Feltex director denies company statements misled public

Photo / Hawkes Bay Today

Deloitte's former chairman John Hagen has given evidence today in Feltex's defence against allegations the company breached the Financial Reporting Act (FRA) by not properly disclosing certain information in its interim financial statements to December, 2005.

The trial resumed today after being put on hold for two months.

The Crown alleges that directors Tim Saunders, John Feeney, Peter David Hunter, Peter Thomas and Hagen breached the FRA by not properly disclosing in its statements to December 31, 2005, that it was in breach of its loan facility with ANZ and that its debt with the bank was on call.

The directors have pleaded not guilty to two offences each under the FRA.

They do concede that the statements were not compliant with International Financial Reporting Standards (IFRA) for a listed company but say at the time the statements were prepared they believed it met every necessary requirement.

Feltex paid accounting firm Ernst & Young A$133,000 to conduct a review of the statements.

Hagen said today that he personally received confirmation from Ernst & Young that the balance sheets met IFRS requirements.

He said had Ernst & Young not been able to provide that assurance, "alarm bells" would have gone off.

Hagen said to suggest Feltex did not act properly was not accurate, as the directors did everything in its power to ensure those statements were compliment.

That was the first time Feltex had filed statements under the newly adopted IFRS and therefore is was essential and important to get them right, he said.

But prosecution Brian Dickey said the directors had a responsibility to ensure the statements were correct, so that investors had an understanding of where their "savings" were.

He asked Hagen whether Feltex had let the market down by not properly disclosing its debt, especially since its liability with ANZ was around A$100 million by December 2005, making it the company's dominate and fundamental debt.

But Hagen denied that the statements would have mislead the public, as it was well known that Feltex was underperforming, it had downgraded its profit forecast twice in 2005 and the share price had fallen to 50c per share - the market was saying this company is in difficulty, he said.

He added that it was a director's responsibility to make sure "these things" [such as statements] were done but not to do them themselves.

A mistake was made by Feltex's financial management team and that mistake was not picked up by Ernst & Young, he said.

"People make mistakes. It's unfortunate."

A review of financial statements is voluntary and is different to an audit, which is a more thorough diagnostic.

The case continues.