time of the controversial €106 million sale of the DCC stake in Fyffes in February 2000.
The "insider information" in question was circulated to Fyffes directors in January 2000 in the form of trading reports for November and December 1999, and a forecast for January 2000, Mr John Donnelly said. Those documents showed the trading performance for the first three months of the fiscal year 2000 (beginning November 1999) looked "pretty frightful" and contained "nothing but bad news" for Fyffes. The information was confidential and price sensitive.
If the information was made available to the market, it would have had an adverse effect on the Fyffes share price, he said. Directors in possession of such information would not have been free to deal in Fyffes shares, he added. Mr Donnelly also contended Mr Flavin was active in negotiating the disposal of the DCC stake in Fyffes in February 2000.
He said that in August 1995 Lotus Green Limited, a Dutch-based DCC subsidiary, became the beneficial shareholder of DCC's holding in Fyffes. He had concluded DCC controlled Lotus Green through a system of A directors, who were Irish, and B directors, who had to be residing in the Netherlands.
The Articles of Association of Lotus Green restricted the B directors from acting without an A director's approval. The accounting treatment by DCC in consolidating Lotus Green in the DCC group financial statements indicated that DCC had formed the view that they did in fact control the subsidiary.
Mr Donnelly said a number of DCC executives, including Mr Flavin, were aware of and participated in the decision by Lotus Green to sell the stake in Fyffes in February 2000 and this was evidenced by phone and fax records to and from DCC.
He said Mr Fergal O'Dwyer, as chief financial officer (CFO) of DCC and as an "A" director of Lotus Green, actively participated in the decision by Lotus Green directors to sell the stake.
In his capacity as CFO of DCC, Mr O'Dwyer had advised the chief executive of DCC, Mr Flavin, of this decision, he added.
Yesterday was the 31st day of the action in which Fyffes alleges the sale of the DCC stake in Fyffes for €106 million over three days in February 2000 breached insider dealing provisions of the Companies Act.
The proceedings are against DCC, Mr Flavin and two DCC subsidiaries, Lotus Green and S&L Investments. The defendants deny the claims and plead the sales were properly organised by Lotus Green. They also deny possession of price sensitive information at the time of the share sales.
An 85-page report from Mr Donnelly, who has been called as an expert witness for Fyffes, was presented to Ms Justice Laffoy yesterday. Mr Donnelly was examined by Mr Paul Sreenan SC, for Fyffes, regarding his report and conclusions.
The report deals with a range of issues, including the duties of public-limited-company directors and non-executive directors, and the role and purpose of budgets in plcs.
It also gives an operational overview of Fyffes plc. Mr Donnelly also analyses the Fyffes budget for the fiscal year 2000 and the significance of information available to Mr Flavin in January 2000 in his capacity as a non-executive director of Fyffes plc.
In a commentary on events leading up to the sale of the DCC stake in February 2000, Mr Donnelly said it was unusual to delegate a decision such as the disposal of a substantial investment to a board of directors of a subsidiary company without input into that decision from the holding company.
The fact that the DCC stake in Fyffes was transferred in 1995 to Lotus Green did not divorce the directors of DCC from their responsibilities in relation to the investment held by Lotus Green.
He said Mr Flavin, as chief executive and deputy chairman of DCC, would have been aware of the activities of each principal subsidiary of DCC. It was "inconceivable" he did not know of or was not involved in a decision as significant as the sale of the Fyffes shares.
Regarding the disposal of the DCC stake, it would have been appropriate and good practice to write, as required by the Stock Exchange Model Code and Fyffes board procedures, to the Fyffes chairman requesting formal authorisation to deal, Mr Donnelly said. No such authorisation was requested by Mr Flavin.
Contacts between Mr Flavin and DCC's compliance officer and the firm's solicitors showed Mr Flavin was aware that it was best practice to advise the Fyffes chairman in writing of the proposal to sell the shares.
The case continues today.
