Feltex directors’ blamed for demise

The actions of Feltex's directors at the time of the carpetmaker's 2006 receivership cost hundreds of jobs and millions of shareholder dollars, the company's liquidator says in a $41 million court claim.

In McDonald Vague's statement of claim, the liquidator says Feltex's former directors Peter David Hunter, former chief executive Peter Thomas, former chairman Tim Saunders, John Michael Feeney and John Hagen were "inherently against" selling Feltex, stricken by A$119m (NZ$150m) of debt to ANZ, to Australian rival Godfrey Hirst. Instead the directors were "unreasonably biased" toward "any prospect" of a sale to New Zealand firms Sleepyhead or Talley's Group.

This bias ultimately meant that Godfrey Hirst bought Feltex from receivers McGrath Nicol on October 20, 2006, in a deal "materially" worse than one Melbourne-based Hirst had agreed in August 2006.

McDonald Vague says this meant Godfrey Hirst took on the costs for only 625 or about half of Feltex's staff and cost shareholders $17.9m through the loss of a 12-cents-a-share payment pledged in the August deal, leaving shareholders with nothing. ANZ was also left A$14m out of pocket and creditors, including ACC, are yet to receive the $5.7m they are owed.

In their statement of defence, the five directors deny any wrongdoing. They say they followed legal advice from Bell Gully and Alan Galbraith, QC, auditor Ernst & Young's advice on sharemarket continuous disclosure rules and Deloitte's on Feltex's solvency.

The five separately face criminal charges brought under the Financial Reporting Act by the Registrar of Companies that could see them each facing fines of up to $100,000. They pleaded not guilty in February.

In a third case, brought under the Fair Trading Act and the Securities Act, a shareholder group is seeking up to $254m from Feltex's directors at the time of the 2004 sharemarket float, lead brokers Forsyth Barr and First NZ Capital and Credit Suisse First Boston Asian Merchant Partners, which sold Feltex through the float. The High Court has ordered a stay in that case until the outcome of an Appeal Court hearing.

Soon after Feltex's receivership about two years after its float Mr Saunders said he was confident he had acted properly and in the best interests of shareholders. "Clearly the board, and by implication myself as chairman, carry a responsibility for contributing to the demise of the company. It has been a horrible experience ..."