Directors of failed manufacturer Feltex Carpets have been subject to "fanciful" accusations during their trial for breaching financial reporting standards, Auckland District Court was told today.
Five directors – Peter Hunter, Peter Thomas, Michael Feeney, John Hagen and former chairman Tim Saunders – are charged with failing to publish a breach of Feltex's banking covenants and not properly classifying its $A119.5 million ($NZ157 million) ANZ Bank debt facility.
The directors are accused of either deliberately omitting or neglecting in their duty to include the breach and bring their report into line with the newly introduced International Financial Reporting Standards (IFRS).
But in his closing address today, counsel for Feeney and Thomas, Paul Davison QC, said the prosecution had been reduced to "clutching at straws" in its case.
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 and Young to review the company's report, he said.
Ernst & Young's failure to identify that it did not comply with the IFRS could not be blamed on the directors, and the prosecution's suggestion they "could have Googled" IFRS was fanciful.
"It really beggars belief that at some point or other they had gone about the task of educating themselves about IFRS."
The company was in trouble with its debts at the time and went into receivership and subsequently into liquidation in 2006.
The directors were being extra vigilant to make sure their accounts were up-to-scratch because they were under close scrutiny by business media and analysts.
"It would have been no good for [the directors] to be buried in the details of IFRS while the ship sinks," he said.
The five directors were remanded at large to reappear in court on August 2 when Judge Jan Doogue will deliver her decision.