Godfrey Hirst

Pressure is mounting for an independent investigation into the demise of carpetmaker Feltex in the most spectacular collapse of a public company in New Zealand in recent years.

Groups representing laid-off workers and shareholders who lost thousands of dollars are also demanding the public release of all documents relating to the company's downfall late last year.  About 180 workers around the country, including 134 at Feltex's Christchurch factory, lost their jobs because of the firm's disintegration, which also left thousands of mum-and-dad shareholders an average of $29,400 out of pocket.

Australian carpet company Godfrey Hirst, whose chief executive and chairman, Rudyard (Kim) McKendrick, is an expatriate New Zealander, bought Feltex after the receivers were called in by the ANZ Bank in September last year.  The Press can now reveal that Godfrey Hirst bought Feltex for $A122 million ($NZ168m). The $A52m it paid for Feltex's New Zealand business and assets was accidentally disclosed in a reply to an Official Information Act request, and yesterday Godfrey Hirst told The Press it paid another $A70m for its overseas assets.

About 8500 shareholders are being mobilised to help fund a lawsuit to sue, for as much as $250m, directors, vendors, issuers and promoters involved in the public float of Feltex in 2004.  Liquidators are still trying to sort out Feltex's affairs. 

Auckland investment banker Tony Gavigan, who set up a shareholder group last December to help out-of-pocket shareholders recover their losses, said he believed the last four years of Feltex's existence needed scrutiny.  While his group was focusing on issues around the company's float in 2004, other matters needed to be looked at during the time of Feltex's receivership and liquidation, Gavigan said.  "We will be looking hard at what happened and we want as many others to be looking as hard as possible," he said. "We want all the documents in the public arena."  Christchurch lawyer Garry Wakefield, who has been advising on the shareholders' planned legal action, said a great deal of secrecy had surrounding the collapse of Feltex Carpets.

The Securities Commission was not releasing any information on its investigation.  "It's a bit like saying everything is squeaky clean, but we're not telling you why or how we came to that conclusion," Wakefield said.  "There should be a full inquiry, I think. I'd be 100 per cent behind that; $250 million is a hell of a lot of money for people to lose. With Feltex, it was a 100% loss for these people."

National Distribution Union (NDU) textiles sector secretary Maxine Gay said an independent inquiry would remove any doubts surrounding the acquisition.  "I would most certainly support that call. I think the union was expressing that at the time," she said.  "There's enough disquiet to say that it has got to be cleared up so that people do feel confident. Feltex was an iconic New Zealand company," Gay said.

The union had held some concerns about the timing of the sale to Godfrey Hirst.  NDU members' redundancy payouts had been capped at $15,000 each, but if the redundancies had been announced a week later the cap would have risen to $16,500, Gay said.

Christchurch accountant Alan Robb , who specialises in company accounts, has written a report on Feltex's initial public share offering in which he concludes the company's 2004 investment statement was "misleading and deceptive".  Robb said yesterday New Zealanders deserved answers about the downfall of Feltex.  "It is important to investors that the financial activities of public companies are clear and understandable. This is true of prospectuses, annual reports and liquidations and receiverships," he said.  "The media has a duty to be raising these questions and seeking answers."

Researchers believe they may have uncovered irregularities in a web of events surrounding the purchase and sale of land in the Manawatu after the collapse of carpetmaker Feltex.

University of Sydney accountancy academic Associate Professor Sue Newberry and economics researcher Dr Bill Rosenberg, of the Campaign Against Foreign Control of Aotearoa in Christchurch, are concerned about their findings.  They have been investigating the downfall of Feltex and links with Godfrey Hirst, the Australian carpet company that targeted it for acquisition.

They say special companies 100 per cent-owned by Godfrey Hirst chairman and chief executive Kim McKendrick actually bought the two Feltex sites, not the company itself.  McKendrick is an expatriate Kiwi living in Melbourne. Godfrey Hirst is owned by the McKendrick family. 

The spectacular collapse of the New Zealand Stock Exchange-listed Feltex in September last year is still having repercussions.  Thousands of out-of-pocket shareholders are planning to sue directors, vendors, issuers and promoters involved in the public float of the company in 2004 for as much as $250 million.  The latest liquidator's report shows shareholders and unsecured creditors are owed at least $21m.

Newberry and Rosenberg are demanding answers to what they believe are two major concerns raised by Companies Office records and material released under the Official Information Act.  The first is that the sale of two Feltex properties totalling 42ha in Marton and Foxton, which required Overseas Investment Office (OIO) clearance, was not to Godfrey Hirst – as publicly stated – but to McKendrick, through two companies, Kakariki Equities and Foxton Equities, which were set up in September last year, and are 100 per cent-owned by McKendrick.

Companies Office data shows both companies were established on September 7, the day after Feltex announced that Godfrey Hirst had pulled back for the time being from its $141.8m takeover offer.  The second is the price paid for the properties.  The OIO shows the sale to McKendrick's two companies was for $5,861,058, but the price of the planned re-sale of the larger, Marton, site to a company, Kakariki Industrial Park, established on December 15 last year, is unknown, as is the level of profit on it and where the money went.

Newberry and Rosenberg believe a third concern is the corporate ownership of Godfrey Hirst New Zealand through a Vanuatu company, Olympic Pacific, owned by the McKendrick family.  Vanuatu is a well-known South Pacific tax haven favoured by Australian corporates.

According to the OIO, the application by Kakariki Equities and Foxton Equities to buy the two sites was made on October 2, and said the applicants intended to close the Kakariki scouring plant at Marton.  The plant closed last October with the loss of 44 jobs, even though OIO approval was not granted until March 30 this year.

The Feltex deal was made by John Strowger and Andrew Jessop, of Chapman Tripp in Auckland.  Strowger, who was named New Zealand's dealmaker of the year at the 2007 Australasian Law Awards this year, did not answer questions emailed to him by The Press.

The Press also put questions on the land deal to McKendrick through Godfrey Hirst's New Zealand public relations adviser, Senescall Akers, but McKendrick declined to comment.  PR spokesman Geoff Senescall said that was because Godfrey Hirst was a private company and under no obligation to answer or disclose the information.  To all intents and purposes, McKendrick and Godfrey Hirst were the same thing, Senescall said.

However, Newberry disagreed, and cited work by two Sydney University professors, Frank Clarke and Graeme Dean, which said "the notion that private companies' affairs are private, and public companies are public, is utter nonsense".  Newberry said: "Applied to this situation, it is worth noting that Feltex was a major public company and Feltex's shareholders and creditors have lost a considerable amount of money in this debacle.  "Godfrey Hirst might regard itself as a private company, but the matter is one of considerable public interest, as evidenced by the news reports and court cases."  Any suggestion that the company and McKendrick were one and the same in the land deal was flawed, Newberry said.

"It is not correct to say that McKendrick himself is Godfrey Hirst (GH), especially because the claims made before this buyout proceeded was that GH was buying Feltex as a going concern, suggesting that Feltex would continue in operation.  "Had it been disclosed that Feltex was being broken up in the buyout and that McKendrick himself was buying parts of it separately for on-selling, I suspect there would have been even greater public concern about what was happening.  "The reality is that at least these two properties were split off from the deal and McKendrick purchased them himself. McKendrick is a related party of GH, but he is not GH," Newberry said.

Rosenberg said there were questions over whether Feltex shareholders were given a "fair deal".  "The sales to McKendrick's two companies broke up Feltex's assets, apparently with McKendrick being the sole beneficiary.  "If the company was to be broken up, presumably because the assets were worth more individually than as a going concern, the receiver could have realised a greater return and the Feltex shareholders may well have been the beneficiaries.  "But there was considerable public interest in it not being broken up and it is disturbing to learn that, in fact, part of it was," Rosenberg said.

Feltex liquidators are demanding more than $20 million from directors, alleging various breaches of the Companies Act and Financial Transactions Reporting Act.  A liquidators' report reveals the total claims and outlines six possible causes of action against the directors.

McDonald Vague consultant and liquidator John Vague said yesterday there were "obviously" questions over whether the carpet maker traded while insolvent.  However, proceedings might not be filed for months and the process would be drawn out, he said.  "At present we think the total claims are $20 million plus., but that, of course, can change. It can grow, it's certainly not going to get less."

Feltex's shares were sold for $1.70 each in a June 2004 float by Credit Suisse First Boston Asian Merchant Partners, a private equity group.  The company was placed in receivership by its bank, ANZ, in September last year.  The company's assets have since been sold to rival Godfrey Hirst, which has shut two of Feltex's New Zealand factories at the cost of more than 250 jobs.

Mr Vague said the directors included three who resigned months before the receivership.  They are Craig Horricks, former chief executive Sam Magill and Fairfax Media NZ chief executive Joan Withers.  The others were Feltex directors at the time of the receivership: John Feeney, John Hagen, David Hunter, chairman Tim Saunders and Peter Thomas.

McDonald Vague's report outlines six potential breaches of the Companies Act and Financial Transactions Reporting Act.

Mr Hagen said the former directors were "quite confident" they took legal advice at appropriate times and disclosed everything that needed to be disclosed.  "(We) think any action by the liquidator would be unfounded."  Mr Saunders is overseas and did not respond to interview requests yesterday.  He is also a Contact Energy director and told its annual meeting in October last year that he was confident he acted properly at all times and in the best interests of Feltex shareholders.

"Clearly the Feltex board, and by implication myself as chairman, carry a responsibility for contributing to the demise of the company. It has been a horrible experience and not one I'd wish on anyone."  Mr Thomas, chief executive in the run-up to the liquidation, and Ms Withers had no comment.