In the latest bizarre twist involving Sun-Times owner Hollinger International, a federal judge ruled Monday that press baron Conrad Black does have the right, as controlling shareholder, to fire the company’s board of directors unfettered.
But for now, the ruling is toothless.
U.S. District Judge Blanche Manning stopped short of allowing that to happen in order to keep the board intact while it investigates allegations that Black and other top executives took millions in unauthorized payments and fees from the company.
The Securities and Exchange Commission secured an emergency injunction in January that effectively prevented Black from changing the board, fearing that he would derail a board-appointed special committee’s investigation into Black and others. Black was forced out as CEO of Hollinger International in November.
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The SEC got the ruling hours before Black agreed to sell his stake in Hollinger International to British multimillionaire twins Frederick and David Barclay.
The January injunction stated a “triggering event,” such as a change in the makeup of the board, would automatically invoke a special monitor to continue the work of the special committee.
In her ruling, however, Manning said the emergency motion filed by the SEC “impaired” Hollinger Inc.’s ability to remove and elect directors as it pleases as controlling shareholder of Hollinger International. In addition, the SEC failed to notify Hollinger Inc. and Black that it was filing its emergency notice, she said.
Manning said that the SEC was obligated to do so. But she acknowledged that there was no way to know whether the SEC’s argument that Black and others were “attempting to thwart … the special committee” was true, and delayed making her order effective until she heard more from both parties.
The ruling follows last week’s Delaware Chancery Court’s ruling blocking Black’s ability to sell his controlling stake to the Barclays.
Manning also said Monday that both sides are free to address whether the Delaware decision has an effect on the SEC’s case in Chicago.
On Monday, the SEC expressed disappointment that part of the order was overturned, but insists that the order still states that “the special committee is still required to be maintained,” said Peter Chan, assistant regional director.
Hollinger Inc. praised the ruling. “We are pleased that Judge Manning has upheld our right to intervene in this matter and to protect our rights as a shareholder,” the company said in a statement.
In the meantime, Hollinger Inc. missed a crucial interest payment due Monday on its $120 million in outstanding debt, though the company has 30 days to make the $7.4 million payment.
Since Black has pledged all of its special class of voting shares in Hollinger International as collateral, he risks losing control of the company if he misses the end-of-the-month deadline.
The company said it was looking at “available options” to satisfy the payment.
Separately, sources said that the special committee is expected to reveal more details about top executives David Radler’s and Conrad Black’s sales of Hollinger newspapers to private companies they own. A source close to the special committee investigation said that new “crucial” information involving, among other things, the valuations of Hollinger newspapers sold to Radler’s and Black’s private companies, Horizon Publications and Bradford Publications Inc., could be unveiled in a matter of weeks.
That information could lead to additional claims in court by Hollinger, which is suing the two executives for $300 million.
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