Former directors of Feltex Carpets say they regret the losses endured by shareholders in the failed carpet maker, while welcoming a High Court ruling that cleared them of liability for alleged disclosure failings in the failed carpet-maker's 2004 prospectus in a court case they described today as "unnecessary."
In a reserved judgment in the Wellington High Court, Justice Robert Dobson said while there was "some justification" for a number of the criticisms of the content of the prospectus, "none of them made out material misleading content or omissions that would trigger liability on the test as I have applied it" under the Securities Act.
Within a year of NZX listing, the stock was virtually worthless, thanks to a series of warnings that the company would miss its forecasts. Receivers were appointed in September 2006. Eric Houghton had sued the former Feltex directors, owners and sale managers in a representative action on behalf of 3,639 former shareholders seeking $185 million over what he said was a misleading 2004 prospectus. Rival Australian carpet maker Godfrey Hirst ended up buying the assets.
"We regret that the shareholders lost money when the company was forced into receivership in 2006 due to circumstances not foreseeable at the time the prospectus was prepared," directors Tim Saunders, Peter Thomas, Michael Feeney, David Hunter and Sam Magill said in a statement. "We are disappointed that having already lost their investment, the false hope of recovering it was held out to the shareholders by a speculative and profit-driven court action."
The case had been "protracted, costly, and in our view unnecessary," they said.
Justice Dobson ruled that the directors and promoters weren't liable under the Fair Trading Act because their conduct is regulated by the Securities Act. He also found that any relationship between directors and other defendants on one hand, and investors in the initial public offering on the other, could not give rise to the prospect of a duty of care in tort being imposed.
While his findings were sufficient to determine his decision, the prospect of appeals, raised "repeatedly" during the hearing, had prompted him to record findings "on numerous other issues which were the subject of intense evidence and argument," he said.
They would become relevant "in the event that I am subsequently held to be wrong in dismissing the claims of misleading content in, or omissions from, the prospectus," Justice Dobson said in his decision.
Houghton's lawyer, Austin Forbes had told the court that of the directors, Saunders, Magill, John Feeney, Craig Horrocks, Hunter and Thomas had a financial interest in Feltex, while Joan Withers, who was the other first defendant and resigned 15 months before Feltex went into liquidation, was the exception.
Many of the directors sat through the lengthy hearing, at times berating the media for its reporting on the plaintiff's case, which included evidence of an email from former executive director Peter Thomas that likened the company's 2004 float to a lemon from which most of the juice had been squeezed. Thomas was the director associated with the vendors, where were Credit Suisse funds.
Today Withers said the High Court ruling "confirms the robustness and integrity of the process around the IPO."
"For any director experiencing a situation such as this there are significant effects," she said. "That has certainly been the case for me and I have been extremely fortunate in that over the last nine years, people have continued to have the confidence to appoint me to senior governance roles.
As lawyer for the plaintiff, Forbes and his team sat in the front benches of the court, with three rows of defendents' lawyers, including high profile QCs, sitting behind.
Credit Suisse Private Equity, the promoter of the sale, was second defendant, while owner Credit Suisse First Boston Asian Merchant Partners was third. First NZ Capital and Forsyth Barr, which managed the IPO, were fourth and fifth defendant.
Justice Dobson said the plaintiff's ultimate fallback position "was that the quantum of loss ought to be reserved for a subsequent inquiry."
"At the end of 11 weeks of hearings, which the plaintiff had made very limited response to, relatively extensive evidence on behalf of the defendants in relation to quantification of loss, that was not an appealing prospect."
He invited memoranda from the defendants within 28 days of the release of the judgment, and then from the plaintiff assuming "the quantum of the defendants' entitlement to costs and disbursements cannot be agreed."