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Feltex chairman calls for law change on criminality

Fuseworks Media
Fuseworks Media

By Alastair Bull of NZPA

Auckland, Aug 2 NZPA - The former chairman of failed company Feltex Carpets says the law should be changed to prevent directors from facing criminal charges for misreporting.

Five directors of Feltex -- Peter Hunter, Peter Thomas, Michael Feeney, John Hagen and Tim Saunders -- were today found not guilty of charges brought by the Ministry of Economic Development of failing to publish a breach of Feltex's banking covenants and not properly classifying its $A119.5 million ($NZ157 million) ANZ Bank debt facility.

Judge Jan Doogue, of Auckland District Court, said there was overwhelming evidence they were honest men of unimpeachable integrity and there was no evidence that they misled market shareholders or investors.

Mr Hagen and Mr Thomas said the charges should never have been brought, and they would take the matter up with the Registrar of Companies, Neville Harris.

Mr Saunders, the company's former chairman, went a step further, saying it was questionable whether directors should be subject to criminal charges for misreporting.

"Yes, civil cases, no problem, you expect it, it's a normal fact of commercial life," he said.

"But I really question whether criminal charges should be brought against directors for effectively non-criminality in the sense of no fraud, no deliberately misleading."

Mr Saunders admitted that mistakes were made but said they had taken advice to try to ensure they were not.

"In my view, criminality was not an issue from the start, and yet we and a number of other directors out there are facing criminal charges in similar vein when there is absolutely no suggestion that they acted in a criminal way. I have a question therefore about the nature of the statutes and the types of penalties which are available."

The Feltex directors argued in court that they 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.

Judge Doogue agreed, saying the directors were entitled to seek and rely upon specialist advice.

"Ironically, it seems clear that the company's specialist advisers were judging the financial statement by reference to the requirements of the previous standards rather than those of the new standards," she said.

"The directors took the appropriate step of obtaining expert advice which, had the engagement been undertaken to the proper professional standard which the directors were entitled to expect, would have identified errors which would then have been corrected."

She rejected the prosecution argument the directors should have done more to ensure the statements were compliant, and they should have read the standards themselves.

Mr Thomas said he expected cases such as these would be more seriously reviewed before they were brought in future.

"Her honour has summarised each of the requirements the prosecution said that we should have taken and she has rejected each of them," Mr Thomas said.

"You must ask the question: given she's rejected the basis on which the prosecution said this case should be brought, did the prosecution understand the law? Did they understand directors' duties? Why was the case ever brought if every skerrick of evidence that they presented to her, she rejected."

Mr Thomas said cost reimbursement would be sought but would not say how much that was.

"Beyond that, every avenue available for us for redress will be addressed, every avenue."

David Cooper, one of the lawyers for Mr Saunders, Mr Hunter and Mr Hagen, said the directors would read the judgment carefully before considering whether any action would be taken against Ernst and Young over the advice received.

The Companies Office said neither Mr Harris nor the Companies Office would be making any comment on the Feltex verdict.

Feltex was floated on the New Zealand stock exchange in May 2004 and raised $254 million. The company collapsed two years later.

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

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