Feltex directors win back $950,000

Peter Thomas (left) and Tim Saunders. Photo / Sarah Ivey

Five Feltex directors who spent $1.36 million successfully defending allegations they misled investors are in line to recoup 70 per cent of the bill.

The $952,111 payout will be the subject of an appeal by the Ministry of Economic Development, which took the case.

The directors, Tim Saunders, John Feeney, Peter David Hunter, Peter Thomas and John Hagen, pleaded not guilty and were acquitted in August after a 16-day trial in April.

The Auckland District Court has ordered the ministry to pay the directors the amount as reimbursement for legal and other costs incurred in defending the case against them.

Judge Jan Doogue said in her judgment that the way the prosecution conducted its investigation fell below what was reasonably required.

"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.

"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."

Judge Doogue awarded the directors $848,000 for the legal costs and $101,091 in relation to disbursements.

Feltex's former chairman Tim Saunders said Judge Doogue's earlier decision acquitting the board of the charges was further strengthened by yesterday's judgment for costs.

"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."

Two civil claims have been lodged against the directors - they are being defended.

Saunders said he was confident of successful outcomes for those cases.

Each director was charged with two breaches of the Financial Reporting Act and faced fines of up to $100,000.

The charges, laid by the Companies Office, alleged Feltex's half-year interim accounts to December 2005 did not disclose that it was in breach of its loan agreement with ANZ.

The debt should have been classified as current, meaning it was on call, rather than non-current as it was in the financial statements.

The defence argued that the directors could rely on advice given to them by leading international firm Ernst & Young.

The accounting firm failed to recognise the mistake in the interim statements that were being tested against International Financial Reporting Standards for the first time.

Ernst & Young also verbally assured the directors that the statements were compliant with all the necessary standards, the defence argued. The review, which cost the company A$113,000, was a voluntary step taken by the board to ensure compliance.

Ministry of Economic Development spokeswoman Kate Camp said that the department would be appealing against the court's decision to award costs.

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

It collapsed two years later after ANZ, its main lender owed more than $100 million, placed it into receivership.

CARPET CASE

* Five Feltex directors spent $1.36 million defending criminal charges. Of that $738,779 went to Bell Gully, $291,025 went to high-profile defence lawyer Paul Davison, QC, $182,000 to Alan Galbraith, QC, plus disbursements of $148,701.

* Directors were acquitted of alleged Financial Reporting Act breaches in August.

* The carpet company collapsed in September 2006 owing its main lender ANZ more than $100 million.