Feltex heads not guilty as 'weak' case fails

JOHN SELKIRK

FIVE GO PUBLIC: The five former Feltex directors today found not guilty of financial reporting charges held a press conference to getstuck into their accusers. They are from left John Hagen; Peter Thomas; Timothy Saunders; Peter Hunter; and Mike Feeney.

The case against former directors of the failed carpet manufacturer Feltex was flimsy and unlikely to have ever gone against them, a shareholders' group spokesman believes.

The so-called Feltex Five – Timothy Saunders, Peter Thomas, Peter David Hunter, John Michael Feeney and John Carlaw Hagen – each faced two charges brought by the Economic Development Ministry.

They pleaded not guilty.

Yesterday, they were all found not guilty of the Financial Reporting Act charges. These 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 A$119.5 million (NZ$15m) debt to ANZ Bank as current.

The Feltex directors argued in court that they had done everything that reasonable and conscientious directors could have possibly been expected to do in compiling their accounts, most notably employing accounting firm Ernst & Young to review the company's report.

Judge Jan Doogue, of Auckland District Court, said yesterday that there was overwhelming evidence they were honest men of unimpeachable integrity and there was no evidence that they misled market shareholders or investors.

Bruce Sheppard, the former chairman of the New Zealand Shareholders Association who was vocal throughout the Feltex collapse, said yesterday that he was not surprised by the court's decision.

"[The Registrar of Companies] had a weak case," Mr Sheppard said.

The directors confirmed yesterday that they would seek reimbursement for costs. Former chairman Tim Saunders did not quantify how much would be sought, saying it was not about money but principle. They would seek all avenues of redress.

"We've had four years of waiting [for the decision]. It's affected all of us significantly and our families particularly."

Other responsible company directors would be pleased with the finding, confirmed by the judge, that they were entitled to "rely in good faith on the professional advice they receive," he said.

Former director John Hagen said he was angry about the reputational damage suffered as a result of the charges and would be taking this up with the Registrar of Companies Neville Harris.

Peter Thomas, another former 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?"

Tony Gavigan, the Auckland businessman driving a class action against seven Feltex directors (including all but Carlaw of the directors found not guilty yesterday) refused to comment on the decision. The class action alleges under the Fair Trading Act that the prospectus at the time of the $240m public issue of Feltex shares in 2004 was misleading and deceptive, and seeks repayment of shares and compensation.

The Companies Office said neither Mr Harris nor the Companies Office would be making any comment on the Feltex verdict.

Feltex was floated on the New Zealand stock exchange in May 2004 and raised $254m. The company collapsed two years later.

ANZ, which was owed $135m, placed Feltex into receivership, and days later its assets were sold to rival firm Godfrey Hirst.

- © Fairfax NZ News