The High Court has refused Oisin Fanning permission to bring a derivative action on behalf of Smart Telecom PLC, finding that he had not shown it would be prudent or in the company’s interests to let the proposed claim proceed. The decision was made on an application for leave; the court did not determine the underlying allegations after a trial.
Fanning, a former Smart Telecom chief executive and shareholder, alleged that Brendan Murtagh and his sons Alan and Fergal caused the company to transfer its business and assets at an undervalue in October 2006. Under the agreement, Callaly Ltd., later renamed Smart Yuroe Broadband Ltd., acquired the assets and liabilities for €1 and issued the company 10% of its shares. The proposed claim sought to have the agreement set aside, an injunction, or damages instead of restoring the assets.
The court said a shareholder seeking to bring a claim for a company had to show a realistic prospect of success under the “fraud against the minority” exception to the rule that the company itself is ordinarily the proper plaintiff. It assessed whether Fanning had evidence of a wrong to the company, control by the alleged wrongdoers and benefit to them at the company’s expense.
Justice Irvine found the evidence insufficient on each element. Fanning had not produced expert evidence supporting his estimate that Broadband Communications Ltd. was worth €95 million, or evidence that a management buyout or another rescue option was financially available. The court also noted the proposed buyer was to assume liabilities of about €50 million while the company faced liquidation. It was not persuaded that the defendants controlled the board or shareholders’ vote, or that they benefited at the company’s expense. The transaction had received shareholder approval at an extraordinary general meeting in October 2006.
The judge also discussed the approximately 18-month delay before proceedings were begun and the potential prejudice to the new business, which the defendants said had received €60 million in investment. The court said that, even if leave had otherwise been justified, it would have restricted the claim to exclude setting aside or cancelling the transaction. It did not decide whether Fanning had voluntarily signed a proxy supporting the deal, or conclusively determine other discretionary questions, because it refused leave on the evidence before it.
Fanning had separate personal claims, including proceedings under section 205 of the Companies Acts. Those claims were not determined by this ruling. The court refused the application for leave to issue the derivative proceedings.