KEY POINTS:
Former directors of failed carpet-maker Feltex have been told the company's liquidator considers them liable for more than $20 million in connection with the collapse.
"We've written to them saying we will be filing proceedings against them in the High Court," said John Vague, of liquidators McDonald Vague.
The total to be sought would be "$20 million-plus".
Work on the proceedings was under way and they would be filed as soon as possible, although that would not necessarily be this year, Vague said yesterday.
Those proceedings would specify what the liquidators thought each of the eight directors involved was liable for.
Vague divided the directors into two groups, those who resigned before Feltex went into receivership and those who were there last September when the receivers were called in.
In the first group were Craig Horricks and Joan Withers, who resigned in mid-2005, and former chief executive Sam Magill, who resigned in December 2005.
Those three directors were likely to be liable for fewer of the actions the liquidators were to take, Vague said.
The directors at Feltex at the time of the receivership were John Feeney, John Hagen, Peter Hunter, chairman Tim Saunders and Peter Thomas.
In their second report, the liquidators have identified six issues where they said they had been able to assess enough information to make demands on the directors alleging breaches of various provisions of the Companies Act and Financial Transaction Reporting Act.
They included the manner in which the directors dealt with the potential sale to, or merger with, rival Godfrey Hirst in 2005 and last year. Had the sale been completed all creditors would have been paid and shareholders would have received something, McDonald Vague said.
Another issue identified was a decision to allow Sleepyhead bedding group owners Turner Co to carry out due diligence on Feltex last year, "in the face" of an agreement with Godfrey Hirst and against opposition from the ANZ bank. Other issues were:
* An agreement to amend banking conditions in October 2005. Those terms were more restrictive for the company and resulted in significant increases in risk premiums.
* The trading of Feltex, particularly from June last year until the receivership.
* Spending decisions including $5.26 million for tufting equipment in 2003 and $7.23 million in 2005.
* The extent that the Securities Commission finds Feltex has any liability for failures to meet sharemarket disclosure obligations, then any losses the company may suffer as a result.
Vague said the rule in insolvency was that directors could be held liable for debts incurred after the point at which they no longer had reasonable grounds for believing credit could be repaid.
Hagen said the former directors were "quite confident" they took legal advice at appropriate times and disclosed everything that needed to be disclosed.
Last October Saunders told the annual meeting of Contact Energy, where he is a director, that he was confident he acted properly at all times and in the best interests of Feltex shareholders.
- NZPA
