Feltex deal leaves investors whistling for their money

Long-suffering Feltex shareholders who thought their shares might be worth a cent or two even after the company was put into receivership are likely to have their hopes dashed.

Listing a company from scratch costs $3 million to $5 million and this can make a backdoor listing through a shell company - one with a listing but no significant assets - a cheap option for getting to market.

But Macquarie Equities director of investment Arthur Lim says the hangover of potential liability to creditors in Feltex is likely to scupper any hope of floating a new business.

High-profile examples include juice company Charlie's, which was backed into Spectrum Resources, and Plus SMS, which listed through failed firm RetailX.

However, the chance of Feltex surviving as a listed shell entity until a new business idea could be backed into it is "pretty much zero", Lim says.

"It would have to be cleaned up by the receiver and that's why in this particular instance it's going to be very hard to persuade the receiver to maintain the listing."

Cleaning up the company would mean negotiating with any creditors that might make a claim at a later date if the firm found future success - even with a different business offering and under a new name.

Under the Godfrey Hirst deal, Feltex's suppliers have been stuck with a loss of about $7.5 million, while ANZ bank recovered all the $140 million it was owed.

David Tommas, group general manager of Polychem Marketing in Auckland, said the raw material importer would suffer a "very significant" loss because of the deal.

"We'll consult our lawyers and consider all other avenues," he said, but declined to say what he was owed.

Dan Hughes, associate at Kensington Swan Lawyers, said suppliers who registered their terms of trade, incorporating retention of title, with the Personal Property Securities Register could claim settlement of their debt ahead of ANZ.

"If you haven't, then tough."

Companies could also protect against proceeds from finished goods made using materials they had not been paid for. "So if you on-sell those goods and don't pay me, then I should be allowed to trace into accounts receivables," Hughes said.

Tommas said Polychem Marketing had registered in New Zealand but its loss in Australia, where it traded as Multichem and was based in Melbourne, was much greater.

The level of protection available to suppliers in New Zealand did not exist in Australia, he said.

"In Australia, certainly, suppliers are treated very much as third-class citizens."

The loss did not make for a happy start to working with Godfrey Hirst, although the firm was likely to still supply materials, he said.

The best outcome would be for creditors to group together and decide under what circumstances they would supply materials.

However, this might not happen and he suspected if one supplier caved in, others would have to follow suit.

Tommas said he was not aware of any announcement from ANZ about intentions to protect the interests of employees and suppliers.

"All I've seen quoted is that they're looking to protect their indebtedness. People ... from the supplier community and others are very thoughtful about the way ANZ have conducted themselves."