Judge to reveal fate of Feltex five today

Feltex directors (from left) chairman Tim Saunders, Peter Thomas, John Feeney, John Hagen, and Peter David Hunter. Photo / Paul Estcourt

The fate of Feltex's five directors will be known today when Auckland District Court Judge Jan Doogue delivers her verdict on alleged breaches of the financial reporting standards.

Former chairman Tim Saunders, former chief executive Peter Thomas, John Feeney, Peter David Hunter and John Hagen have pleaded not guilty to claims Feltex didn't fully comply with regulations under International Financial Reporting Standards (IFRS).

The accused say that when the accounts were filed they believed the company met all the relevant standards and regulations.

During a lengthy trial the Crown alleged the directors failed to disclose that Feltex was in breach of its A$100 million ($122.2 million) loan deal with ANZ and that it incorrectly classified its debt with the bank as non-current.

The debt should have been classified as current, meaning it was on call.

The directors conceded that those details were not included in the company's interim financial report to December 31, 2005, but say that when they signed the documents they believed the statements complied with the reporting standards and disclosure laws for a listed company.

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.

In his closing address counsel for Feeney and Thomas, Paul Davison, QC, said the prosecution had been reduced to "clutching at straws".

The men had done everything that reasonable and conscientious directors could have possibly been expected to do in compiling their accounts, most notably employing accounting firm Ernst & Young to review the company's report, he said.

But the Crown said this alone was not enough. The directors should have done more to ensure the statements were compliant and they should have read the standards themselves.

Ernst & Young Melbourne-based partner Stuart Painter said in evidence the firm had not failed Feltex because it had conducted a review of the statements and not an audit, which is a far more thorough diagnostic.

A review of interim financial statements is voluntary under IFRS.

The directors said this showed they wanted the statements to be correct, mainly because the company was under intense media scrutiny, it had recently raised capital from the public, and this was the first time it had applied IFRS.

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.

DEFENDANTS

Former chairman Tim Saunders and directors Peter Thomas, John Hagen, John Feeney and Peter David Hunter.

THE CHARGES:

* Each director has been charged with two alleged breaches of the Financial Reporting Act.
* If the directors are convicted on these charges today, they face fines of up to $100,000 each.