Next Feltex court action to kick off
The liquidators of failed carpetmaker Feltex say the hearing of their $12 million claim against auditors Ernst & Young could start as soon as September this year.
Liquidators Iain McLennan and Peri Finnigan of McDonald Vague are trying to recover the money for unsecured creditors of Feltex.
They have instituted proceedings against the audit firm, claiming it breached the terms of its contract and the duty of care and skill it owed Feltex, which in turn caused Feltex to breach its listing rules, mislead the market and be liable to shareholders who invested during the period of breach.
Thousands of shareholders invested $250m in Feltex when it listed on the NZX in June 2004. When the carpetmaker collapsed and went into receivership in September 2006, shareholders lost their investments.
Feltex directors John Feeney, John Hagen, Peter Hunter, Tim Saunders and Peter Thomas have successfully defended charges they misled investors by arguing they had taken all reasonable steps to ensure compliance, and that they had been assured by accounting firm Ernst & Young that the reports were adequate.
The directors were acquitted and the judge said they had been entitled to rely on professional advice.
McLennan and Finnigan say in their latest report that the court hearing is scheduled to start in November this year but might be brought forward to September. That process would, however, take time and that meant they could not yet say when the liquidation was likely to be completed.
They estimated general security agreement holder ANZ bank would be owed more than A$16m ($20m), and therefore did not expect there to be any money left after the receivership to pass on to the liquidators who are dealing with the claims of unsecured creditors. Therefore, any return to creditors would only be achieved by successful recovery actions by the liquidators.
The liquidators say they have received $14m in unsecured claims and a further $6.23m in claims from shareholders relating to the company's initial public offering.
This is just one aspect of the fallout from the collapse of Feltex.
In a separate matter, the Court of Appeal ruled in December that shareholders did not take priority over insurance money from the Chartis Insurance policy ahead of the directors' claim for defence costs in the shareholders' $150m case against them.
And in yet another action, a Court of Appeal ruling in November last year dismissed five appeals taken by the former directors, sellers and promoters of Feltex, which could have stopped the $150m representative action being taken by almost 3000 former shareholders.
The Court of Appeal upheld an earlier ruling which lifted a stay on the court action, allowed Eric Houghton to act on behalf of other shareholders, and required Auckland merchant banker Tony Gavigan, organising the court action, to satisfy the court that costs of the action could be paid.