recieverships and liquidations

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.

About 8500 mum and dad shareholders in collapsed carpetmaker Feltex were yesterday asked to stump up $980 apiece to fund a lawsuit against the company's directors and two brokers who participated in its initial public offering (IPO) in May 2004.

Investment banker Tony Gavigan and Christchurch lawyer Garry Wakefield are spearheading the legal action after failing last December to prevent the High Court putting Feltex into liquidation. To issue representative proceedings, they have written to IPO investors, asking them - and those who bought Feltex shares on market before the end of March 2005 - to join the group in a bid to recover their losses. An initial payment of $600andasigned consent is required.

Gavigan says time is of the essence because some Fair Trading Act recovery rights have time limitations. About 600 Feltex investors late last year forked out $380 apiece - or $228,000 - in an abortive bid to save the company from liquidation. The balance is held in Wakefield's trust fund to cover the cost of writing to investors and bringing the action to trial. Christchurch barrister Chris McVeigh QC will act for the group and an expert opinion has been obtained from Professor Alan Robb, who recently retired from Canterbury University's accounting department.

Gavigan says the key issue is whether the IPO document painted an untrue picture of the company's accounts and future prospects. He notes the prospectus forecast a net $24 million surplus in the year ending June 2005. Instead Feltex lost the lot, he says, and reported a shortfall of $20m in the first two years. Gavigan says that rather than suing the IPO board under the directors' duties provisions of the Companies Act, he and Wakefield are concentrating on Fair Trading Act and Securities Act actions. "Just like the Ribena situation, there wasn't a lot of vitamin C in this box."

He says the group needs at least $1m to bring the matter to trial and he expects at least 1000 people to join the action. The median loss for Feltex investors is about $10,000. Included as defendants in the court action will be those directors who signed the IPO - Tim Saunders, Michael Feeney, David Hunter and Peter Thomas - and the company's vendors and lead brokers, First NZ Capital and Forsythe Barr.

Gavigan says director John Hagen will not be part of the lawsuit as he was not a director at the time of the IPO; nor will the shareholder group be suing Feltex's auditors, lawyers or any other members of the NZX. To succeed in a Fair Trading Act suit, the plaintiffs must prove misleading or deceptive conduct or conduct that is likely to mislead or deceive. The Securities Act causes of action will include technical matters required when companies issue a prospectus before seeking money from the public.

The High Court put Feltex into liquidation last December, owing at least $13.1m to unsecured and employee creditors. There was a $A19m shortfall to the debenture holder, the ANZ Bank. This followed a fierce courtroom battle between Gavigan and the would-be liquidators, insolvency specialists McDonald Vague and Associates.

Gavigan was seeking a court order to become a Feltex director. This, he said, would have enabled him to resuscitate the company by calling a shareholders' meeting, appointing more directors, relisting and recapitalising Feltex, auditing its expenditure and the actions of its directors for the past six years, investigating the IPO and the claims made in its prospectus, coming to a scheme of arrangement with creditors and recasting Feltex's most recent accounts. There was at least $50m in value remaining in the company in the form of tax losses, he told the court. But Justice Rodney Hansen said the law was clear. If Feltex was insolvent, it had to be liquidated.

Bankrupt Christchurch businessman Mark Taylor has been forced to wind up another company.  Franchise Operations Ltd - formerly Stirling Sports Franchises - was put into liquidation in the High Court at Auckland last week, in the ongoing fallout from last year's Building Depot collapse, which had amassed debts of more than $8.6 million.  Franchise Operations, formerly known as Stirling Sports Franchises, was put into receivership in December. The liquidation has left all unsecured creditors out of pocket.

Receivers had earlier sold the Stirling side of the business, including the brands and logos, in July for $850,000 to Lane Walker Rudkin Industries, whose directors are Ken and Patricia Anderson. The company's shareholder is Stirling Corporation Ltd, of which the Andersons are also shareholders and directors.  The Stirling franchise had been managed through NZX-listed company RetailX, whose shell became British telecommunications company Plus SMS in March this year.  Franchise Operations and its 88% shareholder, Lennox Corporation, were placed in receivership last December when ANZ called in a $2.9 million debenture after Lennox defaulted on a loan. Lennox is also now in liquidation.

Taylor is the sole director and shareholder of Franchise Operations, Lennox and RetailX. Taylor's wife, Janine, is a shareholder in Lennox Corp and RetailX, according to Companies Office records.  Mark Taylor was bankrupted in May. RetailX owned 10% of the Building Depot and Taylor and his wife owned the rest. Building Depot paid RetailX a management fee.

Receivers Ferrier Hodgson said Franchise Operations' and Lennox's only asset was the intellectual property, including the trademarks, emblems and logos, associated with the Stirling Sports brand.

The receivership hasn't affected the ongoing operations of the Stirling Sports chain.  The proceeds of the sale of the business were paid to debenture-holder ANZ and there was no money for other creditors, according to the receivers' final report.  A settlement was reached between security interest holders Colin Taylor, Merilyn Taylor and Timothy Goulding.

Taylor's father, Colin, founded the Stirling Sports chain and ran it for more than 40 years before selling it to his son in 2003. By then, it was a 43-store chain. Mark Taylor soon afterwards bought the Building Depot from Fletcher Building.

The DIY chain's collapse came in the wake of increased competition with the introduction of Australia's Bunnings Warehouse stores, the expansion of Mitre 10 megastores and existing competitors such as DIY chain PlaceMakers and ITM. The Building Depot offered goods at the lower end of the general retail market, where competition had become more fierce.