Wellington, Aug 2 NZPA - The not guilty verdict for five Feltex directors today is being welcomed by professional groups but is a disappointment for shareholders' advocates.

Five directors -- Peter Hunter, Peter Thomas, Michael Feeney, John Hagen and former chairman Tim Saunders -- were today found not guilty of charges filed by the registrar of companies.

It was alleged that the directors failed to disclose a debt facility as a current liability and did not disclose a breach of financial covenants during the six-month period to December 2005.

The case was seen as a test of whether or not directors can rely on outside advice, in this case auditors Ernst and Young.

Judge Jan Doogue said there was no evidence the men had ever attempted to mislead the financial markets, shareholders or any other person.

"There is also overwhelming evidence that these directors are honest men," the judge said.

Directors are required to undertake duties in a reasonable and conscientious manner.

Institute of Directors chief executive Nicki Crauford said the institute would be considering the judgment closely.

"But it appears that the judge had accepted the defences' claim that the directors had relied on the expert advice of the auditors, Ernst and Young and this was sufficient to carry out their role in a conscientious and reasonable manner," said Ms Crauford.

Feltex collapsed in 2006, leaving 8000 shareholders who had invested $254 million in its public float just two years earlier with losses.

The defence argued that the directors hired accounting firm Ernst and Young at considerable expense to conduct a review of financial statements.

New Zealand Shareholders' Association chairman John Hawkins said he had not read the judgment but did not support the view that the case should not have been taken. Case law was lacking in the area and a boundary had now been set.

The association had viewed the directors' defence as a kind of "Nuremburg defence", that is they argued they were following orders, or advice.

"If directors can rely entirely on outside advisers then that begs question why directors have to be paid so well for exercising their judgment," he said.

Skilled accountants on a board were arguably superfluous to requirements.

The association would take the case into account in future dealings with boards and directors. The level of director pay may be coloured by this decision.

Association former chairman Bruce Sheppard said Feltex was "a dog" of a sharemarket float.

He said it was a nonsense that both boards and auditors were indemnified.

"You have a virtuous circle where no one is liable," he said.

The NZ Institute of Chartered Accountants (NZICA) declined to comment on the verdict. It has reserved a decision relating to disciplinary proceedings against the Feltex auditor.

Commerce Minister Simon Power said last year that self regulation of auditors was no longer acceptable internationally.

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