Feltex shareholders' counsel to seek looser confidentiality on funding agreement
By Paul McBeth
Aug. 15 (BusinessDesk) - Counsel for the 3,000 Feltex shareholders taking a class action against the failed carpet maker's directors will ask permission from its British backer to share some of the terms of its funding arrangements to ease concerns from the defendants, the Court of Appeal heard today.
Senior counsel Austin Forbes told Justices Mark O'Regan, Anthony Randerson and Rhys Harrison he will ask UK-based Harbour Litigation Funding if he can share some of the details of their funding arrangement to assuage concerns there won't be enough to cover the defendants' costs if the class suit isn't successful.
"The trade-off might be greater disclosure or this court imposes a firmer costs regime or less advantageous security," Forbes said.
During the hearing in Wellington, the judges had encouraged both Forbes and counsel for the ex-Feltex directors David Cooper to reach a deal over disclosing the terms to avoid any further delays in the case. The directors at the time were Tim Saunders, Sam Magill, John Feeney, Craig Horrocks, Peter Hunter, Peter David and Joan Withers.
Justice Randerson said if the British backer was willing to share the essence of the relationship, including the insurance cover, that would help satisfy everybody regarding the "adequacy of the funding."
The identity of the class suit's UK funder was a bone of contention for Cooper, whose primary concern was that Harbour isn't directly involved. Rather, an unnamed associate is funding the action with an undisclosed level of insurance cover for costs, via New Zealand entity, Joint Action Funding Ltd.
Forbes said he had independently obtained documents showing about half of Feltex's invoices late in the fourth quarter of 2004 had revenue recognised in one month but dated on the first of the following month.
That raised the ire of the Feltex audit and risk committee, which called for an end to that practice in 2005, Forbes said.
The bulk of Feltex documents were held by the purchaser, Godfrey Hirst, rather than the liquidator, he said.
Earlier in the hearing, Cooper questioned the suitability of Tony Gavigan, the driving force behind the class action, as an appropriate court-approved funder, saying.
Cooper said Gavigan had breached court orders and made misleading statements that their acquittal in a 2010 action taken by the Registrar of Companies for alleged breaches of the Financial Reporting Act was based on a technical argument.
"If a responsible funder is put in the position of funding with control in the same way (as in Australia), there's nothing for us to complain about," Cooper told the court. "The complaints we have made are with particular entities."
The other parties to the class suit include broking firms Credit Suisse, First NZ Capital, and Forsyth Barr, who sold and promoted the offer.
Counsel for Credit Suisse, Adrian Olmey, told the court the procedural process was flawed, with one proceeding filed with all 3,000 participating shareholders included as joint plaintiffs rather than a representative claim.
In purest form, that means only Eric Houghton, the representative for the investors, would be able to proceed with his suit, Olmey said. As an alternative argument, he said the remaining investors shouldn't be able to put forward their individual claims, rather they would just be able to abide by common ground.
When it finally gets to court, the Feltex action will be divided into two stages. The first will hear Houghton's entire case, with the second using the first for binding rulings on common claims.
The hearing is set down for two days, and is proceeding.
Feltex collapsed in 2006, owing creditors between $30 million and $40 million, and destroying some $254 million in shareholder value.