Lawyer: Feltex directors careful in statements
The directors of failed carpet maker Feltex exercised "all reasonable care" in statements made in the company's prospectus, their lawyer says.
And the company's collapse had followed an "unprecedented loss" of consumer confidence, and a rise in the cost of raw materials, which put a "squeeze" on Feltex's trading position.
A representative action claiming $185 million in damages began in the High Court in Wellington this week, nearly 10 years after thousands of investors put more than $250m into Feltex's mid-2004 public listing.
Feltex had offered shares to the public for $1.70 each.
More than 3600 former Feltex shareholders said they were misled into buying shares by the "very rosy picture" painted in the failed carpet maker's prospectus.
Their lawyer Austin Forbes, QC, said the risks section of the prospectus "woefully failed to adequately disclose the risks that Feltex faced".
The company collapsed just two years later and went into receivership, wiping out the value of thousands of people's investments.
The defendants include former Feltex directors Tim Saunders, Sam Magill, John Feeney, Craig Horrocks, Peter Hunter, Peter Thomas and Joan Withers.
Credit Suisse Private Equity, Credit Suisse First Boston Asian Merchant Partners LP, First NZ Capital and Forsyth Barr are also defendants.
But after two days of the plaintiff's opening submissions the defendants yesterday made "mini openings".
Lawyer for the directors Alan Galbraith, QC, yesterday said the risks section of a prospectus involved forecasting "what might happen in the future", which meant they were statements of opinion rather than fact, and as such difficult for the plaintiff to prove untrue or misleading.
He represented all the directors, though Magill was represented separately by Tom Weston, QC, because he was the company's only executive director. Galbraith said Feltex shares traded at about $1.70 for 10 months after the float, but declined as the performance of the company deteriorated. This was against the backdrop of the biggest drop ever recorded in a Westpac consumer confidence survey from March, 2005.
"What the Westpac survey was revealing was a sea change. ‘This isn't a blip, its something which is significant."
Furthermore, raw material costs had also risen, which put a "squeeze" on its trading position, resulting in receivers ultimately being appointed.
He said none of the plaintiff's claims about the prospectus amounted to the establishment of an untrue statement.
"The directors certainly exercised all reasonable care . . ."
On Tuesday emails were outlined by the plaintiff which included references from former Feltex director Peter Thomas to the company's mid-2004 float.
Forbes said the first showed Thomas describing Feltex shares as being "lousy" to the other directors, while the second said there was "some goodness left in the lemon but we squeezed most of it out".