Payment of €1.87m legal, counsel argues

O'REILLY CASE:THE BOARD of Independent News and Media (INM) was within its legal rights to make a €1.87 million payment to Gavin O'Reilly to secure his agreement to stand down as chief executive, senior counsel for the company has argued before the Commercial Court.

Lawyers for Paul Connolly, a non-executive director of INM who has brought a legal challenge to the payment, disputed that claim and submitted the law clearly prohibits such payments.

Mr Justice Brian McGovern reserved judgment yesterday after hearing final legal arguments in the action by Mr Connolly, a Denis O’Brien nominee to the INM board, who claims the payment should first have been put to a general meeting of shareholders in accordance with Section 186 of the Companies Act 1963. He is seeking declarations the payment was unlawful.

In his submissions, Paul Gallagher SC, for INM, argued the payment complied with the law because it had been approved on the basis of settling an employment dispute and in order to avoid litigation.

Mr Gallagher said the directors of a company are empowered to enter into a bona fide compromise of legal, and in particular contractual, claims and have a broad discretion when doing so. The law does not remove this entitlement, and it is well established such agreements are outside the scope of Section 186 of the Act, he said.

Even if the agreement did fall within Section 186, an exception to such payments was provided in Section 189(3) of the Act, he said. That allowed payment for damages for breach of contract entered into on foot of legal advice and in the best interests of a company, Mr Gallagher said.

Mr Connolly’s claim such an exception did not apply on grounds the payment was partly for loss of office was based on a misunderstanding and a failure to appreciate the position of chief executive as “an office”, counsel said.

In submissions on behalf of Mr Connolly, Michael Cush SC said the €1.87 million included “payment in respect of loss of office”.

While Mr Connolly did not dispute the bona fides of the directors’ view that the agreement with Mr O’Reilly was in the best interests of the company, it did not mean the payment escaped the ambit of Section 186, counsel said. Section 186 sought to prohibit compensation to directors for loss of office unless such payments have been disclosed and approved by shareholders.

Mr Cush also argued Section 189(3) only exempted such payments if they were “by way of damages for breach of contract” and not, as in this case, a payment which was also for “loss of office”.