Director of Corporate Enforcement Paul Appleby has followed through on the logical implications of the Supreme Court's decision that DCC executive chairman Jim Flavin engaged in insider dealing when selling shares in Fyffes. Mr Appleby, with commendable speed, asked the court on Tuesday to consider whether anyone should be disqualified as a director as a result of its ruling. The High Court will now determine the matter.
Five Supreme Court judges produced a unanimous decision in July in an unambiguous ruling that has critical implications for Mr Flavin and for DCC. When Mr Flavin organised the sale of DCC's 10 per cent stake in Fyffes in 2000, the Supreme Court found that he was in possession of price sensitive information and had therefore acted unlawfully. Mr Flavin, then a Fyffes director, had insider information about its trading prospects.
The sale of Fyffes shares netted DCC a profit of €85 million on its original investment. The transactions were completed some weeks before Fyffes issued a profits warning and some weeks after a confidential internal report first alerted the Fyffes board, including Mr Flavin, to its deteriorating trading position. Had the market known what the DCC executive chairman knew, then DCC would have secured a lower price for its equity stake. As Mr Justice Fennelly pointed out, trading on inside information is "a fraud on the market".
Stock markets operate on key assumptions: that market activity is transparent, that price sensitive information is released at the same time to all shareholders and investors and that company insiders never use confidential information for financial advantage. Financial markets, which lack such transparency or are poorly regulated, will not command public confidence and will be shunned by investors. Given the importance of the financial services sector to the Irish economy, proper market regulation and good corporate governance must be a concern.
Mr Flavin has insisted there was no intentional wrongdoing on his part. And he takes some consolation from Ms Justice Laffoy's decision in the High Court, that he had not used the information in question. Fyffes, in its appeal to the Supreme Court, nevertheless, claimed that the information was price sensitive and that the lower court had erred in its decision. The Supreme Court agreed, and upheld the appeal.
The DCC board has perhaps shown more loyalty than judgment in its unqualified support for its beleaguered executive chairman. In an interview with The Irish Times, DCC's senior independent director Michael Buckley insisted that it would be neither just nor honest nor fair were Mr Flavin to resign or be removed by the board following the Supreme Court judgment. But many will question how a unanimous decision of the Supreme Court, which found that the executive chairman of a major Irish public company had broken the law, can be so easily dismissed by the DCC board as a matter, it seems, of no great consequence.