ANZ reassured Feltex in 2005, court hears

"There will be no receivership."

These were the words former ANZ senior executive Peter Holland used to calm the nerves of Feltex's directors in December 2005, a court heard this week.

But nine months later, the bank called in the receivers.

This was after the board rejected rival carpet maker Godfrey Hirst's buyout deal worth $141.8 million.

Feltex's directors were in the Auckland District Court this week defending allegations the company's half-year accounts to December 31, 2005, did not disclose it was in breach of its loan agreements with ANZ.

The directors, Tim Saunders, John Feeney, Peter David Hunter, Peter Thomas and John Hagen, each face two charges under the Financial Reporting Act for allegedly failing to disclose proper financial records for the six-months to December 31, 2005.

They have pleaded not guilty.

Before Feltex held its annual general meeting in late 2005, Saunders asked Holland whether the company had the bank's support.

Defence lawyer Paul Davison, QC, told the court that Saunders said: "Peter, this can't be wishy-washy. We need the the bank's absolute support here. It's got to be complete or you can have the keys now."

To which Holland replied: "There will be no receivership."

Davison painted a picture of collaboration between the directors and their bankers as attempts were made to solve Feltex's financial problems.

So much so that after the company's AGM, Thomas, who had holidayed and returned home with dengue fever, called ANZ several times from hospital to maintain contact.

Davison said the directors had met Holland numerous times towards the end of 2005 to discuss the company's position and restructuring plans.

By December 2005, a liquidity crisis had not been forecast but the bank was questioning the long-term viability of Feltex, Holland said.

ANZ had also recently approved a A$10 million loan to fund the closure of the company's yarn plant in Melbourne, which was part of its profit improvement initiative.

Another witness, Ernst & Young partner Stuart Painter, said the company had conducted an interim review of Feltex's financial statements for the six-month period to December 31, 2005.

The directors had adopted the international financial reporting standards for that period for the first time.

He said the change in reporting standards was part of a worldwide process.

Painter said a review was different to an audit, and that the directors were responsible for the corporate governance of the company. The case continues.