KEY POINTS:
Burnt Feltex shareholders' long-awaited legal action against the failed company's former directors, owners and advisers has hit the ground running, with the investors galvanised into a unique battle formation.
Shareholder organiser Tony Gavigan has gained the backing of a group of unnamed "associates" keen to stand up for the small Kiwi investor, who will fund the action for the next year.
The shareholders have filed a claim in the High Court to get their money back. If they succeed, that could be up to $254 million - the amount invested in the 2004 float of Feltex.
Gavigan, who is being paid for his services, said the total amount budgeted for the action, including costs if the shareholders lose, is $2.5 million.
His backers are offering their funds on the basis of a structure not used in this country before. Under the structure, affected shareholders must opt out of the action or they will pay a share of any settlement they get to cover legal costs.
Advertisements are being placed in national newspapers this weekend to advise the estimated 10,000 shareholders who invested in Feltex in 2004 and early 2005 that they are a party to the action, unless they actively remove themselves from it.
The ads say that if shareholders remain in the group, their share of the legal costs will be deducted out of any award they win as a result of the action. The backers are funding the action on a no-win, no-fee basis.
Shareholders lost their entire investment in Feltex when the carpet maker's banker ANZ sent in the receivers on September 22, 2006. Scrip that had been worth $1.70 at the time of the June 2004 Initial Public Offer (IPO) became valueless.
The shareholders are claiming that the prospectus for the $254 million IPO breached the Fair Trading and Securities Acts because it was "misleading and deceptive, [and] contained untrue and negligent statements".
In the gun are former Feltex chairman Tim Saunders, chief executive Sam Magill, and directors John Feeney, Peter Hunter, Peter Thomas, Craig Horrocks and Joan Withers, who all signed the prospectus.
The action also targets the former owner of Feltex, US-registered private equity house Credit Suisse First Boston Asian Merchant Partners, its associated company Credit Suisse Private Equity Inc, and joint lead managers of the float First New Zealand Capital and Forsyth Barr.
Saunders said yesterday he had no comment. Horrocks said he would "find the basis of the claims extraordinary".
Withers said given that the prospectus was cleared by the Securities Commission, and given the preparation, scrutiny and sign-off that went into it: "I'm very confident that there are no issues of merit in any action taken against the prospectus."
Withers pointed out she resigned 15 months before the receivership and said she was confident every action she took as a director was appropriate and in the best interests of shareholders.
Two representative plaintiffs are leading the action for the shareholders - Eric Houghton, of Upper Moutere in the Tasman District, and Dunedin man Darryl Jones.
The average holding in Feltex was about $10,000. Gavigan said his financial backers, who did not wish to be identified at this stage, and the representative plaintiffs all felt strongly about standing up for the small shareholder.
He said the Feltex investors were astute people - "that's why they're so shocked and horrified that they have been badly misled".
"There are a lot of investments out there that have had the danger [signs] and flashing red lights all over them. This wasn't one."
He said the High Court claim had been filed to prevent time from running out. Under the Fair Trading Act, action must be taken within three years, and the shareholders were basing their claim on Feltex's April 1, 2005 profit warning - "the earliest possible time you could have known something was wrong", Gavigan said.
The High Court has given the nod to the group's opt-out structure. The court's rules committee is in the process of drafting an amendment allowing opt-in, opt-out processes like those used overseas, and it's believed this is the first time such an action has proceeded here.
The court has given shareholders until April 11 to opt out, or be considered part of the proceedings.
Christchurch law firm Wakefield Associates is handling the action.
Gavigan said organisers wrote to around 6000 shareholders in July, and as a result Wakefield got instructions from 800 of them. Most of those had made a $380-per-head contribution towards legal action.
A year's worth of work and $300,000 had already gone into the case.
"Members of the group [of shareholders] now have to make a choice. All but 800 have been sitting on the sidelines to date. If these members of the group want to participate in an outcome initiated by the 800, they now have to get off the fence."
Are you affected?
You're in the shareholders group if you:
* Bought or beneficially bought Feltex shares in the June 2004 IPO.
* Bought Feltex shares on market before the April 1, 2005 profit downgrade announcement.
* Lost money by either selling those shares for less than the purchase price, or by holding those shares until the December 2006 liquidation of Feltex.
If you are happy to stay with the action, do nothing. If you are not happy you must opt out by 4pm, April 11, 2008.
You can opt out by:
* Writing to the The Registrar of the High Court (Christchurch), Private Bag 4618, Christchurch; using an online form at feltex.investment.co.nz/notice.aspx; or going to feltex.investment.co.nz/completeoptout.aspx
* See www.ftxit.com
FELTEX UNRAVELS
1996: US private equity house Credit Suisse First Boston Asian Merchant Partners buys 80 per cent of Feltex for $19.5 million.
1997-2000: Trading volatile with stiff competition and big discounting.
2000: CSFBAMP buys US-based Shaw Industries for $114 million and merges it with Feltex; buys the remaining 20 per cent of Feltex.
2001-2002: Feltex making losses and carrying heavy debt following collapse of Australian carpet market.
2003: Feltex makes a profit of $5.7 million, but still heavily indebted and Australian operation in the red.
May 2004: CSFBAMP offers Feltex for sale through IPO to New Zealand investors, amid a hot building market. Institutional investors stay away, leaving the IPO largely to Mum and Dad investors.
April 1, 2005: Feltex admits it doesn't have a show of reaching its forecast $23.9 million full year profit. Another profit downgrade and redundancies follow.
September 22, 2006: ANZ bank calls in the receivers.
December 2006: Assets sold to Godfrey Hirst, which shuts two NZ factories at the cost of over 250 jobs. Feltex officially put into liquidation.
October 2007: Securities Commission finds Feltex directors failed to reveal key information about changes to the company's banking agreement that would have affected the share price in late 2005. But it says the Feltex IPO prospectus was not misleading.
February 2008: Shareholder group files High Court claim against former directors, owners and advisers.
