McCanns saw DCC chief as a 'thorn in their side'

DCC chief executive Jim Flavin has told the High Court he believed the McCann directors of Fyffes perceived him as a "thorn in…

DCC chief executive Jim Flavin has told the High Court he believed the McCann directors of Fyffes perceived him as a "thorn in their side" because of his "questioning approach" to the running of the business of the fruit company.

Mr Flavin said that throughout the 1990s there was, unfortunately, a gradual deterioration in the relationship which he, as a non-executive director of Fyffes, had with members of the McCann family.

Although he had a lot of respect for the now retired Fyffes chairman, Mr Neil McCann, as a businessman he was concerned for some years that Fyffes was run more like a family business than a public company. He was also concerned about the devolution of power within the company to Neil McCann's sons, David and Carl.

On one occasion, he said Mr Carl McCann had spoken sombrely to him "about what a difficult director I was" and had proposed that DCC transfer its shareholding in Fyffes to a private company to be held with the McCann family.

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Mr Flavin said he felt "quite deeply hurt" by this. Asked had anything come of that proposal, he said: "Certainly not."

He believed the deteriorating relationship between himself and the McCanns provided part of the explanation for the timing, manner and mode of legal proceedings taken against DCC and himself arising from the €106 million sale of the DCC stake in Fyffes in February 2000.

He said he had "no authority" in relation to that share sale. Nor was he a director of the Dutch-registered DCC subsidiary Lotus Green Limited which made the decision to execute a strategy, agreed by DCC for some years prior to the sale, to dispose of its stake in Fyffes, he said.

Fyffes had known since 1998 of that DCC strategy and also knew that the decision as to whether and when the shares would be sold would be made by a company of which he was not a director, he said. Mr Flavin said the beneficial ownership of the DCC stake in Fyffes was transferred in 1995 to Lotus Green.

He said Fyffes had tried to get DCC to regard its investment in Fyffes as a private one, not a publicly traded stock. That was an unreasonable request given his responsibilities as chief executive of DCC.

Also yesterday, Mr Flavin said that, following a discussion at a board meeting in the mid-1990s, he had maintained "absolute confidentiality" about Fyffes trading reports.

Mr Flavin was beginning his evidence on the 39th day of the action in which Fyffes alleges "insider dealing" in relation to the sale in February 2000 of DCC's stake in Fyffes.

The action is against DCC, Mr Flavin and two DCC subsidiaries, S & L Investments Limited and Lotus Green Limited.

The defendants deny the claims and plead the share sales were properly organised by Lotus Green.

Yesterday, the court heard Mr Flavin (62) founded Development Capital Corporation Limited (now DCC plc) in 1976. DCC currently employs 5,000 people.

Throughout the 1980s, an important part of DCC's function was to provide corporate finance advice to companies. DCC had brought seven companies to the stock market in the 1980s, including Fyffes.

In the 1990s, DCC changed from being a venture capital company to an industrial group, he told Mr Kevin Feeney SC, for DCC.

This essentially involved acquiring over time outright ownership of a number of investee companies considered to be core to DCC's new strategy and selling off minority shareholdings in others not considered core to that new strategy.

DCC had initially invested in Fyffes in 1981, acquiring a 9.46 per cent stake.

He became a non-executive director of Fyffes at the time and remained on the board until resigning in February 2000.

In about 1995, at Fyffes' request, DCC undertook not to increase its shareholding in Fyffes above 10.5 per cent.

Mr Flavin said Fyffes was seen as the business of the McCann family, having been built up by Mr Neil McCann, a "dynamo" for whom Mr Flavin said he had high regard.

Both DCC and Fyffes experienced a period of rapid growth in the 1980s. He had concerns that the McCann family held the main positions in Fyffes in the 1980s and 1990s and did not believe such family domination was a good way to run a public company.

After DCC decided to evolve into an industrial group, the continued holding of a minority shareholding in Fyffes was no longer a correct strategy for DCC, he said.

As chief executive, he was regularly asked by DCC shareholders and financial journalists about the logic of DCC continuing to hold a minority stake of 10.5 per cent in another plc. That questioning went as far back as 1990.

In 1995 it was the stated strategy of DCC to divest itself of the Fyffes shareholding.

However, because the Fyffes share price was so low from 1998, no offers were made for the stake. Fyffes was aware from 1998 that DCC's strategy was to dispose of the stake, Mr Flavin said.

When DCC moved to being an industrial and commercial holding group, it necessitated reorganisation and restructuring of the various structures within DCC, he said.

Holding companies were set up to facilitate that restructuring. As part of that overall process, the Fyffes shareholding was to be held by a Dutch holding company, Lotus Green.

Mr Flavin said the transfer to Lotus Green avoided payment of a "double layer" of capital gains tax and meant that no capital gains tax would be payable in the event of a sale by Lotus Green of its Fyffes shares.

Mr Flavin also said that, when Fyffes announced its results in December 1999, those results confirmed what everyone already knew, that 1999 was a difficult year for the banana industry.

The case continues today.

Mary Carolan

Mary Carolan

Mary Carolan is the Legal Affairs Correspondent of the Irish Times