INM paid O'Reilly with 'undue haste'

A NON-EXECUTIVE director of Independent News and Media has told the Commercial Court he stands by claims that a €1.87 million departure payment to the company’s former chief executive Gavin O’Reilly was approved with “undue haste”.

It was important INM was not seen to “reward failure”, and a compensation package of almost two years’ remuneration was “by any stretch a significant amount”, Paul Connolly also said.

He was being cross-examined on the opening day of his action against INM arising from a 7-2 vote by the company’s board on April 19th last approving the payment to secure Mr O’Reilly’s exit as chief executive and director.

Mr Connolly, who was nominated to the board in 2009 by INM’s major shareholder, Denis O’Brien, and re-elected in subsequent years, is seeking declarations the payment was unlawful under the Companies Act on grounds it should first have been approved by shareholders.

Yesterday Mr Connolly told his counsel, Michael Cush SC, there was a 45-minute discussion at the April 19th meeting before the vote in favour of Mr O’Reilly’s package was taken. There was no discussion of how the €1.87 million figure was arrived at, he said.

It was very important Mr O’Reilly should not only be removed as chief executive but should also stand down as chairman of the company’s Australian division, APN, as that was a core part of the group, he said.

It was also important Mr O’Reilly would not remain as a director of the company, as this could be “messy all round”.

The compromise agreement included a commitment from Mr O’Reilly not to seek re-election to the board for three years.

Mr Connolly said he believed the payment should not have been anything higher than 12 months’ remuneration but the board had approved 23 months.

Mr O’Reilly had been chief executive for three years, a period during which the share value had “all but been wiped out” and where the company was in its second round of negotiations with the banks within a matter of years.

While the amount of compensation was discussed at the meeting, the mechanics and timing of when it was to be paid was not, he said.

In his witness statement, Mr Connolly disputes INM’s assertion the compromise agreement it reached with Mr O’Reilly falls within exceptions to section 186 of the Companies Act 1963 because it constituted a genuine attempt to resolve an employment law dispute arising out of the termination of the chief executive’s contract.

Mr Connolly says Mr O’Reilly’s employment was not terminated by INM “but rather ceased by mutual agreement and so there was no dispute to be compromised.”

In his witness statement, INM chairman James Osborne said, had no compromise agreement been reached, the company would have “inevitably” been left open to litigation from Mr O’Reilly.

The total amount paid was reflective of Mr O’Reilly’s remuneration and was a legitimate pre-estimate of damages which might potentially have been awarded against INM, he said.

The hearing before Mr Justice Brian McGovern continues.