High Court: Inspectors appointed to investigate Independent News and Media

About this case:

• Citation:
  [2018] IEHC 488
• Judgment:
  External link
• Court:
  High Court
• Judge:
  Mr Justice Peter Kelly

Finding that the evidence showed that six of the ten circumstances prescribed by section 748 of the Companies Act 2014 were applicable, Mr Justice Peter Kelly, President of the High Court, was satisfied that the serious matter of appointing inspectors to investigate what had gone on in INM was justified and proportionate.

Application brought by the Director of Corporate Enforcement

In the High Court, the Director of Corporate Enforcement sought an order pursuant to the provisions of s.748 of the Companies Act 2014 and O.74B, r3(1) of the Rules of the Superior Courts 1986 (as amended) appointing inspectors to investigate and report on the affairs of Independent News and Media PLC (hereafter INM). Denis O’Brien has been the largest shareholder of INM since 2012, with 29.9% of the shareholding.

Section 748 of the Companies Act 2014  provides that the Court “may appoint one or more competent inspectors to investigate the affairs of a company and to report on those affairs…”, if the court is satisfied that at least one of the ten circumstances outlined in s.748(1)(a)-(j) arises.

The Director of Corporate Enforcement’s allegations were summarised under four headings:

1. The Data Interrogation issue

This involved removal of computer data from INM’s premises and interrogated outside the jurisdiction. The interrogation was directed by Mr Leslie Buckley, former chairman of INM. During the interrogation, data appeared to have been searched against 19 individuals, including journalists and former members of INM, who were described as ‘persons who may be regarded as having acted adversely to Mr O’Brien’. Indeed it was pointed out that two of the individuals acted as Counsel for the Moriarty Tribunal – which investigated the award of the second GSM licence to Esat (a company controlled by Mr O’Brien).

It was also raised that the costs of the data interrogation were discharged by Blaydon Ltd, and paid to Island Capital – companies under Mr O’Brien’s control.

President Kelly said that the rights and entitlements of the 19 individuals “may have been transgressed in a most serious way by this activity”, and that many questions remained concerning this issue.

2. The Proposed Newstalk Acquisition/APN Transaction issue

At the same time as the data interrogation, Island Capital sought payment from INM for €1m, for work allegedly undertaken by in it respect of the disposal of INM’s shares in Australian Company APN. This request for payment was withdrawn when it was pointed out that it would have to be publicly disclosed. Another payment request which was withdrawn when it became clear it would have to be publicly disclosed, was to a director appointed by Mr O’Brien. There was no documentary evidence to justify either payment.

The Newstalk acquisition issue was in relation to suggested valuations which were higher than the range of asset values previously put forward, in circumstances where Newstalk (a radio station owned by interests controlled by Mr. O’Brien) had initially been described as ‘loss-making’.

It had been advised to INM that the value of Newstalk was between €11 - €15 million, but Mr Buckley was said to have pressed for this valuation to be increased as it was an insult “to the major shareholder”. It is alleged that Mr Buckley stated to Robert Pitt, the former Group Chief Executive, and Ryan Preston, the Group Chief Financial Officer, that the advisors could be influenced to “write what management told them to write” – at the same time as indicating that he wanted to do a deal at €26.8 million.

3. The Independent Review Process issue

Disclosures made by Mr Pitt and Mr Preston regarding the proposed Newstalk acquisition led to the board establishing an independent review. The director alleged that INM failed to discharge is duties in an adequate way by setting up sucha restricted form of review and failing to take all appropriate steps required to properly investigate the issues.

4. The Market Abuse Regulations issue

Allegations of market abuse related to evidence suggesting unlawful sharing of INM’s inside information with third parties outside of INM; as well as unlawful sharing of INM confidential information – constituting an illegality within the meaning of the European Union (Market Abuse) Regulations 2016 [S.I. 349 of 2016].

All six subsections applicable

According to the Director of Corporate Enforcement, the evidence presented to the court satisfied six of the ten circumstances outline in s.748(1),  and on consideration of the evidence President Kelly was satisfied that there were circumstances present in respect of which all six subsections were applicable, namely:

(b) the affairs of the company are being or have been conducted for a fraudulent or unlawful purpose other than described in paragraph (a);

(c) the affairs of the company are being or have been conducted in an unlawful manner;

(d) the affairs of the company are being or have been conducted in a manner that is unfairly prejudicial to some part of its members;

(f) any actual or proposed act or omission of the company (including an act or omission on its behalf) was, is or would be unfairly prejudicial to some part of its members;

(i) persons connected with its formation or the management of its affairs have, in that connection, been guilty of fraud, misfeasance or other misconduct towards the company or its members; or

(j) the company’s members have not been given all the information relating to its affairs which they might reasonably expect.

Discretion

Reiterating his comments in Director of Corporate Enforcement v. DCC Plc [2009] 1 I.R. 464, President Kelly pointed out that after a decision is made regarding the existence of one or more of the circumstances prescribed in s.748(1), he must consider whether, in the exercise of his discretion, it is appropriate to appoint the inspectors.

In this regard, President Kelly was satisfied that appointing inspectors was in the public interest; that such an appointment would be capable of achieving the statutory purpose – i.e. conducting an investigation and getting to the bottom of the ‘myriad of issues the answers to which are not known’; that other investigations did not warrant the refusal of the application; and that the appointment was not likely to cause disproportionate damage to INM.

Stating that the appointment of inspectors was a serious matter, and that “such a sledge hammer should not be used to crack a nut” – President Kelly emphasised that the evidence before him was ‘no nut’ and that the appointment of inspectors to ascertain the truth of what has gone on in the company was well justified and not disproportionate.

Ordering the appointment of two inspectors proposed by the Director of Corporate Enforcement, President Kelly set out the appropriate terms of reference under which the inspectors will carry out their task.

• by Seosamh Gráinséir for Irish Legal News