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When the High Court inspector comes calling, the stakes for the company involved are enormous. A rarely used power of investigation, court-appointed inspections are usually a long drawn-out, distracting and potentially hugely damaging process for a company.
Hence the imperative for Independent News and Media (INM) to try to at least contain the scope of inquiry, if the High Court agrees following a hearing on April 16th that an inspector should be appointed. If an inspector digs in with a wide-ranging inquiry, it could all take years. In the history of previous inspections, a year and a half is a quick result – and potentially it could run a lot longer.
The attitude of the company to the application by the Office of the Director Of Corporate Enforcement (ODCE) is not clear. An interesting snippet in a report by one of its titles, the Irish Independent, suggests that rather than directly agreeing or opposing the appointment, a more likely route would be to seek to narrow the scope of the proposed inquiry.
Above all, INM and its board will not want to get drawn into a lengthy and wide-ranging probe. And once an inspector is appointed and the terms of the inquiry set down, there is no turning back.
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It is, of course, far from given that the court will go along with the ODCE’s application. There are several bars to be jumped. When faced with an application by the ODCE,the court must be convinced that circumstances suggest either the company or some of its agents acted unlawfully or improperly, or that some members of the company were not provided with information which they could reasonably have expected.
Once an inspector is appointed and the terms of the inquiry set down, there is no turning back
The court has considerable discretion in assessing the arguments put forward. To make an appointment, it will also need to be satisfied that doing so is in the public interest, that it is likely to uncover new and relevant facts and that appointing an inspector would not be “disproportionate” in terms of the issues raised.
‘Access all areas’
Remember that the ODCE already has significant powers itself to access company information. The court will need to be satisfied that the wider powers available to a High Court inspector are now needed – and, crucially, where they should be directed. And these powers are considerable.
As well as seeking access to documents and records, a High Court inspector can interview company employees and board members – past or present – and examine them under oath, can access banking records, can seek records or co-operation from other related individuals or companies.
The wide sweep can cover the banks and solicitors of the company being investigated. The inspector can also return to the court to seek to widen the inquiry to other companies. It is not quite “access all areas” but it is not far off.
Ian Drennan, the head of the ODCE, will seek to make a sufficient case for the appointment through a 200-page affidavit, some of the contents of which have been reported on.
This arises from an investigation the ODCE has conducted following a protected disclosure in 2016 from former chief executive, Robert Pitt. Central to Drennan's affidavit will be the role of the board and how it interacted with its largest shareholder, Denis O'Brien. The board was chaired up to recently by O'Brien associate Leslie Buckley.
The arrival of an inspector is a hard situation for a company to control
The key events include a proposed – and later abandoned – takeover by INM of Denis O’Brien’s Newstalk and an alleged data breach which saw what appears to be a significant amount of data removed and searched.
While a list of 19 names has emerged as ones for which the data was allegedly interrogated, the information removed and available to outside companies appears to involve the back-up from a server holding company emails for a long period. So potentially a mass of data is involved.
It will be a big call – for both sides. High Court inspectors do not come and go in a few weeks. While previous appointments have all taken place in very different circumstances – and there is no suggestion that they are analogous to INM – the shorter ones have lasted 18 months to two years, while in the famous case of National Irish Bank the inspectors were in place for six years.
Director restriction
And an important thing to remember is that an inspector’s job is to gather facts and report back to the court. While the court can make an order to “remedy any disability” suffered once it receives an inspector’s report, the main follow-up is the responsibility of the ODCE and, if relevant, other authorities such as the DPP. Previous inspectors’ reports have, in some cases, led to long-running court battles to get people restricted as directors.
In the case of NIB, for example, the report was completed in 2004, but the last case in relation to restricting directors was only heard in the Supreme Court in 2015.
The arrival of an inspector is a hard situation for a company to control. The best lawyers and PR spinners can only get you so far. I remember being called in by NIB’s press advisers in 1998 as the story was breaking. The company had decided to put its hands up and deal with what was being uncovered, initially by RTÉ. But as the affair grew and spread, the inspectors were appointed and NIB simply could not control it.
The INM board will, we presume, try to ringfence any inquiry and present it as a side-show, rather than something central to its business activities. As a plc, this will be vital for its investor base in particular.
A lot hangs on Mr Justice Peter Kelly’s decision. INM faces a potentially lengthy, expensive and distracting inquiry with unpredictable consequences. Its last chance to try to influence how this plays out will be in the High Court next week. After the appointment, the die will be cast.