Gallagher: The issues
Issues have been raised about aspects of Seán Gallagher’s business record, including: the loans he has taken out of his company as a director; other drawdowns from the company such as patent royalties, rent and directors’ fees; and the level of State support for his company.
Corporate governance expert Prof Niamh Brennan has said there is a “bad vibe” about these aspects of Mr Gallagher’s record, while Glenna Lynch, the Dublin businesswoman who tackled him on television and radio in recent days, has accused the Dragon’s Den panellist of “raiding the coffers” of his business, thereby weakening it.
Mr Gallagher has rejected these criticisms, and says everything he has done in business is above board. He denies having weakened his company by taking too much money out of it, and says it has survived because it was prudently managed.
THE BEACH HOUSE LOAN
One of Seán Gallagher’s companies gave him an interest-free loan equivalent to 70 per cent of its assets in 2009.
Under company law, a director should not have a loan from a company that exceeds 10 per cent of its assets. Offences can be punished by fines and up to five years in jail, though in practice prosecutions do not take place if the loans are repaid.
Accounts for the company, Beach House Training and Consulting Ltd, show he had an €82,829 loan from the company at the end of 2009. At the time, the company’s assets were €114,320 and the company owed €17,503 in corporation tax and €25,174 in VAT.
Beach House is used by Mr Gallagher to charge for personal speaking engagements and to manage an investment he made as part of the Dragons’ Den programme.
Last week, Mr Gallagher said the loan was “an honest mistake”. He said the cheque had been lodged into the wrong account “and then the accountant treated it as a loan. When it was spotted, it was in fact moved back within four weeks . . .”
Speaking on Frontline on Monday, he said the company name on the cheque was incorrect and that his bookkeeper’s secretary had put it into the account written on the cheque. He said he was “100 per cent satisfied” no breach had occurred.
He has not responded over the past week to questions about the account into which the loan was lodged and the exact date of repayment.
PATENT AND OTHER COMPANY INCOME
Mr Gallagher and some of those who invested in his company have differed over who benefits from the lucrative intellectual property rights of the technology used by Smarthomes.
The company prospered during the construction boom by kitting out houses and apartments with the cabling needed for broadband. In 2005, a group of about 35 people invested €750,000 in the company under the Business Expansion Scheme (BES).
Several years later, when the company’s fortunes slumped and the directors proposed converting the investors’ money into equity, the issue of intellectual property became a source of contention with some of the investors.
Before the BES investors came on board, Mr Gallagher and his fellow director, Derek Roddy, took out a patent on their technology. However, the investors claimed that when BES funds were being sought, they were told that all intellectual property rights would remain with the company.
Mr Gallagher told the investors in 2009 his financial and tax advice was that the patents should be held outside the company.
“If this was mistakenly included in the BES prospectus, then it may have occurred by way of an administrative error,” he told the investors.
Smarthomes accounts for 2008 and 2009 show payments of €96,000 a year to the directors for royalties.
In response to a question from The Irish Times, a spokesman for Smarthomes said Mr Gallagher received €167,000 in royalties over the past 10 years. This income would have been entirely tax-free as, up until last year, royalty income from patents was free of tax.
The company accounts also show outgoings of €195,000 on directors’ remuneration, €55,000 on directors’ pension costs and €196,000 on rent in the year 2008, at a time when the company was losing money.
LOUTH COUNTY ENTERPRISE BOARD
IN 2001, Louth County Enterprise Board invested €25,394 in Home Wiring Systems, which was co-owned by Mr Gallagher.
The businessman had served as assistant chief executive of the board from 1995 to 2000.
Mr Gallagher and his co-director soon realised that Home Wiring Systems, because it conjured up images of bulky, old-fashioned cabling, was not a good name, so they set up a new company, Smarthomes, as their main business vehicle.
Home Wiring Systems ceased trading in 2004.
A year later, the board sought the return of its investment but Mr Gallagher maintained on legal and accountancy advice that it did not have to return the money because the recipient company was no longer trading.
A legal dispute ensued, which ended in 2008 with the repayment of some of the money to the board. The amount remains undisclosed.
The board’s investment was just one of several Mr Gallagher’s companies received from State agencies.
Smarthomes received almost €700,000 from Enterprise Ireland over seven years, while InterTrade Ireland gave the company €41,970 in 2004.
Mr Gallagher was appointed to the board of the North-South body in 2007.
Mr Gallagher has said he started his working life as a farmer by buying a 20-acre holding in Co Cavan as a 21-year-old and then painted sheds for farmers to get a start in business.
In a 2008 book, That’ll Never Work, he wrote how he would do this work in exchange for a calf because he had no money to buy animals.
However, according to the current owner of the land quoted in a weekend newspaper report, Mr Gallagher’s father John owned the land, which amounted to eight acres, not 20.
Responding to this claim, Mr Gallagher insisted that even if the farm was bought in his father’s name, it was his (Seán’s) property. The land was purchased with the assistance of his late father, who continued to farm it for several years after his son went to university. He said the farm he bought was over 10 acres and said he leased a further 10 acres for dry stock grazing.
Speaking yesterday on radio, he said it was the “scurrilous” allegation that had most upset him. He said he took the risk at the age of 21 of buying a farm and put it in his father’s name so that he could enjoy it as a hobby when he retired.
Fundraising for FF: In his own words
I sought no money, I received no money from anybody. That was dealt with by headquarters, Fianna Fáil headquarters. I think I mentioned [the Fianna Fáil fundraising event in Dundalk] to possibly three or four people, and I have no idea to this day whether or not they made a donation whatsoever.
RTÉ Radio 1 interview, October 20th
I have no recollection of getting a cheque from this guy. I can tell you, let me explain this very simply. I explained that there were two or three people that I asked [to the Fianna Fáil fundraiser]. I don’t know the man very well that’s in question.”
First half of the Frontline debate on Monday
He’s a convicted criminal, a fuel smuggler, investigated by the Criminal Assets Bureau and rented the office out to Gerry Adams, Martin [McGuinness]’s colleague, in the last general election. What I have done, I may well have delivered the photograph. If he gave me an envelope I ...if he gave me the cheque it was made out to Fianna Fáil headquarters and it was delivered and that was that. It was nothing to do with me.”
Second half of the debate
I didn’t know Morgan at all, it was made aware tome that he was the sponsor of the Armagh team. I do not recall going to this man’s house or even to his office. It’s very feasible that if I did deliver to his premises a photograph, he may well have given me a cheque. In that event, it would have gone to Fianna Fáil.
Yesterday on RTÉ Radio 1
This was a fundraising event and I informed anyone that I rang there was a level up to which they could nominate or donate and that they would make that payable to Fianna Fáil headquarters.
Yesterday evening on RTÉ’s Six-One