Friday 19 January 2018

Connolly stands by "undue haste" claim about payment to O'Reilly

INM's former chief executive Gavin O'Reilly. Photo: Frank McGrath
INM's former chief executive Gavin O'Reilly. Photo: Frank McGrath

Tim Healy

A NON-EXECUTIVE director of Independent News and Media (INM) told a court today he stood by claims that a €1.87m departure payment to the company's former chief executive Gavin O'Reilly was done with "undue haste".

Paul Connolly was being cross-examined on the opening day of his action against INM over a 7-2 vote by the company's board on April 19 last to make the payment to secure Mr O'Reilly's retirement as CEO and director.

Mr Connolly, who was nominated in 2009 to the board by INM's major shareholder Denis O'Brien, and re-elected in subsequent years, is seeking declarations from the Commercial Court that the payment was unlawful under the Companies Act because it should first have been approved by the shareholders.

Mr Connolly told his counsel, Michael Cush, that it took about 45 minutes of discussion at the April 19 meeting before the vote in favour of Mr O'Reilly's termination of employment package was taken.

There was however no discussion of the breakdown of how the €1.87m figure was arrived at, he said.

It was very important that Mr O'Reilly should not only be removed as CEO but as that he should also stand down as chairman of the company's Australian division, APN, given that this was a core part of the group, he said.

It was also important that he would no longer remain as a director of the company as this could be "messy all round" and a "clear departure"

was what was required, he said.

He believed the level of payment should not have been anything higher than 12 months remuneration whereas what the board approved was 23 months. Mr O'Reilly had been CEO for three years, a period during which the share value had "all but been wiped out" and where the company was in its second round of negotiations with the banks within a matter of years, he said.

It was important that they were not seen to "reward failure" and a compensation package of almost two years remuneration was "by any stretch a significant amount."

Mr Connolly said while the amount of compensation was discussed at the meeting, the mechanics and timing of when it was to be paid was not.

It was only later he learned that it had been paid out on the day of the meeting.

Under cross-examination by Paul Gallagher SC, for INM, Mr Connolly agreed it was following the appointment of James Osborne as chairman of INM last October that Mr Osborne made an independent assessment of the role of the CEO and that this culminated in the April 19 board meeting.

Mr Connolly said as a result of negotiations between lawyers for the company and for Mr O'Reilly, a compromise agreement in which the €1.87m figure was agreed became the basis for what was presented to the board at the April 19 meeting.

He agreed he did not tell this meeting that he too had legal advice which was at variance with the company's legal advice that shareholder approval for the removal package was not required.

Asked by Mr Gallagher did he not think he should have warned the board that it was proceeding on an incorrect basis, he said at that stage the meeting had "not bottomed out as to what the legal advice would be."

He agreed the document presented to the board on April 19 stated that the termination (of employment) date would be the same date as the payment was to be made. Asked if he recalled the company's chief finance officer leaving the meeting to make the payment, Mr Connolly said there was a lot going on at that meeting.

Asked did he still say, as he had in an earlier statement to court, that this was done with undue haste and that it was done deliberately to frustrate the proceedings he later took, he said he was still saying so.

When it was put to him by Mr Gallagher that this was a wild allegation, he said he believed it (the payment) was made with undue haste.

He did not recall saying at the meeting "there had been enough legal advice given".

In his witness statement, Mr Connolly also disputes INM's assertion that the compromise agreement it reached with Mr O'Reilly falls within exceptions to Section 186 of the Companies Act 1963 in that it constituted a genuine attempt to resolve an employment law dispute arising out of the termination of the CEO's contract.

Mr Connolly says Mr O'Reilly's employment was not terminated by INM "but rather ceased by mutual agreement and so there was no dispute to be compromised."

In his witness statement, INM chairman James Osborne says that had a compromise agreement not been reached, the company would have

"inevitably" been left open to litigation from Mr O'Reilly. The

agreement secured certainty of outcome for INM and extinguished what would have been prolonged and extremely expensive High Court litigation, he said.

The total amount paid was reflective of Mr O'Reilly's remuneration and was a legitimate pre-estimate of damages which might potentially have been awarded against INM, he said.

It would have been entirely contrary to the interests of INM and would have embroiled the company in a "fractious blood battle", the ultimate outcome of which would have involved some form of compromise though not before "vitriolic, public and reputationally damaging" litigation, he added.

The hearing before Mr Justice Brian McGovern continues.

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