Feltex directors win $1m payout

The former Feltex directors fronting a media conference earlier this year. File photo

The former directors of the failed Feltex carpet company have been awarded almost $1 million in criminal costs from the Auckland District Court.

The directors, Tim Saunders, John Feeney, Peter David Hunter, Peter Thomas and John Hagen were acquitted of Financial Reporting Act (FRA) charges in August.

Thomas said during a press conference held at their lawyers' Bell Gully's offices that they would be seeking compensation for the ordeal that had been put through.

The Ministry of Economic Development (MED), that brought the charges, confirmed today that Auckland District Court judge Jan Doogue had awarded Feltex's five former directors with with almost $952,000 in criminal costs.

Judge Doogue said in her judgment that she accepted that the way the prosecution conducted the investigation (into Feltex and the directors) fell below what was reasonably required.

The MED has been ordered to pay $848,000 for the legal cost of depending the charges brought against them and $101,091 in relation to disbursements.

"The prosecution failed to have proper regard to or draw the obvious conclusions from the information provided to it by the directors. The prosecution failed to access and consider all relevant documents available to it from the Securities Commission, including documents disclosing serious errors by Ernst & Young in the conduct of its review," Doogue said.

"I conclude that the prosecution chose to proceed to put the directors on trial without giving fair and adequate consideration to the steps the directors took to ensure that the standard would be complied with and were probably under a misapprehension that the directors were not entitled to rely on advice and assistance from management and professional advisers."

MED spokesperson Kate Camp said the department would be appealing the decision.

Feltex's former chairman Tim Saunders said "the court's earlier decision confirmed that we acted honestly and carefully at all times and were not guilty of the charges alleged by the Ministry (MED).

"This further judgment now confirms that those charges should never have been brought, and that we should never have had to face the ordeal of that criminal trial. This is further vindication of our conduct and we are very pleased with the outcome."

Saunders said he believed the award was one of the highest for a criminal case in New Zealand.

He said there were two civil claims that have been brought against the directors and management of Feltex, who worked for the company at the time it floated in May 2004, that were being defended.

"And we are confident of successful outcomes in those cases also."

The directors were charged under the FRA for allegedly failing to disclose proper financial records for the six-month period to December 31, 2005.

The directors always maintained their innocence and said they had acted in the best interest of the company and shareholders.

They said that when the accounts were filed they believed the company met all the relevant standards and regulations.

During the trial the defence argued that it was Feltex's auditors Ernst & Young who failed in their professional duties and not the company's directors.

The directors voluntarily paid Ernst & Young A$113,000 to conduct a review of the statements. The firm did not pick up the disclosure breaches and also assured the directors verbally that the statements were compliant with all the necessary standards.

Feltex was floated on the New Zealand stock exchange in May 2004 and raised $254 million.

But despite the promise of growth, the company collapsed two years later.

The ANZ, which was owed $135 million, placed Feltex into receivership, and days later its assets were sold to rival firm Godfrey Hirst.

In a separate case, 1700 Feltex investors have filed a class action against Saunders, Feeney, Hunter, Sam Magill (chief executive before Thomas), and fellow directors Craig Horrocks and Joan Withers.

The action claims the company's prospectus when Feltex floated in May 2004 contained information that was misleading or wrong, or omitted to make information available that could have affected an investor's decision to invest in the company.

- with NZ Herald Online