It was an "error of judgement" that cost Jim Flavin his job as executive chairman of the DCC company he founded more than 30 years ago and turned into one of the biggest employers in the country. Almost 10 years after DCC began selling its stake in Fyffes, the insider dealing saga has finally reached an end.
The report of Bill Shipsey, the senior counsel appointed by the High Court to act as an inspector to DCC and probe whether it broke company law when it sold the shares, won't please all those involved. The 2007 Supreme Court ruling which found that Flavin had engaged in unlawful insider dealing when DCC sold its shares in Fyffes still stands. But for Flavin and DCC, the report goes some way towards restoring their reputations.
The details of what happened in February 2000 have been examined by two courts and also by Shipsey. In early February 2000, DCC began selling its shares in Fyffes. It had been an investor in Fyffes since 1979 and owned 10.5% of the company. By the middle of the month when DCC had sold off the last of its stake it had raised a total of €106m, which generated a profit of €85m on its original investment. The sale was carried out by DCC's Dutch-registered subsidiary, which had been the beneficial owner of the Fyffes shares since 1995. By hiving off the shares to Lotus Green in the Netherlands, DCC was able to avoid a larger tax bill when it was disposing of its investment.
On the evening of 3 February, Flavin met with Fyffes chairman Neil McCann at the Great Southern Hotel in Dublin Airport where they drank champagne to mark the share sale.
A day later, Flavin says McCann wrote to him "encouraging" him to sell the balance of DCC's holding so as not to damage McCann's share price. A month later Fyffes' shares plunged after it warned that profits wouldn't be as high as expected.
In 2002 Fyffes stunned the Irish market by launching a lawsuit against DCC seeking damages of €85m, claiming the profit was the result of insider dealing. It said that Flavin, who had been on the banana importer's board for years, was in possession of confidential internal reports showing the deteriorating trading conditions.
After one of the longest – and expensive – court cases in Irish legal history, Ms Justice Mary Laffoy ruled in late 2005 that although Flavin had actively been involved in the share dealing, the information on trading in his possession wasn't price sensitive. Fyffes appealed the judgment to the Supreme Court, which ruled in its favour in 2007. After protracted negotiations, DCC agreed to compensate Fyffes and other investors to the tune of €41m.
Though Fyffes and DCC had settled, corporate enforcer Paul Appleby sought the appointment of an inspector to investigate whether DCC's transfer of the Fyffes stake to Lotus Green in 1995 was lawful and also to probe the eventual sale of the shares in 2000. If the inspector found evidence of wrongdoing, Appleby would be able to bring charges against the company and individuals.
Appleby's move also sealed Flavin's position. Having hung on after the damaging Supreme Court ruling he was left with no choice but to resign, though insisted he "always acted honourably and in what I believe to be the best interests of the company and all its shareholders".
After 18 months of investigation, including lengthy interviews with those involved in both the 1995 and 2000 transactions, Shipsey last week said he found no evidence that anything illegal had occurred.
Flavin's only error, Shipsey wrote, was to have "misjudged the information he had in his possession" when he was approached by the stockbrokers who wanted to buy DCC's stake in Fyffes.
"I have concluded that Mr Flavin did not communicate the Fyffes price sensitive information in his possession to anyone in the companies other than to the DCC Group Compliance Officer, Michael Scholefield, as part of a compliance procedure and the companies' legal adviser, Alvin Price, for the purpose of seeking legal advice. Therefore, although several persons within DCC including Fergal O'Dwyer and Mairead O'Malley facilitated the 'dealing' in the shares in a technical sense, I am satisfied that no one involved in effecting the share sales within DCC knew that Jim Flavin had any information of a price-sensitive nature in his possession which could make the dealing unlawful," Shipsey said in the report.
"The suggestion that the dealing was intentionally wrongful, or that it was evidence of dishonesty on the part of Jim Flavin and of a culture of disrespect for the companies code in DCC, can be dispelled," Shipsey wrote in the concluding chapter to his lengthy report.
Shipsey said DCC had relied on advice from its "trusted and respected legal adviser", which, though he believed was incorrect, "was given in good faith and in the firm belief that it was correct".
The transfer by DCC of the shares to Lotus Green didn't breach company law and Appleby's "apprehension in this regard was misconceived".
"Mr Flavin, DCC and all of the individual directors and officers accept, as they must, that the Supreme Court found as it did. Nonetheless, it is relevant to report that none of the directors or advisers or the stockbrokers for the institutional investors who purchased the sales were of the view that the information was price sensitive. I think this belief was, and continues to be, genuine, and not merely because it suited them."
The estimated €1.4m cost of Shipsey's investigation is likely to be met by the taxpayer, either by Appleby's office or the Department of Enterprise, Trade & Employment, which has responsibility for the monitoring of company compliance. Appleby said in a statement last week that no further action would be taken by his office against DCC.
DCC sells its 10.5% stake in Fyffes in several transactions, netting €85 profit. Jim Flavin resigns from Fyffes board
At Fyffes AGM, company chairman Neil McCann tells shareholders of difficult trading. Shares Plunge
Fyffes launches legal proceedings against DCC, two of its subsidiaries and Flavin for insider dealing
Insider dealing case begins in High Court before Judge Mary Laffoy. Lasts for 87 days
Laffoy issues lengthy ruling saying Flavin didn't have sensitive information when selling shares. Plans Supreme Court appeal
Supreme Court issues unanimous ruling in favour of Fyffes
DCC agrees to pay €41m to Fyffes and other investors to finally settle legal action
Jim Flavin resigns as executive chairman of DCC after 32 years with the company
Corporate enforcement director Paul Appleby (below) seeks appointment of Bill Shipsey as inspector to DCC
Shipsey report published. Appleby says he won't be taking any further action against DCC or Flavin