Analysis: When the company moved from venture capital to industrial holding, its large shareholding raised issues of governance, writes Colm Keena.

Courtroom clashes involving businesses tend by their nature to produce a lot of evidence concerning codes, corporate governance and company law.

But behind the concern with ethics, it remains the case that big business is a place where people are focused on profits, business growth, ownership and control.

A series of letters exchanged between DCC and Fyffes in 1998 read to the court yesterday and on Wednesday, though ostensibly about issues to do with the Model Code governing plcs, seem in reality to reflect concern over the issues of long-term ownership and control at the heart of Fyffes.

DCC, originally called Development Capital Corporation, was founded by its current managing director, Mr Jim Flavin, as a venture capital company that also provided corporate advice.

In 1981, it took a 10 per cent-plus shareholding in Fyffes and Mr Flavin was appointed to the Fyffes board. He also gave corporate advice to Fyffes and Mr Neil McCann.

In the early 1990s, DCC began its transition from a venture capital company to an industrial holding company, a process that was completed around the time DCC was floated in 1994.

As part of this process, DCC got rid of stakes in companies in which it did not have a very significant holding or, alternatively, increased its interest in companies in which it did not have a significant stake.

The exception was the Fyffes shareholding.

In early 1995, DCC put in place a structure involving a subsidiary, Lotus Green, which was given control over the Fyffes shareholding in a scheme aimed at avoiding capital gains tax charges when the shareholding was eventually sold.

Fyffes had concerns about DCC's transition as it believed the shareholding held by DCC would eventually be sold and could be seen as "overhanging" the market, thereby blunting the share price.

The DCC shareholding was roughly equal in size to the Fyffes shareholding held by the McCann family. In 1993, the two sides had agreed that the DCC shareholding in Fyffes would not be increased.

During the 1990s, it seems there were discussions around the possibility of Fyffes being taken private, with the McCanns owning a majority stake and DCC holding a significant, minority stake. No such development occurred.

There were spats during the mid-1990s over an alleged conflict of interest for Mr Flavin by way of a stake DCC held in an Irish food company, Allied Foods.

Mr Neil McCann referred in a March 1998 letter to his understanding from Mr Flavin, that "DCC are a seller of their holding in Fyffes, subject to price".

In a letter in May 1998, Mr Flavin referred to Mr Carl McCann expressing a wish that DCC exit Fyffes.

The 1998 letters are concerned with the Model Code which, amongst other matters, covers the obligations of directors who are associated with "connected parties" in relation to their dealings in a plc's shares.

Connected parties must seek the permission of the chairman before dealing in the company's shares.

Both sides agreed that DCC was not a "connected party" because Mr Flavin did not own 50 per cent or more of its equity. However, Fyffes insisted that DCC was covered by the "spirit" of the code.

There were concerns expressed about DCC trading in Fyffes shares at a time when Mr Flavin might be in possession of price-sensitive information.

However, the letters to Mr Flavin from Fyffes did not point out that provisions in the Companies Acts make such trading an offence.

On this basis, counsel for DCC, Mr Michael Cush SC, said Fyffes was in fact focused at this time on gaining some control over DCC's moves in relation to its shareholding in Fyffes, by getting it to agree that it was required to seek Mr Neil McCann's permission before trading.

The witness, Mr Frank Gernon, Fyffes' finance director, said these were matters that were managed by Mr Neil McCann and Mr Carl McCann at the time, and they would be better able to respond.

Fyffes, of course, had an obvious concern about who DCC might sell its large shareholding in Fyffes to, as a potential predator might get hold of the stake. Mr Flavin, for his part, made clear his concern that a limitation on DCC's room to manoeuvre might affect its ability to maximise its profit.

Mr Flavin sent Fyffes the legal advice he had received from William Fry solicitors in relation to the Model Code. Mr Alvin Price, of William Fry, said he did not believe DCC was covered by the "spirit" of the code.

"Of course, dealings by DCC may be precluded from time to time by virtue of the company law provisions relating to insider dealing, but I know from our discussions that you are fully conscious of that point," Mr Price wrote to Mr Flavin.