Feltex wasn't trying to hide information, says defence

Photo / Hawkes Bay Today

Any suggestion that Feltex's five directors deliberately hid information from the market by not disclosing it in their interim financial statements to December 31, 2005, is misleading and unfounded, a court heard yesterday.

Defence lawyer Paul Davison, QC, who submitted his closing submissions yesterday, said the directors - Tim Saunders, John Feeney, Peter Thomas, Peter David Hunter and John Hagen - could prove they took all the reasonable steps they should have as directors of a listed company and should therefore be found not guilty.

The directors are in the Auckland District Court charged with breaches of the Financial Reporting Act.

The Crown says they failed to disclose Feltex was in breach of a loan agreement with its bank ANZ and wrongly classified its debt with the bank as non-current. It should have been classified as current, meaning it was on call, in its half-yearly interim financial statements to December 2005.

The directors have denied the charges. They do now concede those details were not disclosed in the registered accounts, but say when the board signed the accounts they believed they complied with all the relevant accounting standards and laws.

Davison said yesterday that the directors did everything they were obligated to and had voluntarily sought the expert and professional advice of accounting firm Ernst & Young.

The firm reviewed the accounts but did not pick up the problems in the statements that had been prepared by Feltex's finance department.

Ernst & Young approved the accounts and gave verbal assurance to the board that the accounts were compliant under the newly adopted International Financial Reporting Standards (IFRS), he said.

Davison said the directors wanted the accounts to be accurate as the company was receiving strong media attention and market scrutiny about its performance and its profit downgrades.

The company had asked ANZ for an extra A$10 million loan to fund the closure of the Melbourne plant and to pay for workers' redundancy packages, and it was because of this loan that the company breached it facility with the bank, a loan the directors had been told would be "flexed", he said.

The board never received a written waiver from ANZ and Ernst & Young did not ask for confirmation of one.

Davison said any suggestion that Feltex deliberately left out that it was in breach of its A$100 million debt with ANZ, or incorrectly classified its debt, in order to improve the appearance of the company's balance sheet was misleading and not accurate.

The directors were not reckless or negligent in their duties, they had asked Ernst & Young to conduct a review and given Feltex's finance team extra resources and times to ensure the accounts were compliant because they were a competent, prudent and conscientious board, Davison said.

Prosecutor Brian Dickey said on Tuesday that the directors should have read the IFRS requirements. As experienced accountants and bankers they should have realised how important it was to correctly classify the debt and how fundamental that was to disclose.

But defence lawyer Alan Galbraith, QC, said not every accountant knew every accounting standard, just as not every lawyer was familiar with the Resource Management Act.

Galbraith said the fact those details were not disclosed was the failure of Ernst & Young not the directors who had placed their trust in the firm.

The defence is expected to finish today. A decision on the case will most likely be reserved.