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The good, the bad and the ugly – NBR's plays of the week

Victory for Feltex FiveIt might be galling for investors who lost money in the collapsed company but the failed prosecution of the “Feltex Five” is a positive sign for other directors.Peter Hunter, Peter Thomas, Michael Feeney, John Hagen and

NBR staff
Fri, 06 Aug 2010

Victory for Feltex Five

It might be galling for investors who lost money in the collapsed company but the failed prosecution of the “Feltex Five” is a positive sign for other directors.

Peter Hunter, Peter Thomas, Michael Feeney, John Hagen and former chairman Tim Saunders were all found not guilty of Financial Reporting Act breaches this week.

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

Delivering her verdict, Auckland District Court Judge Jan 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.”

Someone to blame

Feltex, which raised $254 million when it floated on the NZX in May 2004, had debt troubles when it went into receivership and subsequently liquidation in 2006.

When there is a company failure of such magnitude the impulse of investors and regulators is to find somebody to be hung, drawn and quartered.

But just because people lose money doesn’t mean anything criminal went on at a company.

Companies fail all the time and New Zealanders need to accept that when they invest in something risky like shares it is not a one-way bet and that things can go wrong without any need to bring out the tar and feathers.

Referencing Judge Doogue’s verdict, Chapmann Tripp partner Roger Wallis said, “In other words, directors can rely on professional advice in complex technical areas such as financial reporting.

“This will provide some reassurance to the directors in the Lombard and Nuplex cases.”

Whingeing about director pay has hit fever pitch in recent years in New Zealand but few people seem to realise the extent of the liability directors face if things go wrong.

If directors were to start getting locked up or fined massive amounts every time a company fell over then no one would bother taking the risk and New Zealand's economy would suffer.

This judgment shows that while the media and general public might be quick to label businessmen crooks, judges aren’t so easily convinced.

Fonterra payout downgrade looms

Most townies probably don’t pay much attention to Fonterra’s online trading platform but this week’s auction result is bad news for city slickers and cow cockies alike.

Global Dairy Trade’s monthly auction, the last before it changes to a fortnightly regime, saw prices across all three commodity products sold on the platform dip.

Overall, the platform’s trade weighted index fell 8.3%, following a 13.7% decline in July.

The downturn in auction prices may result in Fonterra downgrading its milk payout, potentially cutting more than half a billion dollars from farm gate income.

NBR’s agriculture reporter Liam Baldwin has predicted Fonterra’s payout could fall as much as 10% if market conditions continue.

Volatility the issue

One of the biggest difficulties New Zealand dairy farmers face is the volatility of payouts and payout forecasts in particular.

Over the course of a year the expected payout can jump up and down, affected not only by roller coaster auction prices but also by New Zealand’s notoriously volatile dollar.

This makes it much harder for farmers to plan their financial affairs.

And unlike many of their foreign counterparts, New Zealand dairy farmers don’t have the luxury of taxpayer subsidies to give them price certainty.

But the good news is that, given the consistent inconsistency of auction results, the forecast payout may be going back up within a month or two.

If it does, we should all, city and country folk alike, be pleased with the outcome.

Winston Peters returns

If New Zealand First leader Winston Peters’ comeback attempt succeeds at next year’s election it will be a huge setback for politics and the economy in this country.

And even if his party doesn’t make it back into Parliament it will still cause plenty of harm by forcing the major parties to adopt some of its regressive policies to neutralise its electoral impact.

For years Mr Peters has focused his campaigning efforts on three ugly themes: economic nationalism, xenophobia and elderly paranoia.

He combined them into a perfect storm in a speech at a Rangiora RSA this week, claiming that foreign-owned companies are exploiting old people.

How are they doing this? By investing in rest homes of course. The irony that the dreaded foreigners are looking after New Zealand’s elderly seems to be lost on Mr Peters.

But then again, his anti-immigration stance has always been in conflict with his “take bucket loads of money from cash-strapped young people and give it to their asset-rich grandparents” stance.

If over-65s are to continue enjoying taxpayer largesse such as non means-tested superannuation and the super gold card rort then they’re going to need plenty of young taxpayers from poor, mostly non-European countries to immigrate here.

Dangerous times

Already there are signs emerging of the potential damage a New Zealand First return could do to New Zealand’s economy.

National, which holds bitter memories of the last time it worked with Mr Peters, appears to be making a pre-emptive strike in the hope of making New Zealand First irrelevant.

After endeavouring to remove obstacles to foreign investors buying New Zealand land, Prime Minister John Key is suddenly “concerned” about New Zealanders becoming “tenants in their own country” following the Chinese bid for Crafar farms.

Strangely enough, he didn’t ever express this sentiment when buyers from non-Asian countries such as the US and the UK were buying much larger chunks of New Zealand land.

And besides, how is “foreign-owned” land any different to land owned by wealthy New Zealanders who live overseas?

“Lots of New Zealand residents are foreign citizens and quite a large number of New Zealand citizens don't reside in New Zealand,” wrote ‘Richard’ in a comment on the NBR website.

“It is hard to see what difference it makes whether a block of land in Auckland is owned by a non-citizen living in Dunedin or a New Zealand citizen living in Brisbane.”

The potential crackdown on foreign ownership, combined with Mr Key’s refusal to confront the ticking time bomb of superannuation, shows that the policies of New Zealand First are harmful no matter which party implements them.

NBR staff
Fri, 06 Aug 2010
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The good, the bad and the ugly – NBR's plays of the week