FORMER SMART Telecom chief executive Oisin Fanning has initiated legal proceedings to cancel the €1 management buyout of the company and alleging unlawful and oppressive conduct of the affairs of the company by businessman Brendan Murtagh and others.
Mr Fanning claims Brendan Murtagh "effectively controlled" Smart from 2005 and that when Mr Murtagh realised that, in order to take the company private, he would be required to pay market price for it as advised by Davy stockbrokers, he embarked on a course designed to jeopardise the cash flow of the company.
Mr Murtagh and his sons Alan and Fergal had directed Mr Fanning and the other directors of Smart to act in accordance with the Murtaghs' instructions, although it was clear the Murtaghs were not acting in the best interests of Smart but in their own interests, Mr Fanning claims.
He claims the company was sold at a "gross undervalue" as it did not take into account monies owed to Smart by Brendan Murtagh or the estimated €95 million value of the option to purchase 90 per cent of BCCL (Broadband Communications Ltd) from Mr Murtagh.
Mr Fanning claims Smart has paid him just €250,000 of a €650,000 severance agreement and had also ceased paying interest on a €5 million loan secured by Mr Fanning, on what he claims was the alleged urging of Mr Murtagh, from Anglo Irish Bank.
The action by Mr Fanning against Brendan Murtagh, of Dunheeda, Kingscourt, Co Cavan, his sons Alan and Fergal and Smart Telecom plc, was admitted to the Commercial Court this week by Mr Justice Peter Kelly.
David Barniville SC, for the Murtaghs, said his clients had applied to have the case heard in the Commercial Court as they wanted it dealt with as soon as possible. They were bringing a preliminary application to have the entire action struck out and wanted to have "at least" the strike-out application heard in camera. There were "incorrect factual issues" in the petition brought by Mr Fanning, counsel added.
Counsel for Mr Fanning said he would object to the matter being heard in camera and would also be seeking leave from the court to have the case heard as a derivative action - an action by a minority shareholder in a company in circumstances where the company itself has not taken action.
The judge noted it was being claimed by the defendants that the action by Mr Fanning was "opportunistic" and said he would hear the application to strike out the action on June 25th next.
Mr Fanning, of Forenaughts House, Naas, Co Kildare, claims that, by September 2005, Mr Murtagh had loaned Smart €8 million, was essentially controlling the company and that Mr Fanning and other directors were reluctant to confront him about matters because of this financial control.
After ComReg withdrew a 3G licence offer in February 2006, Mr Fanning said he was anxious to obtain assurance of Mr Murtagh's continued support for Smart, not least because of Mr Fanning's own €5 million loan from Anglo Irish but because Mr Murtagh had not paid back some €7.6 million to the company.
He said Brendan Murtagh had provided him with "letters of comfort" including an undertaking to underwrite the issue by Smart or a related firm of a convertible bond for €20 million.
Mr Fanning claims Brendan Murtagh asked him to approach Davy stockbrokers with Fergal Murtagh to look into the possibility of a management buyout and that Mr Murtagh had said he was tired of "propping up" Smart and believed it was grossly undervalued.
The board gave the go-ahead for a management buyout, but Brendan Murtagh was very unhappy with advice from Davy that the management team would have to pay at least Stg 18p (23 cent) in accordance with takeover panel rules, Mr Fanning claimed. He said Mr Murtagh instructed him to meet Mr Murtagh's broker, Liam Booth, of NCB.
Mr Fanning claimed Mr Booth advised that he believed the management buyout could be done at Stg 6p or Stg 8p on the basis that, regardless of the share price, if Mr Murtagh held off financing the company, it could be represented to the takeover panel that the price was fair given the alternative of the company being wound up.
He claimed Mr Booth had stated that a previous director of NCB was on the panel "and that he was confident he could get it through at that price".
Mr Fanning said he was furious, but realised Mr Murtagh had no intention of continuing his support for Smart and that he, Mr Fanning, and other shareholders who included his partner, family, friends and other directors "were going to lose a fortune".
He was later told the only way long-term funding would be provided for the company was if he stepped down, Mr Fanning claimed. He did so but, he claimed, Mr Murtagh then reneged on assurances to fund Smart with the result that shares plummeted from Stg 10p to Stg 0.3p.
Mr Murtagh later announced that a new investment vehicle with Mr Murtagh as the major shareholder would only invest in the company if the shareholders agreed to him buying 90 per cent of the company for €1 and that the alternative was liquidation, Mr Fanning claimed.
