Feltex chief rises to defence of failed firm

Tim Saunders. Photo / Paul Estcourt

Peter Thomas, chief executive and director of failed carpet company Feltex, took the stand in his defence yesterday telling the Auckland District Court of the company's good working relationship with ANZ in 2005 and the difficult trading conditions it faced due to the increased cost of synthetic materials.

Feltex's five directors are defending allegations that the company's half-year accounts to December 31, 2005, did not disclose it was in breach of its loan agreements with ANZ.

The directors, Thomas, Tim Saunders, John Feeney, John Hagen and Peter David Hunter, have pleaded not guilty and maintain that at the time the half-yearly financial statements were prepared they believed the accounts met all the appropriate standards.

On December 1, 2005, chairman Tim Saunders assured shareholders at its annual general meeting it had the bank's full support, Thomas said.

Despite a former ANZ senior manager, Peter Holland, telling the carpet-maker's board "there would be no receivership", the bank placed Feltex into receivership in September 2006.

Feltex employed Ernst & Young, its auditors of six years, to conduct a review of the statements to ensure it complied with the necessary requirements and also that it met all the standards under the newly adopted international financial reporting standards (IFRS).

A professional review is voluntary for interim financial statements.

Thomas told the court that although his discussions with Holland were "robust", the bank's attitude was that Feltex and ANZ would solve the company's financial problems.

Defence lawyer Paul Davison, QC, said Feltex prepared its interim statements conscientiously and took every necessary step to ensure it was compliant.

The statements failed to note the company had breached its loan agreement with ANZ and that its debt with ANZ was current, meaning its debt was on call.

Prosecutor Brian Dickey asked Thomas why John Hagen was brought on to Feltex's board in October 2005.

Thomas said Hagen was appointed a director because of his "sound business judgment" and because he was an experienced businessman.

Dickey asked Thomas if he knew Hagen had been the chairman of New Zealand's Accounting Standards Review Board, the organisation responsible for implementing IFRS in New Zealand.

Thomas said that he was not aware of Hagen's 10 years at the review board.

Dickey questioned the due diligence Thomas conducted on Hagen before his appointment.

"I have no recollection of seeing his CV. I knew he was an experienced accountant. I did not need to know he was the head of a review board," Thomas said.

John Feeney is expected to take the stand tomorrow.

The case continues.