The former chief executive of Powerscreen International would not have proceeded with a new share issue that raised £18 million sterling (€29 million) had he been aware of a £48 million accounting black hole looming at one of its subsidiaries, a court in Britain heard yesterday.
Barristers representing Mr Shay McKeown, one of three former Powerscreen directors facing charges in relation to a Serious Fraud Office investigation, claimed at Bristol Crown Court yesterday that he was completely in the dark about events at the Matbro subsidiary.
Mr McKeown and two fellow Powerscreen directors, Mr Barry Cosgrove, the company's former finance director, and the former managing director of Matbro, Mr Edward Holmes face a series of charges in connection with the Serious Fraud Office's report into the financial problems at the subsidiary.
The Co Tyrone engineering group's senior management was forced to admit in January 1998 that serious accounting irregularities had been discovered at Matbro, a Gloucestershire-based tractor manufacturer, just two months after the group's successful new share issue.
Overnight the company's share price plummeted, halving its market value by almost £250 million.
Before the accounting revelations, the Dungannon headquartered group had been one of the darlings of the Irish and London stock exchanges and by 1997 it had a turnover of £300 million and pre-tax profits of £40 million.
But the Matbro revelations brought the company's previously unstoppable growth to a sharp halt. Senior directors at Powerscreen resigned and the group was subsequently acquired by US-owned giant Terex Corporation.
After a three-year inquiry into Powerscreen's financial practices and the Matbro accounts, preliminary applications in the Serious Fraud Office case against Mr McKeown, Mr Cosgrove and Mr Holmes are now under way at Bristol Crown Court.
Mr McKeown has been accused of withholding information, a breach of the Financial Services Act in the UK, while Mr Cosgrove has been charged with two counts of theft and one breach of the Financial Services Act.
Mr Holmes was charged with 25 offences of falsifying the company's sales invoices and of carrying on Matbro's business in Gloucester for a fraudulent purpose between January and December 1997.
Both Mr McKeown and Mr Holmes had applied to have the charges against them dropped.
The Serious Fraud Office yesterday withdrew the charges in relation to Mr Holmes that he had falsified Matbro's sales invoices. Mr P Garlick QC, representing the Serious Fraud Office, said there was insufficient evidence to show that Mr Holmes had taken part in falsifying the accounts.
However, Mr Garlick said the charge of fraudulent trading still stood.
Mr Holmes's legal team is now preparing his defence against the remaining charge.
Mr McKeown's legal representatives yesterday claimed there was no evidence to support the Serious Fraud Office's charges against him.
His defence team, led by Mr A Trollope QC, said Powerscreen's management structure was such that Mr McKeown did not have direct responsibility for Matbro.
"Mr McKeown was responsible for Powerscreen International, the main holding company. His responsibilities also included strategic affairs and the management of the plc's mergers and acquisitions.
"He was also responsible for investor relations but the main boardroom responsibility for Matbro lay with Mr Pat Dooey, the sales director of Powerscreen International," Mr Trollope told the court.
He said the defence could show that Mr McKeown had nothing to do with the day-to-day running, book-keeping or auditing of Matbro and had no responsibility for the subsidiary beyond the fact that he was chief executive of the group.
But Mr Trollope also disclosed to the court that it had been well documented that there were accounting problems at Matbro, long before the emergence of the £48 million of irregularities.
He said it was plain to see in Matbro's public accounts and Powerscreen's group accounts that there had been accounting problems as far back as 1993.
Mr Trollope said at one stage Matbro had an overdraft of £20 million, which had prompted Mr McKeown, a qualified accountant, to commission his own investigation into Matbro's financial affairs.
Mr McKeown's defence team insists that this investigation in early 1997 did not reflect prior knowledge on the part of the former chief executive or that he was familiar with Matbro's financial difficulties from there on in.
Although the investigation did highlight some "anomalies", Mr Trollope said, it did not in any way suggest that Matbro would have any impact on the group's accounts or that serious action was urgently required.
He said Mr McKeown learned of the real financial situation at Matbro only in December 1997 after he had commissioned a senior Powerscreen executive to carry out a fresh investigation into Matbro following a report from two of the group's employees that raised the issue of a £43 million deficit.
The case is continuing.
