Court told INM's €1.87m payout to O'Reilly 'unlawful'
A PAYMENT of €1.87m made with "indecent haste" to former Independent News & Media chief executive Gavin O'Reilly on his stepping down last week was unlawful and also unjustified, a non-executive director of the company has claimed in the High Court.
Paul Connolly, one of two directors on the INM board representing the company's biggest shareholder, Denis O'Brien, claims the payment was made even though Mr O'Reilly presided over "a period of destruction" of the company's share value.
Mr Connolly has brought proceedings seeking declarations the payment breached Section 186 of the Companies Act because it was approved by the board without being put before the company's shareholders at a general meeting.
Rossa Fanning, for Mr Connolly, secured permission from Mr Justice Peter Kelly yesterday to apply next Monday to have the proceedings -- which are against INM only -- fast-tracked in the Commercial Court.
The case arose from the payment approved following the resignation of Gavin O'Reilly and his replacement by Vincent Crowley as chief executive of INM, Mr Fanning said.
Mr Connolly -- a chartered accountant, director of Commmunicorp Group and a non-executive director of INM since 2009 -- and another director voted against the €1.87m payment.
In court documents, Mr Connolly said he believed the payment should first be approved by a general meeting; had communicated that view to the board and told it he intended to take advice, but was told the board's advice was it could approve the payment.
He was later informed the payment would not be referred to a general meeting and had already been made on April 19, the same day it was approved, counsel said.
It was his case that the payment was made with "indecent haste".
This case involved a net point -- whether Section 186 of the Companies Act 1963 required such a "compensation" payment to be approved by the members of a company at a general meeting.
Mr Fanning said Mr Connolly also believed the payment was unduly generous because Mr O'Reilly's term as CEO was unhappy, involving two profit warnings.
There was an AGM of the company scheduled for June 18 and his client hoped the payment could be raised at that, and in those circumstances wanted to have the case addressed urgently in the Commercial Court.
If the court granted a declaration that the payment was unlawful, then Mr Connolly would expect the board to refer the matter to the AGM despite the payment having already been made.
In the proceedings, Mr Connolly claimed the board chairman told him the legal advice was the payment could be lawfully made by the board of directors. Mr Connolly said he understood the board was advised the payment was to be compensation to compromise any claims Mr O'Reilly could bring against INM were he dismissed.
Because Mr O'Reilly lives in London, does not ordinarily work here and some 70pc of his remuneration from INM was paid to a Jersey-registered company, Mr Connolly contended there was serious doubt whether Mr O'Reilly could avail of the protections of the Unfair Dismissals Act.
Mr Connolly also claimed the €1.87m payment was an extremely large sum in circumstances where Mr O'Reilly had no executed contract of employment. His advice was that the severance payment provided for something approaching two years' total compensation when, he said, it would be rare for the courts to agree a period of over one year.
As Mr O'Reilly's employment was terminated "by mutual agreement", he believed there was no dispute to be compromised, Mr Connolly added.
Mr O'Reilly also should not have been rewarded for presiding over "a period of destruction" of the company's share value, he said. The performance of INM had been "extremely disappointing" in recent years with its share price falling from a high of €15.98 on the Irish Stock Exchange in June 2008 to 21 cents on March 30.
It was in that context that Mr O'Reilly entered into negotiations leading to his agreement to resign as CEO, Mr Connolly said.
A company press release issued after the board meeting indicated the board unanimously approved the agreement with Mr O'Reilly but that was inaccurate as he and another director opposed it, Mr Connolly added.
Separately, it emerged yesterday that Bengt Braun is to step down from the board of IMN. Mr Braun (65) is the vice-chairman and former chief executive of Bonnier AB, Scandinavia's largest media group. The Swede was first elected to the board of INM in 2010.
Mr Braun said the allocation of new duties to him in his role with Bonnier AB was behind his decision.
"I am joining two additional boards within Bonnier. One of these is in the US and will necessitate a significant amount of travel. It will soon be no longer possible for me to devote the time and expertise to INM that the shareholders deserve," said Mr Braun.
"Accordingly, I decided that I would not be putting my name forward for re-election at the upcoming AGM. Having made that decision, I concluded that I should not be involved in strategic planning on the future of the company at upcoming board meetings and feel it is appropriate that I should stand down now."
Meanwhile, newly appointed chief executive Mr Crowley has bought 150,000 shares in INM, while chairman James Osborne has bought 50,000 shares.