Feltex prospectus misleading, court told
More than 3600 former shareholders were misled into buying shares they otherwise would not have by the "very rosy picture" painted in failed carpet-maker Feltex's prospectus, investors say.
A representative action claiming $185 million in damages began in the High Court in Wellington this morning, nearly a decade after thousands of investors pumped more than $250m into Feltex's mid-2004 public listing.
Feltex had offered shares to the public for $1.70 each.
The company collapsed just two years later and went into receivership, wiping out the value of thousands of people's investments.
Former shareholder Eric Houghton has led the action on behalf of 3639 other shareholders, which is finally being heard six years after it was filed.
The claim was filed in February 2008 against the directors of Feltex, the sellers of the Feltex shares and the promoters of the issue of Feltex shares to the public in mid-2004.
Houghton bought 11,725 shares at a cost of $20,000 in Feltex's public offering.
His lawyer, Austin Forbes, QC, this morning alleged false and misleading statements were made in prospectus documents for Feltex's $250m float.
Within a year the company had issued a profit warning, and by September 2006 it was placed in receivership.
The company's collapse was "striking", particularly in the context of the "very rosy picture" Feltex's prospectus had painted, Forbes said.
"The demise of Feltex was one of the largest corporate collapses in New Zealand of recent times."
The 3639 former shareholders were misled by an offer which should never have been made, based on a prospectus which should have never been distributed, he said.
"If he [Houghton] had known the true position of the company he certainly would never have invested," Forbes said.
The risks section of the prospectus "woefully failed to adequately disclose the risks that Feltex faced", he said.
"Feltex was not a good business and not a good investment."
Investors were seeking $185m in damages, including interest, which represented a refund of their money plus compensation for the advertised dividend yield of 9.6 per cent.
His opening submissions are continuing, with the first witnesses due to be called on Wednesday.
The trial is expected to last nine, and possibly 10, weeks.
The defendants include former Feltex directors Tim Saunders, Sam Magill, John Feeney, Craig Horrocks, Peter Hunter, Peter Thomas and Joan Withers.
Broking firms Credit Suisse First Boston Asian Merchant Partners LP, First NZ Capital and Forsyth Barr are also defendants.
All have denied any wrongdoing.
Today's case cleared one of its final hurdles in February, after the international company funding the litigation, Harbour Litigation Funding, filed a $1m security required by the High Court.
This security would cover costs in case the investors lost the lawsuit and was being held in a trust account of law firm Wilson McKay.
Wilson McKay partner Roger Cann last month labelled the case a "David and Goliath story".
"No claimant like this has ever got itself organised to take on defendants of this magnitude."
Justice Robert Dobson allowed the case to proceed despite an earlier missed deadline for the security and late filing of expert evidence for the plaintiffs from former Macquarie Equities investment director Arthur Lim.
Macquarie Equities sold about $20m of shares in Feltex's public float.