Feltex directors' anger

The five former Feltex directors found not guilty of financial reporting charges today confirmed they will seek some form of reimbursement for costs.

Former chairman Tim Saunders told a press conference this afternoon they would explore every avenue for redress. He said they had not put a figure on what they sought and that it was not about money but principle.

"We've had four years of waiting (for today's decision). It's affected all of us significantly and our families particularly," Saunders said.

Five former directors of Feltex - Saunders, Peter Thomas, Peter David Hunter, John Michael Feeney and John Carlaw Hagen - each faced two charges to which they had pleaded not guilty. They were today all found not guilty on charges under the Financial Reporting Act.

The charges related to information provided in the company's December 31, 2005 half-yearly financial statements in that they failed to disclose a breach of its banking covenants and did not properly classify its debt.

Judge Jan Doogue, giving her judgement in the Auckland District Court today, said: "There is overwhelming evidence that these directors are all honest men and that they conducted themselves at all times with unimpeachable integrity. there is not one skerrick or evidence to suggest any intention by them to mislead the regulatory authorities, market, shareholders, potential investors or any other person."

Former director John Hagen expressed his anger about the charges this afternoon.

"I was very angry (we've been put through this). It's done us a huge amount of reuptational damage and we will be taking this up with Neville Harris (the Registrar of Companies which brought the charges)."

Peter Thomas, another ex director, went further: "Does the Registrar know the law? The Registrar has the power to regulate, investigate and prosecute. Where was the balance? Where was the check? Why was this case brought?"

Saunders, in a prepared statement, referred to several passages from the judge's decision.

"The judgment strongly rejects all of the arguments raised by the prosecution suggesting that there were other steps the driectors should have taken.

"Her Honour found that the directors cannot be held responsible for Ernst & Young's failure to identify the appropriate debt classification or to give advice that the breach of covenants needed to be disclosed," he said.

"All responsible company directors will be please with this confirmation that directors are entitled to rely in good faith on the professional advice they receive."

He said criminal charges should never have been brought. "Criminality was not an issue from the start. I have to question, therefore, the nature of the statutes."

Feltex went into receivership on September 22, 2006 and then into liquidation in December 2006.

When Feltex was floated in 2004, more than $250 million was raised from mostly New Zealand investors.

Following an inquiry by the Securities Commission into the initial Feltex share float and the company's compliance with financial reporting standards, the matter was referred to the Registrar of Companies' national enforcement unit for further investigation.

Each man faced two charges. The first charge related to the failure to disclose the breach of a loan agreement - the ANZ Bank debt facility - that had not been remedied on or before the balance sheet date.

The second offence concerned the classification of the ANZ Bank debt facility as "non current", whereas it should have been classified as "current".

Judge Doogue said she was satisfied the directors had taken all reasonable and proper steps with regards to the financial statements. Feltex, at the time, was possibly the first New Zealand company to move to the new and complex international financial reporting standards, she said.

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