The chairman of Independent News and Media (INM) James Osborne did not want to face into lengthy litigation to terminate the employment of the company’s former chief executive Gavin O’Reilly, the Commercial Court heard today.

Mr Osborne told the court it would not have been "a desirable course of action" had the company simply dismissed Mr O'Reilly and then waited for him to take legal proceedings which he had threatened to do.

Mr Osborne said it was clear to him that Mr O'Reilly was lining up some "heavy-weight" lawyers to bring a case if the company did not meet his minimum demand of 23 months pay in compensation for resigning.

This was the reason it was decided to negotiate a termination package, he said.

Mr Osborne was giving evidence on the second day of a challenge by non-executive INM director Paul Connolly to an April 19th decision of the board to approve a €1.87 million payment, or 23 months pay, to Mr O'Reilly on his departure after three years as chief executive.

Mr Connolly is seeking declarations from the court that the payment was unlawful because it first required shareholder approval under Section 186 of the Companies Act.

He also claims the payment was done with undue haste and was excessive. In response to Michael Howard SC, for INM, Mr Osborne told the court today that following his appointment as chairman last October, he undertook a review of a number of matters including the performance of the chief executive.

It was following correspondence and a number of contacts with Bank of Ireland, lead financier of INM, that Mr Osborne came to the conclusion that Mr O'Reilly's position was no longer tenable, he said.

Under cross-examination, Mr Osborne said he inquired with INM's major shareholder Denis O'Brien about a rights issue and was told by Mr O'Brien that he would not support such a rights issue while the existing management was in place.

The hearing continues.