CFO denies that DCC minutes were 'untrue'

DCC chief financial officer Fergal O'Dwyer has denied before the High Court a suggestion that a Dutch-resident DCC subsidiary was prepared to generate, and have on the record, "untrue" minutes of its board meetings at the request of DCC.

The suggestion was made by Paul Sreenan SC, for Fyffes, in the continuing action by Fyffes alleging "insider dealing" in relation to the €106 million sale of the DCC stake in Fyffes over three days in February 2000.

The action is against DCC plc, its chief executive, Jim Flavin, and two DCC subsidiaries - S&L Investments Limited and Lotus Green Limited - who deny the claims and plead the share sales were properly organised by Lotus Green, a wholly owned Dutch-registered DCC subsidiary to which beneficial ownership of the Fyffes shareholding was transferred in 1995 to avoid payment of capital gains tax on any subsequent sale of the shares.

On the 55th day of the case yesterday, when asked about several sets of minutes of meetings of the Lotus Green board, Mr O'Dwyer, who is also the sole Irish director on the Lotus Green board, denied a suggestion by Mr Sreenan that matters were inserted into draft minutes of Lotus board meetings to show that certain matters relating to the Fyffes shareholding were discussed by the Lotus board when, Mr Sreenan said, they were not discussed.

While agreeing that on occasion some insertions were made into the draft minutes of Lotus board meetings, Mr O'Dwyer said these insertions were not included in the final approved minutes. While certain dates were altered on other documents, he said these were due to errors.

He said he had, on occasion, asked for matters to be altered in the draft minutes of the board meetings of Lotus because the draft minutes were at variance with his understanding of what had occurred at the meetings. He said there were 27 board meetings of Lotus between 1995 and 2000 and there was "a fair degree of toing and froing" in relation to getting the minutes right.

Mr Sreenan suggested that the issue of what should be done with the Fyffes shareholding had proceeded at a very leisurely pace in 1998 for the simple reason that Lotus Green was "just keeping the file right" and had not received any "signal" from DCC that the shareholding was to be sold.

Mr O'Dwyer said that was not correct. He said the Lotus board had "missed the boat" when the share price rose above €2 for a time in 1998 and it had remained flat afterwards until early 2000. He did not recall drawing the attention of the Dutch directors later in 1998 to the fact the price was falling.

He presumed they were watching the price. They were then still, as a board, feeling their way through how they would eventually manage the exit from Fyffes.

He denied a suggestion that the reason Mr Flavin had filed a memo in March 1998 stating he had informed Fyffes chairman Neil McCann that "we were taking up our final dividend in respect of the year to 31st October, 1997, in shares" was because it was Mr Flavin who was going to take the decision whether or not to take the dividend in cash or shares.

Mr O'Dwyer said that was not correct, that the decision to take the dividend in shares was made by Lotus Green. He denied that nothing happened in Lotus Green without Mr Flavin's approval.

After referring to several documents, Mr Sreenan suggested to Mr O'Dwyer that there was no phone discussion by Lotus Green directors of the dividend issue on February 18th, 1998, that the decision to take up the scrip dividend was made within DCC plc by Mr Flavin and that documents were "subsequently generated in March 1998 to support that decision and to keep the file right".

Mr O'Dwyer said he did not believe that to be the case.

Later yesterday, Terry O'Driscoll, a partner in the tax and legal services division of PricewaterhouseCoopers (formerly Coopers & Lybrand), and a qualified solicitor, said that, in the 1990s, he and Pat Wall, then a tax partner in Coopers & Lybrand had a series of meetings and discussions with DCC personnel in connection with group tax strategy, particularly in the context of the group's development from a venture capital group to an industrial holding group.

DCC and Coopers & Lybrand had, in early 1995, begun to focus in particular on an appropriate holding structure for the group's investment in Fyffes and on structures which would enable it to dispose of that investment at a later stage, if appropriate, with minimum tax.

He was aware in broad terms that it was DCC strategy to dispose of its shareholding in Fyffes at some stage.

In March 1995, Coopers & Lybrand wrote to Mr O'Dwyer of DCC recommending that DCC consider transferring its investment in Fyffes to a holding company located either in the UK or the Netherlands and had outlined how that transfer could be effected without giving rise to any immediate tax cost to the DCC group.

A key underlying feature of this structure was that any gain arising from a disposal of the Fyffes shares would benefit from the more favourable treatment of capital gains available if the company which owned the shares was resident in an EU member state which allowed for a tax exemption (participation exemption) on gains arising from the disposal of shares.

In 1995, the State did not have a participation exemption but subsequently introduced such a system. The Netherlands did have a participation exemption.

The case continues today before Ms Justice Laffoy.