The liquidators for Feltex have issued proceedings against auditor Ernst & Young (E&Y), according to their latest report on the failed carpet maker.
McDonald Vague’s Iain McLennan and Peri Finnigan said their claim against Feltex directors Tim Saunders, John Feeney, Peter David Hunter, John Hagen and Peter Thomas was “significantly impacted” by the incorrect December 31, 2005 financial statement prepared by E&Y.
That prompted the liquidator to pursue the accounting firm. “E&Y have failed to engage in any dialogue towards a resolution of the claim and have instructed solicitors,” McLennan and Finnigan said in their latest report. “Proceedings were issue in early December 2011 against E&Y” in New Zealand and in Australia, where Stuart Painter was the lead adviser to Feltex.
In 2010, then E&Y audit partner Gordon Fulton was found guilty of accounting breaches in the 2005 first-half financial review, which failed to disclose Feltex’s debt with lender ANZ. Fulton was ordered to pay $150,000 in costs towards the New Zealand Institute of Chartered Accountant’s disciplinary tribunal hearing and the professional conduct committee’s investigation. He avoided censure due to his previously unblemished record and because the review was mostly performed by E&Y Australia partner Painter.
The liquidator settled with the five Feltex directors after the Registrar of Companies failed to prove claims the board knowingly signed off on incorrect financial statements.
McLennan and Finnigan said they don’t expect any surplus funds from the receivership, leaving $13.9 million owed to unsecured creditors hanging in the balance. The liquidator also received $6.3 million in claims from 166 shareholders relating to stock purchased in the initial public offering.
Some 2,500 Feltex shareholders are pursuing separate legal action against Feltex’s directors at the time of the float, Credit Suisse First Boston Asian Merchant Partners, which offered Feltex for sale, Credit Suisse Private Equity and joint lead float managers, First New Zealand Capital and Forsyth Barr.
(Update adds link to liquidator's report).