Friday 18 October 2019

Ex-Datalex CFO takes legal advice after AGM claims

Interim CEO Corkery made comments to media

Comments: Interim Datalex chief executive Sean Corkery
Comments: Interim Datalex chief executive Sean Corkery
John Mulligan

John Mulligan

Former Datalex chief financial officer David Kennedy is taking legal advice in relation to comments made yesterday by the company's interim chief executive Sean Corkery in relation to an accounting scandal at the travel software firm.

Speaking after the embattled company's annual general meeting in Dublin, Mr Corkery made comments in relation to events at the company that have forced it to slash 85 jobs and shore up its balance sheet.

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Mr Kennedy and former Datalex chief executive Aidan Brogan may face legal action by the company for possible legal action in relation to an alleged unlawful distribution of funds from a subsidiary that were used to pay a $4m dividend to shareholders last year, according to Mr Corkery.

But Mr Corkery outlined further concerns about past management of Datalex at a press conference following the AGM.

When the comments were put to Mr Kennedy, he told the Irish Independent: "I am currently taking legal advice in relation to the statements that were made today."

Mr Brogan was not contactable.

Mr Kennedy announced his intention to step down as Datalex's finance boss in September last year - months before an accounting scandal was revealed by the company. Mr Brogan resigned as CEO in May, as Datalex battled for survival.

Mr Corkery, who's also acting chairman at the embattled group, has also criticised former Datalex auditor EY, and said he is willing to become Datalex's full-time CEO if no suitable replacement can be found.

"There was clearly a breakdown in controls, both at a financial level, but also across the company, I would say," Mr Corkery told shareholders at the company's annual general meeting in Dublin yesterday.

Datalex previously said that it was considering legal action against former executives in relation to the alleged unlawful distribution of funds.

The company claims the distribution was unlawful because it was based on the premise that revenue existed which was "not valid", said Mr Corkery yesterday.

Speaking after the company's AGM in Dublin yesterday, Mr Corkery said that the possibility of legal action against former executives remains an option, but that it would be up to shareholders to decide if it should go ahead.

"My focus is on going forward. If shareholders felt it was worth their while, but I think it's a long process," he said. "We, representing shareholders, need to decide what we're going to do about it."

Datalex has spent months trying to regroup after the accounting scandal. It recently reported that it made a $50m (€45.1m) loss for 2018.

It's been forced to go cap-in-hand to its biggest shareholder, billionaire financier Dermot Desmond, to shore up its balance sheet. He owns just under 30pc of the company.

He gave Datalex a €10m debt and equity injection earlier this year, and has agreed to procure up to $5.5m as part of a $10m fundraising that will give the company cash to keep operating into next year.

Mr Desmond's representative on the board, John Bateson, was re-elected a non-executive director yesterday despite shareholder advisory firm ISS having recommended that shareholders should not re-elect him.

As part of its recovery process, Datalex will seek to have its shares relisted on the Euronext in Dublin. They've been suspended since May. That probably won't happen until Christmas, said chief financial officer Niall O'Sullivan, who added that the fundraising will likely be pushed into early 2020.

Both Mr Corkery and Mr O'Sullivan told shareholders at the AGM - including former Grafton Group executive chairman Michael Chadwick and tech entrepreneur Cyril McGuire - that they intend to participate in the fundraising. Mr McGuire said he believes Mr Corkery is doing a "terrific job".

Mr Corkery criticised EY, which has just resigned as Datalex's auditor. EY said in Datalex's recently published annual report, that it had been "unable to form a view as to whether there are material misstatements in the directors' report".

"The auditors had an unfair level of scepticism… which really extended the period of the audit to almost nine months at a cost of $1.1m, which is eight times higher than the normal fees in the UK and Ireland," he said.

"We do of course acknowledge that we wanted the group statutory auditor to be rigorous… but we do think that it could be done in a more timely fashion," he added.

Mr Corkery said the EY's inability to form a view on the accounts "will make life more difficult" as Datalex tries to relist its shares.

At least some of the company's problems stem from the fact that it was offering customers increased personalisation for its software platforms, which drove up costs and made it miss milestones. It will no longer offer such customisation.

The Datalex platform is used by airlines around the world to help drive their ancillary sales to flyers - everything from insurance to meal choices.

One of the biggest drags for Datalex has been a contract for Lufthansa, where costs spiralled.

Earlier this month, Lufthansa terminated its contract with the Irish firm on a project that was between 60pc and 70pc complete.

Datalex will also name three new non-executive directors in coming weeks, including one from the airline industry.

Irish Independent

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