A proposed growth share scheme for Walls Construction is needed to retain key people in the business and to incentivise management to work towards financial targets, the Commercial Court has heard.
The Irish building firm, which had a turnover of €472 million in 2022, says it has the requisite shareholder and company consent for its growth share scheme, which would see the next generation of management gain equity in the business with attached economic rights triggered if certain financial targets are met.
However, McSorley Investments Limited, which has a 20 per cent stake in the company behind Walls Construction Limited, issued High Court proceedings earlier this month over alleged fears its interests would be diluted and oppressed if the scheme proceeds.
Tech firm work
McSorley Investments was formed several years ago to hold Walls Construction Holding Limited (WCHL) shares that belong to members of the extended Wall family. WCHL wholly owns the shares in the construction firm, which was founded in 1950 by PJ Walls.
WCHL says it made an €18 million pre-tax profit in 2022. Recently, it completed a fit-out of Google’s offices in the old Boland’s Mills in Dublin’s docklands, and it was management contractor for LinkedIn’s new headquarters at Wilton Place, Dublin 2.
Chief executive of Walls Construction, Eugene O’Shea, said in an affidavit that the growth share scheme was created to ensure appropriate succession management and future success of the business in circumstances where the current management is approaching retirement age.
The scheme involves issuing growth shares (having no rights until financial thresholds are achieved) representing 20 per cent of WCHL. It was designed so the next generation of managers is properly recognised and incentivised via a mechanism that aligns their interests with those of shareholders, he said.
Deferred approval
Mr O’Shea said the scheme was due to be approved at board meetings in late January and early February, but these were deferred to mid-February. Before the re-scheduled meeting could occur, he said, McSorley Investments issued its High Court proceedings seeking an injunction that would prevent WCHL and its directors from implementing the plan.
McSorley Investments has since been assured the scheme will not be approved or implemented until its application for an injunction has been determined, said Mr O’Shea.
He, WCHL and several of its board of directors, who are the defendants in McSorley Investment’s action, believe the proposal is “entirely in keeping” with a 2015 agreement that lays out how WCHL should operate and how relations between investors and shareholders should be regulated.
This agreement, which arose out of a 2015 management buyout of Walls Construction, envisages shares being issued with the consent of the finance committee and a super majority (not less than 75 per cent) of investors, he said. This scheme has secured both such approvals, he said.
The chief executive said the inability of the company to implement the share plan is now of “significant urgency”. The company, its directors and the proposed new participants in the scheme will be substantially prejudiced if it does not proceed, while the wider ability of the firm to conduct its business and trade will also be affected, he added.
On Monday, the defendants successfully applied for the action against them to be admitted to the Commercial Court, which expedites cases. McSorley Investments consented to the case entering the list.
However, the defendants’ senior counsel, Brian Kennedy, told the court the parties have agreed to try to resolve the matter via out-of-court mediation, which is due to begin tomorrow.
Mr Justice Denis McDonald said the case merits entry into the Commercial Court, given the value of WCHL. He said mediation is a sensible step for these proceedings, and he hopes it proves successful.
In moving a preliminary application in its case earlier this month, McSorley Investments said it favours a management incentive scheme, but it should not be unfair to existing shareholders.
It expressed concerns about the “high” volume of shares to be allotted and potential tax implications.
In a sworn statement to the court, the founder’s son, also named PJ Walls, who is a director of McSorley Investments and WCHL, alleged the defendants are “forcing a dilution of shareholding” on McSorley Investments in a manner that is “unfair and oppressive”. However, he said the plaintiff believes a “sensible resolution” can be reached between the parties.
