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The former directors, owners and advisers of failed carpet maker Feltex will this week try to have its shareholders' claim for their money back thrown out of court.
Around 8500 shareholders who invested in Feltex in 2004 and early 2005 filed unique court action earlier this year, claiming
back up to $254 million - the amount invested in the June 2004 public float of the company.
In the gun are former chairman Tim Saunders, chief executive Sam Magill, and directors John Feeney, Peter Hunter, Peter Thomas, Craig Horrocks and Joan Withers who signed the prospectus for the IPO (initial public offer). The shareholders' action also targets the former owner of Feltex, US-registered private equity house Credit Suisse First Boston Asian Merchant Partners, its associated company Credit Suisse Private Equity Inc, and joint lead managers First New Zealand Capital and Forsyth Barr.
The shareholders argue the IPO prospectus breached the Fair Trading and Securities Acts because it was "misleading and deceptive". Shareholders lost their entire investment in Feltex when its banker ANZ sent in the receivers on September 22, 2006. Shares worth $1.70 at the time of the 2004 float became valueless.
In the High Court at Christchurch this week the former directors, owners and advisers are hitting back, and will seek to overturn the order enabling the shareholders to take the joint action.
The court has allowed the shareholders to bring their case under a unique format. Two representative shareholders - Eric Houghton, of Upper Moutere in the Tasman District, and Dunedin man Darryl Jones - are leading the action for all the others.
Affected Feltex shareholders had to actively opt out of the action if they did not want to be part of it. Those who remained in will pay a share of any settlement they get to cover legal costs.
But the defendants have each filed interlocutory applications asking the court to disallow the structure the shareholders are bringing the claim under.
"They're effectively saying every single person has to bring their own case," lawyer for the shareholders Garry Wakefield said.
If the former directors, owners and advisers succeeded, the shareholders would have to re-evaluate their position. He did not rule out an appeal.
In a separate move, Feltex's liquidators are understood to be pursing legal action against seven of the company's former directors. The claim will reportedly centre around the Securities Commission's finding that Feltex failed to make proper disclosures to the sharemarket.
