Inspector concludes breaches of insider trading laws were unintentional

The report of the High Court Inspector into the affairs of DCC plc, S&L Investments Limited and Lotus Green Limited was published by order of the Court this week.

The main events (previously covered in Manifest’s Agenda newsletter) preceding the initiation of this High Court Inquiry were as follows:

  • August 1995: DCC and S&L entered agreements to sell their combined 10.5% stake in the ordinary shares of Fyffes plc to Lotus Green;
  • February 2000: DCC, S&L and Lotus Green sold their entire holding of 31.2 million ordinary shares in Fyffes in three tranches on 3, 8 and 14 February realising some €106 million for the Group. DCC’s then Chief Executive, Mr James Flavin, resigned from the board of Fyffes with effect from 9 February;
  • March 2000: Fyffes issued a profit warning to the Irish Stock Exchange on 20 March in respect of its trading performance for the financial year to date;
  • Early 2002: Fyffes commenced civil insider dealing proceedings under the Companies Acts against DCC, S&L, Lotus Green and Mr Flavin. Fyffes claimed that the disposal of shares in February 2000 was effected at a time when Mr Flavin possessed price-sensitive information by reason of his directorship of Fyffes;
  • 2004/2005: The Fyffes’s claim was heard over 87 days in the High Court;
  • December 2005: The High Court Judgment of 21 December rejected Fyffes’s claim against the four defendants;
  • July 2007: The Supreme Court Judgments on 27 July unanimously allowed the Fyffes’s appeal. It concluded that insider dealing had occurred and that Fyffes was entitled to damages in respect of its claim. The Court subsequently decided that any disqualification would be a matter for the High Court;
  • April 2008: The claim for damages was settled on the basis that some €42 million (including legal costs) was to be paid to Fyffes. The High Court did not address the issue of disqualification in noting the settlement;
  • May 2008: The Director of Corporate Enforcement asked the High Court to appoint an Inspector to DCC, S&L and Lotus Green to examine the acquisition and disposal of the Fyffes’s shares in 1995 and 2000;
  • July 2008: The High Court appointed Mr Bill Shipsey, S.C., as Inspector to DCC, S&L and Lotus Green on 27 July 2008.

The Inspector spent 18 months on the “detailed forensic investigation”. The role of the inspector is to investigate and report – they are not a court of law and do not even decide if there is a prima facie case. The investigatory regime exists to ensure that companies incorporated under the acts do not abuse the privileges which incorporation confers on them to the detriment of their shareholders, their creditors or the public in general.

He was asked to investigate and report on whether there was evidence to suggest that the companies and individual officers, directors and/or advisers to the companies breached Parts IV and V of the Companies Act, 1990, or any related provisions thereof.

The report thus clarifies the actions of all parties in both 1995 and 2000. The Inspector concludes that any breaches of company law which occurred were not made intentionally and he concludes his Report by stating that:
“…the actions and behaviour of DCC, S&L and Lotus Green between 1995 and 2000 in connection with the transactions under investigation measured up to the standards required by law notwithstanding Mr. Flavin’s error of judgment.”

The cost of the Inspector’s work is expected to amount to approximately €1.4 million. The High Court will determine in due course who should bear this cost.

Further Reading

ODCE Press Release

The Inspector’s Report runs to 970 pages (not counting some 2,000 pages of Appendices).

Inspectors Report Volume 1:

Inspectors Report Volume 2:

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