Feltex action reaches Appeal Court

THE PRESS

BONE OF CONTENTION: A new round of legal action has begun over collapsed carpet maker Feltex. Demolition of its site, watched by Peter Smith, left, who lives next door and Peter Bourke from Vision Senior Living began last year.

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Embattled former directors of collapsed carpet maker Feltex facing legal action say if investors did not do their homework, they should not get any money back.

Thousands of investors on average lost nearly $30,000 each when Feltex folded in 2006, two years after listing on the stock exchange.

South Island investor Eric Houghton was heading a case against the board and associated investment brokers on behalf of other investors. The investors had heavy backing with representation from John Eichelbaum, son of former chief justice Sir Thomas Eichelbaum and known for his involvement in the 1990s "Winebox" tax case, and funding from former Fay Richwhite investment banker Tony Gavigan.

An earlier decision to allow the collective lawsuit has been taken to the Court of Appeal in Wellington by the directors and several broking houses, with the first day of the hearing yesterday.

Last year Christchurch High Court judge Christine French ruled the group action could go ahead, and has since agreed to a stay on any action against the directors until their appeal can be heard.

Alan Galbraith QC, representing former directors Tim Saunders, Sam Magill, John Feeney, Craig Horrocks, Peter Hunter, Peter Thomas and Joan Withers, spent most of the first day discussing his approach with the bench.

Mr Galbraith questioned the right of investors to sue the directors en masse when some of them may have been less than diligent in their investment in the initial Feltex share issue. "We would say if they never read a prospectus then they don't get their money back."

Justices Susan Glazebrook, David Baragwanath and Mark O'Regan questioned Mr Galbraith, testing his suggestion of fault on the investors' part in buying Feltex shares. The discussion weighed up previous allegations of Feltex being "rotten to the core" with what investors and their agents might have seen in the prospectus.

"Who, other than someone who had taken leave of their senses, would put money into a rotten company?" Justice Baragwanath asked.