Independent News and Media has begun its High Court challenge to a "very significant" decision by the State's corporate watchdog to apply to have inspectors appointed to the company.

INM says that in the circumstances of this case it should have been notified of the Director of Corporate Enforcement's concerns and given an opportunity to respond to them before he made the decision to make the application to the court.

It says the Director's application itself has had adverse effects on the company and its share price.

Paul Gallagher, Senior Counsel for INM, told the High Court the decision to apply to have inspectors appointed to a public limited company was a very significant one.

He said INM was not arguing that a State body intending to institute proceedings which would cause reputational damage to a company always had to engage with that company beforehand.

But he said the ODCE had begun an investigation into the company in January 2017 and in this case, INM should have been told the Director, Ian Drennan, had decided to make the application to appoint inspectors before that decision was made public in March this year.

He said the Director should have identified his concerns and INM should have been given the opportunity to make submissions on them.

Mr Gallagher said Mr Drennan identified important issues and made serious criticisms of INM in a sworn document filed as a basis for his application.

He said INM had not been in a position to address these issues as it was unaware of them.

Among the issues, Mr Gallagher said it was "factually wrong" that the first response of INM to the protected disclosure by the company's former CEO, Robert Pitt, was to discuss the termination of Mr Pitt's employment.

He also said, the company was not notified in advance about the existence of a spreadsheet listing 19 people whose data may have been accessed after a server was removed from the company and interrogated by a third party.

The court has previously heard that the invoices for the data interrogation were paid for by a company beneficially owned by businessman, Denis O'Brien, INM's largest shareholder.

Mr Gallagher told the court that if the Director was going to reach conclusions damaging to INM, then he should have adopted fair procedures.

Mr Gallagher submitted that there was credible evidence that the INM share price had been severely impacted by the Director's decision.

There had been adverse criticism of the company's corporate governance; there was a serious impact on the operations of the company and on what had to be done to deal with the application while continuing to manage the affairs of the company.

This was at a time, he said, when media companies in general were under severe stress because of changed market conditions.

Mr Gallagher said the decision by the Director to seek to have inspectors appointed was "a bolt out of the blue" for INM and had immediate serious consequences.

He said if INM had been aware that 19 named individuals had possibly had their data "targeted" by a third party, it would have taken action.

He said this allegation was extremely damaging to the Independent as a media company, in whom the trust of employees and of the public was of paramount importance.

He said if a document had been found that suggested the explanations for the removal of servers from INM, given by the then chairman to the board and to an independent review of the matter, were incorrect, then INM's board should have been informed.

He said the disclosure of this information at the time of the ODCE's decision was very damaging and prevented INM dealing with the matter by reporting the matter to the Data Protection Commissioner and informing the 19 people.

Mr Gallagher said the current directors of INM had all sworn affidavits that if they had been aware of this information they would have taken steps to deal with it.

But he said, none of them had been given the opportunity of dealing with the issue in the way normally expected.

Mr Gallagher said the ODCE had expressed concerns about past events in INM, but also how INM was currently run.

He said it was a very serious matter for such allegations to be made by the Director of Corporate Enforcement.

He said INM believed it was still part of a process before the ODCE notified them that it intended to make the application for inspectors.

Mr Gallagher said if board members had been aware of the allegation that the data of 19 people was compromised, they would have taken steps to deal with it.

The way the matter was disclosed had done untold damage, he said.

Mr Gallagher said Mr Drennan was critical of the board for accepting the former Chairman, Leslie Buckley's explanations as to why servers containing data were removed from INM.

But he said there was no evidence to suggest the explanations were inaccurate or misleading. And it would have been extraordinary for the board to accuse the chairman of something without evidence.

Mr Gallagher told the court INM's share price had fallen by more than 14% when the ODCE announced it was to seek the appointment of inspectors.

He said INM had not been provided with the most basic opportunity to make submissions.

The fair procedures INM wanted did not have to be elaborate.

But he said the ODCE had given no good reason as to why it did not give them the opportunity.

Mr Gallagher told Mr Justice Noonan that if INM's challenge was successful, the application by the ODCE to have the inspectors appointed would "fall away".

Lawyers for the ODCE will make their submissions to the court tomorrow after which Mr Justice Seamus Noonan is expected to reserve his decision.