Ebeon founders deny role in collapse

The founder directors of Ebeon have claimed they are not responsible for the closure of the e-business consultancy with debts of £3.5 million (€4.4 million) and the loss of 170 jobs. The single largest creditor is the Revenue Commissioners - owed £400,000.

Sources close to Mr Jonathan Mills, Mr Robert Booth and Mr Norman Crowley said they had been talking to possible buyers for the business right up to last Wednesday, when Eircom withdrew funding.

Eircom, which owns 51 per cent of the business, rejected the minority shareholders' claim. A spokesman said it decided not to put any further funds into the group after the minority shareholders failed to match Eircom's £2 million in December.

The spokesman added that Eircom was examining the issue of paying the wages of staff stranded by the tech firm's sudden collapse.

It is understood that most of the company's 100 or so Irish-based staff have been paid, including Mr Bill Donoghue, the chief executive, who earns more than £14,000 a month. Staff in the London office said the more than 40 people based there had not been paid. London staff have been told the matter was in the hands of the liquidator, Mr David Hughes of Ernst & Young who was appointed last night. Eircom has two appointees to Ebeon's board but does not have board control. One founder director - who declined to be named - said several parties including Deutsche Bank, the German finance group, had been interested in buying Ebeon. "Deutsche were in the building last week," he said.

The original investors received £10.5 million when Eircom bought 51 per cent of Ebeon in May 1999. Around £4 million of this was reinvested in the business, said the director. Eircom then invested another £8.5 million earlier this year in the form of a convertible loan note that would give it 73 per cent of the company if exercised. This tranche of finance was intended to carry the company through to profitability but, by last June, the management was seeking more funds, said the source. Another convertible loan was considered but the Eircom board decided on December 15th that it would not invest any more money in the business unless it was matched by the minority shareholders. The firm put up £2 million on this basis but it was not matched.

"We could not come up with the money. We had invested all the money we got from Eircom in other businesses," said the director.

Mr Mills and the other shareholders instead proposed the sale of the business. Several parties expressed interest in the firm. "They could have put money in as soon as this week," said one of the original investors.

Eircom believed it could not justify putting additional funds into the business. "It would have been throwing good money after bad," said an Eircom source. He added that Eircom had no idea of the state of affairs at Ebeon even though it had two representatives on the board: Mr David Mulligan and Mr Aidan Finnegan.

The Eircom spokesman said Eircom did not control the board and its representatives were provided with information on a monthly basis. Ebeon's collapse leaves Eircom's strategy for multimedia and new technology in disarray. The company's two other e-business investments are both retrenching. Flexicom, whose directors include Eircom board member Mr Dick Spring, has warded off financial crisis by selling its main product to CR2, a close competitor. It has also cut staff from 42 to 20. Eircom has 30 per cent of Flexicom.

Nua, the Internet consultancy that is 20 per cent owned by Eircom, is to let 20 of its 60 staff go. Sales of the company's new product aimed at large financial institutions had been affected by the slowdown in the US economy.

Davy Stockbrokers predicts Eircom could lose up €60 million (£47 million) on its new business areas this year. Eircom had planned to float the multimedia division - which includes Internet service providers Indigo and Ireland On-Line - for up to €1 billion or 50 cents a share. Davy estimated the division was now worth 10-15 cents a share.

Eircom's shares closed down a cent at €2.52 yesterday, while Vodafone rose almost 2 per cent to 237-1/2p sterling. Vodafone has agreed to buy Eircell - the mobile subsidiary of Eircom - in an all-paper deal worth €1.76 per Eircom share on the basis of last night's closing Vodafone price.