Former Smart Telecom CEO Oisin Fanning is not a credible person to challenge the October 2006 buy-out of the company by businessman Brendan Murtagh as Mr Fanning himself both voted for and benefited from the deal, which was the only alternative to liquidation, the High Court was told today.
The court was also told Smart has claimed that, instead of owing Mr Fanning money, he owes it some €860,000 in alleged overpayments and items allegedly improperly claimed by him as business expenses.
In submissions for Brendan Murtagh and his sons Alan and Fergal opposing Mr Fanning's application for leave to bring proceedings to overturn the buy-out, Mr Paul Sreenan SC said the buy-out was not just for €1, but also involved Mr Murtagh's taking on Smart's €50m liabilities and giving it a 10% equity share of the newly-formed company Smart Yuroe Broadband.
Mr Sreenan said Mr Fanning had, prior to the buy-out, negotiated a severance package for himself and had left out of his petition challenging the buy-out the 'critical fact'' that he himself had voted for it. Mr Murtagh's offer in October 2006 was 'the only show in town', given Smart's precarious financial position, inability to pay its debts and the lack of any other offers. Contrary to claims by Mr Fanning, Mr Murtagh also did not owe Smart any monies in October 2006, counsel added.
He said the deal was supported by the Smart board and by more than 97% of shareholders at an emergency general meeting and it would be very difficult to unwind it now. Mr Murtagh also did not have a controlling interest in the company and was neither a director nor shadow director as alleged by Mr Fanning.
He said Mr Fanning's delay in bringing his legal challenge was a factor to be taken into account. There was no reference to Mr Fanning's bringing legal proceedings until some days after newspaper articles in April 2008 related to the possible sale of Smart Yuroe to O2. This was 'opportunistic litigation' by Mr Fanning, he said.
Mr Fanning was also claiming Smart had failed to pay the severance package for Mr Fanning, which included a payment of €650,000, but the company was claiming Mr Fanning owed it more, Mr Sreenan said.
He referred to an internal memo outlining concerns within Smart, a public limited company, that Mr Fanning had received large sums beyond his salary and that sums may have been improperly paid by the company for house maintenance, landscaping works and car expenses.
Mr Sreenan said Mr Fanning had also placed, at different times, values of €25m, €95m and €121m on the 90% stake held by Mr Murtagh in Broadband Communications Ltd (BBCL).
The main asset of BBCL is the T50 telecommunications network around Dublin and the T50 was merged into Smart in June 2007 during the refinancing of Smart Telecom by Smart Yuroe Broadband. Mr Sreenan said the BBCL stake was valued about the time of the Smart buy-out in October 2006 at about €7.5m and Mr Fanning would have to show expert reports to support his much higher valuations.
Today was the second day of the hearing of the application by Mr Fanning for leave to bring an action to overturn the October 2006 buy-out of Smart on grounds of alleged unlawful and oppressive conduct of the affairs of the company by Mr Murtagh and others.
Mr Fanning needs the permission of the court to have the case heard as a derivative action - an action by a minority shareholder in a company where the company itself has not taken action.
Smart Telecom has adopted a neutral position on the application and has said it will abide by the court's decision. But it has challenged some of the factual claims by Mr Fanning.
Brendan Murtagh, of Dunheeda, Kingscourt, Co Cavan, and his sons Alan and Fergal are defendants and have asked the court to strike out the application as 'opportunistic'. Mr Fanning's 'real motive' was to de-rail a proposed 'highly sensitive' transaction between Smart Yuroe and another company, which would benefit Smart Telecom as a 10% shareholder in Smart Yuroe, Mr Murtagh said in an affidavit.
While he was advised it was not appropriate at this stage for him to engage in a detailed refutation of Mr Fanning's entire affidavit evidence, Mr Murtagh said this was not to be taken as an acceptance by him of any matters alleged.
Mr Murtagh said he did not control either the board or a majority of shareholders in the company at any time and did not believe he was a shadow director of the company. The fact he approved the share transfer of 2006 did not mean it was a foregone conclusion that the transaction would be approved at the EGM, he said.
In another affidavit, Smart chairman Kyran O'Dwyer said Mr Fanning's claim that Mr Murtagh effectively controlled the company by 2005 was difficult to reconcile with a 2004 certification by the directors, including Mr Fanning, that no person exercised any control over the board. He rejected Mr Fanning's account of Mr O'Dwyer's role in events relating to the buy-out and particularly rejected as 'baseless' an assertion that he had threatened Mr Fanning.
The fact was that Smart's position in October 2006 had worsened considerably given the termination of service by Eircom, he said. Its customers were cut off, the regulator was advising them to shift to other service providers, Eircom insisted it would not resume service on any basis and no funds were available to repay €40m in creditors.
All of the directors who were asked to resign did so in recognition of the changed circumstances facing the company and the projected change in control, he said. The alternative was liquidation. Mr Murtagh's proposals was voted for as being in the best interests of the company's creditors and shareholders. The hearing continues tomorrow.