A minority shareholder in the Davy Hickey group has failed to halt the sale of up to €40 million in development assets at Citywest.

Fulman Holdings, an investment group led by former Davy stockbroker and Goldman Sachs executive David Shubotham and billionaire Ardagh chairman Paul Coulson, had sought a temporary freezing order stopping the disposal of company assets until its oppression lawsuit against the board of Oviedo, an offshoot of Davy Hickey Properties (DHP), is decided. 

The Commercial Court refused the injunction application as a pause on sales could negatively affect the majority of company shareholders, who support the board’s strategy, especially if property prices fluctuate.

Fulman’s oppression case under section 212 of the Companies Act challenges the actions of the board in winding up the development business, in line with a resolution passed by nearly two-thirds of members at the AGM last December. Fulman, which controls 33.7 per cent of shares, was the lone voice of dissent.

The minority group claims the board has acted oppressively as it has acted without first getting independent advice about how to maximise returns for shareholders, which Fulman argues could be better achieved by selling the company as a going concern or developing out land assets before putting them on the market. 

Read the full background to the case in our two-part series

The revolt at Davy Hickey: Part 1 – How staggering success turned to mistrust

The revolt at Davy Hickey: Part 2 – Lost opportunities, huge gains

Davy Hickey Properties was founded in 1990 as a property investment partnership between developer Brendan Hickey and Davy stockbrokers. It is best known as the developer behind Citywest, where it built a business park, data centres, the Luas extension, offices and housing.

The board decided to wind down its operations in 2018. It has already divested over €200 million worth of property and development lands. Last December, members agreed to transfer and sell the remaining development assets, valued at around €40 million, through a new vehicle called Oviedo.

Fulman objected to the move and launched oppression proceedings last May, alleging serious mismanagement of the company’s affairs by the board in a way that is “destructive” to shareholder value.

When Oviedo continued to market development lands for sale, including Citywest residential plots Mountview and the Northern Quarter (collectively valued at around €25 million), the minority group moved for an injunction on May 31, arguing that any further divestment of assets would render its action moot. 

The board members of DHP/Oviedo are Brendan Hickey, ex-Davy stockbrokers Brian Davy and Kyran McLaughlin, managing director/CEO Hugh Lynn and Glen Dimplex founder Martin Naughton. They deny mismanagement and say Fulman’s oppression case is unstateable.

A “remarkable increase in value of the assets”

Weighing up the legal hurdles a litigant needs to jump to secure an injunction application, including whether there was a fair issue to be tried, Justice Denis McDonald concluded that as Fulman’s section 212 case was not brought against all of the company’s shareholders, it had to be read under the Act as a claim of oppression relating solely to the powers of Oviedo’s directors.

Based on legal precedent, the judge said he believes Fulman faces a “formidable hurdle in establishing that there has been serious mismanagement on the part of the board sufficient to constitute oppression or disregard of interests within the meaning of S. 212″. He added that the case law shows that, ordinarily, management decisions of this kind will not provide a basis for an allegation of oppression and that the courts in the past have been prepared to intervene only in cases of “prolonged and stark failures on the part of a company board”, on facts unlike the circumstances of the Oviedo action.

Given “the remarkable increase in value of the assets” held by the company and the experience and expertise of the board, the judge found it was difficult to see how the decision to sell the assets, as part of the winding down of Davy Hickey, could be said to constitute serious mismanagement, especially as the strategy had the support of the majority of shareholders who had rejected alternative proposals from Fulman last year.

As this was a preliminary application, the judge said he did not exclude the possibility that Fulman will be able to persuade the court at trial that the board had an obligation to seek independent advice on whether the company should be sold as a going concern. However, he noted the board was “better equipped than many external advisors to assess whether it made sense”.

Given the strength of feeling and financial resources of the players in the case, the judge said there was every likelihood that the case would continue to a full trial.

At this preliminary juncture, Fulman failed to convince the court that damages would not be an adequate remedy if it won down the line and the Oviedo assets were sold before the case is resolved. Justice McDonald also considered what would happen to the other shareholders if the injunction was granted and asset sales were stalled until the trial, which may be as late as mid-2022.

Despite legal submissions on behalf of Fulman that delays to the sales process would be no more than two months if the court granted more limited relief restraining the company from realising assets without first procuring and making available to the members’ independent expert advice, these timings, the judge said, could not be guaranteed.

Moreover, withdrawing two substantial assets at Citywest that are currently on sale could cause significant reputational damage and affect the market’s confidence in the company in relation to future disposals, the court concluded.

He factored in Oviedo’s delay in bringing the injunction application and the fact that, if granted, other shareholders would have to wait to get the benefit of the value from the assets being sold. “The reality is that no one can predict, with any degree of certainty, what may happen to property prices or the demand for property of the kind held by the company in the period between now and the trial,” he said.

While Fulman had offered an undertaking as to damages, the judge continued: “To grant the relief claimed by the applicant would mean that the remaining shareholders would be required to bear the risk that, to use the well-worn warning, property prices may fall as well as rise.”