INM chairman tells court how he decided CEO O'Reilly had to go
INDEPENDENT News & Media (INM) chairman James Osborne decided that Gavin O'Reilly's position as CEO had become untenable once the company's bank had lost confidence in him, the Commercial Court heard yesterday.
He also spoke to major INM shareholder Denis O'Brien, who told him he was not prepared to consider supporting a rights issue to raise new finance for the company as long as the existing management was in place.
Mr Osborne was being cross-examined on the second day of an action by a non-executive director of INM, Paul Connolly, who claims there was "undue haste" by the company's board in approving a €1.87m compensation package which secured Mr O'Reilly's agreement to leave the company on April 19 last.
Mr Osborne, a solicitor who has been on the boards of eight publicly quoted companies, told the court yesterday that the INM board had agreed the termination package for Mr O'Reilly following legal advice and in order to avoid a time-consuming court action.
He told Michael Cush, for Mr Connolly, that it became pretty clear to him last March that Mr O'Reilly was no longer the right person for the job.
The bank had lost confidence and when he inquired with Mr O'Brien about a new rights issue, he was told that "while the existing management was in place, he would not consider it".
He agreed with Mr Cush that there were "an awful lot of things" at issue, including the fact that Mr O'Reilly had been in Australia a total 11 times in the previous year, where he was chairman of INM associate company APN, but which did not seem to be in the best interests of INM.
The "tipping point" which led to a consensus among INM directors that Mr O'Reilly had to go was a series of "quite extraordinary" emails and a meeting between Mr O'Reilly and Bank of Ireland, he said.
Asked by Mr Cush if what Mr O'Reilly had said to the bank was "bizarre behaviour", Mr Osborne replied: "When you owe somebody €423m, it is probably not a good idea to send emails accusing them of various things. That would not be my view of how to do things."
Mr Osborne said he became aware, through the newspapers, that Mr O'Reilly was complaining about possibly being under surveillance.
Earlier, Mr Osborne had told Michael Howard, for INM, that following his appointment as chairman last October, he spent the first three months assessing a number of matters, including matters relating to the CEO, and by March he had reached a number of conclusions.
Around this time, Bank of Ireland, as lead for a syndicate of eight banks providing finance for INM, had agreed to a change of the financial covenant for the company, but at the same time had expressed concern about management.
Mr Osborne said he spoke to Patrick Gaynor of the bank, who did not refer to anybody in particular "but it was clear to me he was referring to the CEO".
Once the bank had "lost confidence" in Mr O'Reilly, Mr Osborne said it was clear that the board would have to do something and a consensus would have to be reached for him to go.
One of the other directors proposed that they should try to reach a compromise with Mr O'Reilly, who had threatened legal action if he was dismissed.
It was pretty clear to Mr Osborne that Mr O'Reilly was "lining up some heavyweights" (lawyers) to bring a court action.
Negotiations took place between the company lawyers and Mr O'Reilly's lawyers. The board, acting on legal advice, voted on April 19 to approve the €1.87m settlement, along with €80,000 in legal and tax costs.
Mr Osborne said if they had not agreed to this compromise, the alternative was to dismiss Mr O'Reilly and wait for him to bring a High Court injunction. "To my mind, that was not the desirable course of action."
Gary Byrne, a solicitor and employment-law expert, said the only situation in which payment for two years would be given is where it is in a contract. In other situations, if there is no such entitlement, one runs into difficulties with Section 186 of the Companies Act which requires shareholder approval for such payments, he said.
Legal submissions have begun and the hearing is expected to conclude today.