Feltex directors found not guilty on all charges

Feltex’s five former directors have been found not guilty of Financial Reporting Act breaches.

Auckland District Court Judge Jan Doogue delivered her verdict just after midday.

The five directors of the once NZX-listed Feltex Carpets – Peter Hunter, Peter Thomas, Michael Feeney, John Hagen and former chairman Tim Saunders – faced two charges under the Financial Reporting Act 1993, to which they pleaded not guilty.

These related to failing to publish a breach of Feltex’s banking covenants and not properly classifying its $A119.5 million ($NZ157 million) debt facility with the ANZ bank in the company’s December 2005 half-year accounts.

If they had been convicted, they faced fines of up to $100,000 each.

Feltex was an early adopter of International Financial Reporting Standards and was one of the first New Zealand companies to report under the new standards.

The directors had accepted the interim accounts did not meet the new accounting standards, but argued they took all reasonable and proper steps to ensure compliance, including employing specialist accounting firm Ernst & Young to audit the statements. 

Delivering her verdict, Judge Doogue said the directors had taken all reasonable and proper steps to ensure IFRS was complied with in the financial statements.

“There is overwhelming evidence these directors are all honest men and conducted themselves at all times with unimpeachable integrity.

“There is not one skerrick of evidence to suggest any intention by them to mislead the regulatory authorities, market, shareholders, creditors, potential investors or any other person.”

As former Feltex director John Hagen left the courtroom he said the verdict was “a very powerful judgement.”

“There were never any grounds for the case and I will be taking this up with the registrar of companies in the weeks ahead,” he said.

The five former directors will make further comment on the verdict and the trial at a press conference this afternoon.

Judge Doogue said the standards had ushered in a new and challenging reporting environment and assumed in-depth knowledge of the accounting standards.

“Feltex's directors knew the new standards were complicated and voluminous and had to be worked through with an eye for the detail and any significant changes,"  she said.

Feltex raised $254 million when it floated on the NZX in May 2004.

The company had debt troubles when it went into receivership and subsequently liquidation in 2006. Its assets were sold to rival Godfrey Hirst.