Lagan family feud revealed in court ruling

Grant Prior 10 years ago

Two brothers who built the giant Lagan Group had a bitter feud which threatened the business.

Kevin and Michael Lagan grew the Lagan Group into a company with 1,000 staff and an annual turnover of £400m.

But the BBC has discovered details of the falling out which were revealed in a High Court judgement which concerned Michael’s attempt to have the business wound up.

The ruling was delivered in 2008 but could not be reported until now for legal reasons.

It describes how “increasing and unresolved differences” between the brothers developed into a “serious conflict”.

In a joint statement issued to the BBC today the brothers said said they now have separate businesses but are working together on areas of mutual interest.

In affidavits filed in 2008 as part of the court case Michael Lagan accused his brother of seriously undermining their “relationship of trust and confidence”.

He claimed Kevin’s behaviour involved reneging on agreements and trying to exclude him from the management of the group.

Michael also said Kevin undertook a “tactical manoeuvre” which involved pressuring him to invest £9m of his personal money in the group’s house-building operation and breaching fiduciary duties in respect of a £31m deal to buy a Welsh slate company.

He said the attempt to have the business wound-up was taken as a last resort after Kevin failed to make “a fair and reasonable offer” to buy his 42.5% share of the business.

In responding affidavits Kevin Lagan rejected those claims and said Michael’s attempt to have the group wound up had caused it “substantial damage”.

He said the act of filing a winding-up petition had, at that time, put the company in technical default of bank loans and PFI contracts.

Another Lagan director gave evidence that had the petition become public it would have had “catastrophic” consequences for the business.

In the event the court ordered that as the case was essentially a dispute between the two men, and the business was solvent, the petition should not be made public.

That order was removed in December 2011 which cleared the way for details of the case to be published.

The judgement suggests that the roots of the dispute go back to 2001 when there were efforts by the two men to agree on the re-organisation of the group.

From around 2004, there was an “informal demerger” which saw the management of one company division report to Michael and the other four divisions report to Kevin.

But Michael complained that in 2005 Kevin had “frustrated” the agreed sale of the group’s building materials and clay business.

Then in 2006 they reached what the judge described as “at most an agreement in principle” on a “partition” which would have seen each of them take exclusive ownership of different parts of the business.

Michael later complained the Kevin had “reneged” on this deal with a view to getting him to sell his shareholding for a reduced price.

Matters appeared to reach a head in 2007 when a company in which Kevin was the majority shareholder paid £31m to acquire Welsh Slate.

Mr Justice McCloskey described this deal as “the impetus for a major rift between the brothers”.

There were then further unsuccessful negotiations before Michael filed the petition as what he described as “a last resort”.

That could have lead to the group being broken up and its trading companies sold.

Kevin’s affidavits said the petition had had the effect of “fundamentally altering” the firm’s relationships with its bankers and business partners.

The judge said there was then a “trading of punch and counter-punch” when more allegations were made.

In the event, the winding-up petition did not go to a full hearing because the substantive matters were settled out of court.

The settlement involved Michael Lagan taking exclusive control of some parts of the business, now called the Lagan Construction Group.

Its most recent set of accounts, for the year to March 2011, refer to it acquiring the civil engineering, piling, PFI and operating and maintenance business of the Lagan Group as “part of a wider re-organisation”.

In a joint statement issued today to the BBC the brothers said: “This matter relates to a succession planning issue which arose some four years ago.

“In 2008, acting in the best interests of the Lagan businesses, we entered a process of negotiation and discussion through the Chancery Court. The issue was subsequently resolved by agreement to separate certain of the Lagan companies, the smooth transition of which completed in 2010.

“We continue to work closely on areas of mutual interest while leading our individual businesses through this challenging economic climate.”

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