Fyffes to claim DCC chief used his knowledge in share bloc sale

Fruit distribution group Fyffes will claim in the High Court on Monday that DCC chief executive Mr Jim Flavin used his knowledge of Fyffes management accounts and summary trading reports for November and December 1999 to "cause, procure and facilitate" the sale of DCC's 10 per cent stake in Fyffes.

Those management accounts and summary trading report show that Fyffes' trading in those months was well below the group's budgets and also well below the trading figures for the same periods in 1998.

Fyffes' statement of claim to the High Court on Monday, which has been seen by The Irish Times, states that from January 25th, 2000, a week before the first tranche of the shares was sold by DCC, Mr Flavin, DCC, and two of its subsidiaries were prohibited by law from dealing in Fyffes shares "until such information became generally available".

Mr Flavin has already strenously rejected that he was in possession of price-sensitive information and is expected to base his defence heavily on a statement in the Fyffes annual report on January 31st, 2000 by chairman Mr Neil McCann which said: "Your board believes that from this position of strength, 2000 will be another year of further growth for Fyffes."

That annual report to shareholders makes no reference to the difficult trading conditions in November and December 1999 detailed in the management accounts and summary trading reports.

DCC and Mr Flavin are also expected to rely in their defence on a letter sent by Mr McCann to Mr Flavin a day after the first tranche of shares was sold on February 3rd.

In this letter, Mr McCann said: "Further to our meeting last evening, it is encouraging to know this morning that the share price has stood up, but I think in all our interests, it would be helpful if the remainder of the shares are disposed of so that they will not be overhanging the market. It is quite an achievement to have disposed of such a volume and get such a good reaction. Hopefully, it augurs well for the balance."

DCC and Mr Flavin are expected to state in their defence that if Fyffes believed that DCC and Mr Flavin possessed adverse price-sensitive information, then why did the Fyffes chairman actively encourage DCC to sell its remaining shares?

So what was the price-sensitive information that Mr Flavin is alleged to have had and on which basis he is alleged to have procured DCC to sell its shares?

The statement of claim says that on January 6th, 2000, Mr Flavin was circulated with management accounts for November 1999. These accounts showed that sales in that month were €10.1 million below budget and €1.7 million below the previous November's figures.

Losses in the month were €2.6 million "adverse to budget" and €4.1 million worse than the previous year.

On January 24th, Mr Flavin was circulated with a summary trading report for December 1999. This showed a cumulative loss for November-December 1999 of €4 million, €8.9 million worse than the same two-month period the previous year.

The report also included a forecast for January of an expected profit of €1.3 million, a profit that was €3.7 million "adverse to budget" and €5 million worse than the previous year.

The summary trading report also forecast a first-quarter 2000 loss of €2.7 million compared with a budgeted profit of €4.7 million and a first-quarter 1999 profit of €11.2 million.

Fyffes will claim that with this knowledge, Mr Flavin was in breach of fiduciary duty by communciating this information to DCC and its subsidiaries, and thus improperly deriving a profit on the sale of the shares. The statement of claim states specifically that Mr Flavin was in breach of Section 108 of the 1990 Companies Act by dealing in Fyffes shares when in possession of price-sensitive information.

But the statement of claim makes no reference to the January 31st annual report where Mr McCann referred to Fyffes' "position of strength" - a reference that seems to be in apparent conflict with the November-December financial figures detailed in the statement of claim. Nor does it make any reference to the letter of February 3rd where Mr McCann said it would be "helpful" if the remaining shares were sold.

In their defence, DCC and Mr Flavin are expected to argue strongly that if Fyffes believed that DCC and Mr Fyffes had adverse price-sensitive information, then why did Mr Neil McCann explicitly urge the sale of the remaining shares?

DCC and Mr Flavin are also likely to rely heavily on the investor presentations by Fyffes executives immediately before and after the sale of the first tranche of shares on February 3rd.