At the annual general meeting of Citywest developer Davy Hickey on December 7 last, investors passed a resolution to split the property company into two. Cash assets would stay in DHP, an Isle of Man entity, while all the remaining property and development assets, valued at around €40 million, would be hived off to a new Irish company called Oviedo.

The new company, set up as a mirror of DHP in its shareholding and board structure, had one purpose, to sell everything thereby bringing to an end, after 30 years, one of the leading property investment businesses in the country. A company that at June 30 2020, was said to have a net asset value of €159.7 million or €1,253 per share.

If all went according to plan, Oviedo would divest its assets by 2022, delivering liquidity for Davy Hickey’s ageing investors and allowing the company’s directors, all over 65 years old, to hang up their hats or explore pastures new. Each had given at least a decade’s service on the board of DHP. Some like property developer Brendan Hickey and former Davy stockbroker chief Kyran McLaughlin had founded the partnership back in 1990 with the acquisition of around 500 acres of land at Citywest. Martin Naughton, the billionaire philanthropist of electronics firm Glen Dimplex, joined the board in 2009, having been one of the original Davy Hickey investors. Then there was the chair – former Davy stockbroker and director of the Irish Stock Exchange Brian Davy, and Hugh Lynn, who replaced Hickey as managing director of DHP in 2010.

On the Oviedo sales block would be a dwindling bank of valuable residential, office and industrial development lands at Citywest, Navan and Bettystown and an interest in commercial properties on Leeson Street, including music venue the Sugar Club.

The exit strategy was already long in the tooth by the time Oviedo was formed. It had been initiated by the board back in 2018 in response to shareholders’ desire for a major liquidity event. Having sized up the property market, the DHP directors thought the time was right to bow out rather than go another investment cycle.

To date, more than €200 million worth of development assets have been sold by Davy Hickey as part of the wind-up process. The creation of Oviedo represents the last lap of the race, the final piece of the puzzle.

While the vote on restructuring last December did not meet with universal acclaim among DHP’s members, the resolution passed comfortably with roughly a two to one vote in its favour. In fact, only one shareholder opposed the strategy, a Luxembourg entity called Fulman Holdings.

The company is hardly a household name but the key players behind it make Fulman a force to be reckoned with. David Shubotham is a former Davy stockbroker and Goldman Sachs executive who spent 21 years as a director of Davy Hickey, from its foundation, until he stepped down in 2011. Paul Coulson is the billionaire chairperson and shareholder in glass manufacturer Ardagh.

As a collective, Fulman has a 38 per cent stake in DHP, and now Oviedo, making it the largest single shareholder in both entities.

Being shot down in a members’ vote at the AGM could be put down to the democratic cut and thrust of life in a private corporation. But Fulman insists there is a lot more to the board’s resolution than meets the eye. Its opposition to DHP’s exit strategy remains resolute.

This has led to a bitter Commercial Court row with Fulman claiming the board is culpable of serious mismanagement of the firm amounting to shareholder oppression under section 212 of the Companies Act 2014. Part one of this report looks at the history of the row.

Who will benefit most from Citywest?

At its heart, the row is about money. The minority group’s complaints include a claim that the board of directors has massively undervalued the Oviedo assets up for sale while deliberately thwarting Fulman’s generous €80 million offer to take over the business – estimated by the board to be worth half that sum at around €40 million or €310 per share.

While the case has yet to go to a full hearing, extensive filings have been lodged in court since the action was launched in May. There are several strands to Fulman’s lawsuit, all of which have met with steadfast opposition from the board members who are being sued in an individual capacity. The action is also against five shareholders with links to the board although no claim of wrongdoing is made against them. Oviedo is a notice party to the case.

What Fulman is seeking is an order declaring that the conduct of the five board members of Oviedo is oppressive and disregards the interests of members. It wants further orders directing the company to obtain independent expert advice, including corporate finance advice and property valuations, setting out alternative future paths for Davy Hickey than the course it’s currently on.

In the latest development last week, Fulman sought to injunct Oviedo, and its directors, from disposing of its assets, including two residential plots already on the market at Citywest, for the duration of the court proceedings.

The move wasn’t a complete surprise. Fulman had flagged in legal correspondence that it might seek temporary orders to preserve the status quo before the case went to a full hearing over concerns that the sale of assets would render its case moot.

In an affidavit grounding the injunction application, solicitor GJ Moloney said the Oviedo directors’ “high handed actions” in putting assets up for sale sought to pre-empt the decision of the court and flew in the face of “basic principles of modern corporate governance”.

From a commercial point of view, he noted that developers and buy-to-let investors were eyeing up these sites, and were likely to reel in substantial profits that should be realised for the benefit of Oviedo shareholders and “not by the purchaser of the raw lands”.

Then there were the intangibles of Davy Hickey relinquishing its 30-year grip on Citywest to consider. “Much of the benefit of the huge investment in infrastructure at Citywest over the years (in roads, sewers, Luas connections etc) will be lost to Oviedo,” Moloney states.

In mid-April, Fulman requested undertakings from the board not to proceed with any asset sales. The request was rejected and a residential development site Mountview was put on the market a week later with an asking price of €8.5 million. This was followed up in late May, after the oppression proceedings were lodged, with another undeveloped residential tract at Citywest, called the Northern Quarter being advertised for sale in The Irish Times.

The board says the marketing of Citywest lands is simply a continuation of its existing divestment policy and that Fulman’s decision to wait a month before trying to injunct the Mountview sale – which was on the market before the proceedings came to court – was timed to cause maximum disruption and delay to the sales process.

The court’s decision on the injunction application is imminent and may have a bearing on the course of the wider oppression action.

A matter of good faith

The first strand of Fulman’s oppression claim is that the board of DHP/Oviedo appears to be selling off development assets piecemeal at an undervalue. The second is that it is being kept in the dark by the board. The minority stakeholder says it has repeatedly sought information about the assets and has been given only basic valuations that identify what the company is worth on a break-up basis but not what price it might achieve if it were sold as a going concern or in the event that the assets were developed out.

By way of an example, Fulman says the Citywest freehold is valued in the company’s latest audited accounts at nil, when in the expert opinion of Roger Keogh, a chartered surveyor with Avison Young, it has significant potential value.

Again when it comes to the recent advertising of undeveloped lands at Mountview and the Northern Quarter in Citywest, Fulman claims the failure to first secure planning permission for increased densities on both sites, was likely to damage the prospects for optimising the return on these assets.

In an affidavit, Hickey contends these criticisms are simplistic as the decision to sell or not to sell undeveloped land is a strategic business decision dependent on numerous factors including the cost of developing the land, the time it would take to develop the land, the availability of finance to fund development, the prevailing tax environment and perhaps most importantly the current and likely future state of the market.

Similarly, he claims increased densities do not always lead to higher profits. For example the additional costs of building apartments may undermine the return, and the market for such developments can be more volatile than that for houses.

The board, Hickey says, acted in good faith. He maintains that the affairs of the company have been managed the same way for 30 years, an approach that was allegedly supported by Shubotham until recently. If the return on the advertised lands at Citywest was likely to be a windfall profit then why, he asks, doesn’t Fulman bid for them?

It was always Davy Hickey’s policy to sell undeveloped land when advantageous to do so, the court was told. To date, the group has sold 287 acres of undeveloped land, 240 of which were sold allegedly with Shubotham’s approval while he was a director or on the management committee.

The court heard the net asset value of the business has increased from €6 per share to €1,253 over the last eight years, alleged to be a much higher rate than that achieved by comparable Irish property companies. In the circumstances, Hickey says he finds it difficult to understand the rationale behind Fulman’s grievances. “This is especially so where Mr. Shubotham sought to undertake further projects with me personally and approached me in 2017 to get involved with his family in developments in London (and specifically in the Cross Rail infrastructure sector) – which approach I demurred,” he claims.

Shubotham, he notes, was either on the board or the management committee for a period of 21 years from 1990, resigning in 2011 at Davy Hickey’s “lowest point” when there was a “genuine risk to the solvency of the business arising from the extraordinary and unprecedented nature of the property crash”.

During those 21 years, Hickey says Shubotham did not express any concerns about the governance, integrity or competence of the board. Since resigning as a director his access to information has been limited in accordance with his rights as a company shareholder. “Had he chosen to stay on as a director he would have been entitled to the same level of information as all other board members,” he states.

The greatest return

Fulman maintains it has been consistent in its position, over the past three years since divestment began, that it wants Davy Hickey to continue as a going concern, maximising returns and distributing only surplus cash to shareholders. It alleges that the board contrived the Oviedo restructuring so that liquidity for members was conditional on them agreeing that the new company would be strictly an asset disposal vehicle rather than a development business.

Shubotham and Coulson say that they accept that if it is the legitimate will of the majority of shareholders (assuming said majority is not acting oppressively) that the business of property development should cease, then the board must ensure the greatest return is obtained for investors. To that end, it is contended by Fulman’s lawyers that as a matter of “basic corporate governance”, the board must consider whether the best value is obtained by keeping the business going, selling it piecemeal or selling it in its entirety.

This they say requires independent professional advice, reports, and valuations, not just assessing the company’s assets but the entire business. Such reports, they say, must be openly shared with all stakeholders so informed decisions can be made about the future of Oviedo.

It is Fulman’s contention that to date the board has not acted with sufficient transparency and therefore it has oppressed its interests.

In reply, Oviedo says the board is vastly experienced and has achieved outstanding returns for shareholders over 30 years. The directors say they have taken independent advice in the form of annual red book valuations by highly qualified real estate experts like Lisney and Jones Lang LaSalle.

The court has heard that John Moran, the chief executive of JLL, advised DHP in a report last August to engage in a piecemeal sale of its property assets, to maximise returns, rather than sell them as a single lot. Moran said he did not believe there would be an “appetite” for a bulk sale of the company’s mixed portfolio and that “the best route is individual sales and/or lotting of certain assets”.

“The idea that the Board is not taking advice on the value of its shares is just fanciful,” Paul Gardiner, senior counsel, for Oviedo, told the injunction hearing last week.

But Michael Cush, for Fulman, made the point that Moran’s qualifications do not extend to matters of tax, or share valuation, competencies required to determine the best future course of the company. He relied on the expert view of PwC lead corporate finance partner Dave Tynan who said in an affidavit before the court: “I find it unusual that, in such circumstances, no appropriate corporate finance advice was obtained to see what an alternative sale approach might have yielded”.

Oviedo claims it has been well served by its in-house corporate finance “gurus” Kyran McLaughlin and Brian Davy, described by Lynn as “two of the most experienced corporate finance and capital markets advisors in Ireland and from Martin Naughton, one of Ireland’s most successful businessmen”. The Oviedo CEO continued: “If the members of the Board or also the shareholders of the company felt at any stage that external corporate advice was appropriate in order to benefit the company we would have sought it.” Cush argued that despite Lynn’s comments there wasn’t a shred of evidence to suggest their expertise was used to explore the possibility that a sale of shares would realise better value than selling off Oviedo’s assets.

“In circumstances where there is a history of distrust between the Board and a very significant shareholder, I do suggest that the onus to obtain independent advice on such a significant issue as this is even more obvious,” Cush said.

In an affidavit, McLaughlin says he cannot understand how there could be any basis for legally requiring a board of directors to take independent advice before implementing a decision that members have already voted on as it would render the corporate governance structure of the company unworkable. He also queries how such a move could advance Fulman’s position as it is not seeking orders requiring the board to abide by any advice it receives.

To Tynan’s suggestion that Oviedo could be sold as a going concern, Hickey replies that this does not account for the fact DHP is engaged in a vast range of development sectors from industrial and data centre development to office development, investment properties and residential development – primarily in one location. ”I know of no other property company..that has a similar sectoral spread in terms of development projects in one location,” he claims. In such unique circumstances, he argues that no independent advisor would have greater knowledge of such a diverse property portfolio in Citywest than the board itself.

In sum, Oviedo’s directors deny that any of Fulman’s grievances are legitimate. They claims the dispute, in reality, is about a minority group disagreeing with a commercial strategy approved by the majority of shareholders. While Fulman may dislike the board’s approach, it does not amount to oppression, the court was told.

A historical row

Some interesting legal points have arisen from the oppression claim. For example, the board members have queried how they would have the power to oppress Fulman given their stake in Oviedo falls far short of a majority. The directors collectively hold a 22.9 per cent shareholding in the company which rises to around 38 per cent when their family members are included. That leaves a swing vote of around 28 per cent of shareholders who have no affinity to Fulman or the directors who back the board’s liquidity strategy.

Yet in legal correspondence on March 29 this year, GJ Moloney solicitors, acting for Fulman, put forward the contentious claim that its client believed the board members “do indeed control the majority of the shares in DHP and Oviedo”.

The same legal letter complained that Fulman had suffered oppression at the hands of the board for the past three years – from when the board aborted a controversial shareholder liquidity proposal (SLP) in March 2018 to wind down the company and allow Brendan Hickey, and only Brendan Hickey, to retain DHP development assets in lieu of cash. This has led to consistent complaints ever since from Fulman that the directors of DHP preferred the interests of Hickey over other shareholders by allowing “prize assets” transfer to the former managing director in the SLP. Shubotham has described it in an affidavit as an “ill-considered, unfair” proposal that left him “completely taken aback and utterly appalled”. 

While the fallout from the withdrawn SLP forms the backdrop to the tensions and mistrust currently engulfing Davy Hickey, the alleged three-year oppression campaign can only refer to the board of Davy Hickey Properties as it predates the incorporation of Oviedo. This has raised a jurisdictional question because DHP is an Isle of Man company subject to Manx law. That means the extent of Fulman’s oppression claim is curtailed to the recent activities of the Irish registered Oviedo.

While DHP Isle of Man was attached as a notice party to the oppression claim when the lawsuit was launched in May, this week it was allowed to bow out of the case on the basis that it should never have been tagged by Fulman in the first place.

And yet the allegations of a conflict of interest surrounding Hickey persist. The court heard Fulman’s concerns were exacerbated when it discovered Hickey and Kyran McLaughlin had set up a new property development firm, Brightwalk, in 2015, that operated in the Dublin market. Shubotham says this should have been disclosed to shareholders of Oviedo. In the context of the SLP could it be that Hickey and McLaughlin are holding out on DHP assets for their own benefit?

The claim is rejected as baseless by both directors who say Brightwalk was set up to facilitate their adult children developing a relatively minor housing project on a three acre site at Kilternan in south Dublin. Hickey holds a 10 per cent interest in the venture, his wife Claire holds another 10 per cent and McLaughlin has a 2 per cent stake. The remaining 78 per cent of the company is owned by their offspring.

McLaughlin says the project arose in 2014 when a builder, whom he knew from the construction of his own family home some years earlier, approached him about financing a development opportunity on Glebe Road. The court heard the plan is to wrap up Brightwalk once the project at Kilternan is complete.

But Fulman’s lawyers say it remains “deeply suspicious” as a result of the “so called liquidity proposals” tabled by the DHP Board in 2018 and its actions since that time that the directors may wish to “resuscitate the business under their own ownership to the detriment of the existing shareholders”. Why else, solicitor GJ Moloney asks, would they seek to obstruct a bona fide offer from Fulman to acquire the assets at a price double that what was estimated by the board? The claim of obstruction centres on Fulman’s contention that it was forced to withdraw, what Lynn has described as its “unrealistic” bid when the board refused due diligence on 29 subsidiaries of the company it says was required to evaluate the group as a dynamic entity rather than as a bunch of assets.

This allegation of a conflict of interest has been branded by Hickey as “speculative, false and scurrilous” while other members of the board said it made no sense for them to advance Hickey’s interests over their own.

“I have already averred that neither I, nor any person connected to me, proposes to purchase any of the company’s assets,” he says in court filings. The board has repeatedly stated in its defence that all Oviedo assets are being sold on the open market.

The other five

As stated, Fulman’s oppression suit is against 10 named parties, including five shareholders against whom no wrong is alleged. Fulman says they were attached to the case in the event that orders were secured against their shares. The move against parties Davycrest Nominees (which holds McLaughlin’s 7,423 shares and some of Lynn’s shares among others), Lusaro Management – a Hickey vehicle, Neil Naughton, Fiona Naughton, and Claire Hickey has been described as “unusual” by their lawyers. A substantial block of DHP/Oviedo shareholders – around 28 per cent, represented by about 40 parties -who have no ties to either the board or Fulman – have not been joined to the oppression claim.

Given there is no allegation of wrongdoing, those in the firing line have suggested the case against them is an abuse of process. Brendan Hickey’s wife Claire Hickey says she is concerned that Fulman’s agenda was to exert pressure on members of the board by involving them and their family members in the costs, stress and publicity that goes with a High Court action.

Claire Hickey is a 0.0008 per cent shareholder in Oviedo and a director of Lusaro Management which has an interest in the company. In an affidavit, she says she was very upset when the proceedings were served on her at home at 7.30pm on the evening of May 10, 2021. She claims she was included in the action as part of a campaign to exert pressure and inflict maximum stress on her and her family, and that solicitors’ and other letters have been regularly delivered in the evening by courier, invariably on a Friday evening, over the last three years.

She says she has no reason not to support the board’s disposal strategy and views Fulman’s oppression proceedings as baseless.

Neil and Fiona Naughton, the son and daughter of Glen Dimplex founder and Oviedo board member Martin Naughton have also rowed in behind the board. In their respective affidavits, they say they find it “deeply offensive” and “disrespectful” that Shubotham appears to believe their father in some way controls their vote as shareholders. Neil Naughton, a director of Glen Dimplex, expresses every confidence in the board saying his investment in the group increased enormously under its astute management including the way it “navigated the global financial crisis which threatened the very survival of DHP”.

He also complains of his frustration at having to devote time and expense to defending proceedings in which he is not alleged to have done anything wrong, especially during the pandemic when businesses, including his own, are suffering.

For now at least, they remain embroiled in the row.