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Well we withdraw our reservations about the outcome of the Southern Petrolium affair. The site http://www.ftxit.com advises that a trial will commence in Auckland on 5 May. The first insider trading case in this country they say. All seems to be going well for Mr Gavigan.

The same cannot be said for the Exftx liquidators. They promised monthly updates on their web site on the progress of the liquidation but that section of their site at least does not seem to have been touched since November. They were given public money to spend on investigations but they have had little to report on their findings except to confirm and support the Securities Commission's "findings". We say the Securities Commission's findings concerning the Feltex IPO are not genuine. We say that their findings concerning Feltex's statements concerning the arrangement of another funding agreement with the ANZ bank, replacing the one which was breached was accurate but has not been taken near seriously enough by either the Commission or the Institute of Chartered Accountants of NZ. We say that the Institute has a duty to say what action it taken concerning the complaint referred to it concerning the Feltex auditors and its reasons for that decision.

We would like to draw attention to the role of the Shareholders association and in particular its leader Bruce Sheppard in these developments. Mr Sheppard came particularly to the fore in addressing the Telecom(NZ) annual meeting of 2003 and opposing the appointment of Lindsay Pyne as a director. Mr Pyne was Managing Director of the Bank of New Zealand in 1990 when the bank overstated its profit by $70-100m. Mr Sheppard, an accountant and company director, was not immediately successful but Mr Pyne resigned from the Telecom board about 6 months later. Several BNZ players seemed to join Telecom when the BNZ was sold to National Australia Bank about 1993. The Shareholders Assn convened a meeting concerning Feltex about one year ago. On the morning of the meeting Jane Diplock of the Securities Commission appeared on Television to discuss Feltex, we suspect in an attempt to usurp publicity about the meeting. The meeting was addressed by the ex NZ Herald columnist Brian Gaynor who said he thought about 30% of the lost funds could be recovered by legal action if a "fighting fund" was available. At that stage it was thought that enough funds for such a fight might be available to shareholders if a sale to Godfrey Hirst was made and that shareholders might agree to use such funds for that purpose. Mr Sheppard seemed quite happy with such a course but seemed to advance the idea that no action should be taken against the director John Hagen who he saw as being a useful "litigation accountant". Mr Sheppard and his association seemed to have been instrumental in getting McDonald Vague personnel to be the liquidators of Feltex as Mr Gavigan has asserted. He now seems to have lost all confidence in the success of any action being undertaken. Pressure on him has been brought to bear from some quarter we suspect.

The meeting concerning Feltex did not contain a very big proportion of Feltex shareholders. Understandably few want to advertise their bad purchase. Of those there several were pinning their hopes on recovering somewhat by virtue of the Turner Brothers proposal coming to fruition. We believe that this proposal was just a ploy to use up time so that any potential "fighting fund" could be swallowed up by ANZ in interest charges which is in fact what seemed to have happened.

There is the issue of people who appear to have paid too much for Feltex shares on the secondary market by virtue of inappropriate profitability announcements or perhaps the absence of same, after the first profit downgrade announcement which we think was 1 April 2005. These people were invited to join the Gavigan action if they believe that they had been influenced by the IPO prospectus in deciding to buy and presumably any award to such claimants will be limited to the extent that they were relying on what was said in the prospectus. It is unclear at this stage whether such claimants are in the group action. It can probably be argued that the prospectus was not addressed to these people. Also the profit downgrade announcement supercedes the prospectus and the prospectus becomes rather irrelevant in the light of the new information. On the other hand misdeeds on the part of the company, particularly in describing the nature of a new agreement with the ANZ Bank, (after Feltex had breach the financing agreement in place at the time of the IPO), are at this stage far more established than any allegations concerning the IPO. It would seem therefore that claims of these purchasers should be able to be fully met from an action based upon the later misdeeds. The liquidators have indicated that they would be taking action in that direction but to date nothing seems to be happening. We think the liquidators should have been taking the action on behalf of shareholders which Mr Gavigan as instigate. But, we think, the liquidators have improperly taken their cue from the Securities Commission, who in turn have improperly taken their cue from the Government, who don't want any scandal exposed, which is also improper.

The liquidators apparently have significant outstanding claims on behalf of creditors which arguably should have priority over any other claims. It could be that much of such claims are by the ANZ bank. It would seem that the bank has done very well out of the Feltex affair and perhaps it can be argued that they delayed a sale because of the high interest they were earning on the debt. They also refused to give the liquidators access to their records until a court case over this matter was about to commence.

We say that both courses of action should be taken together and the liquidators should get in behind the Gavigan action. An interesting difference between the actions is that one director resigned and was replaced between the two causes of action. Ms Withers, who resigned, is we understand now an executive of Fairfax NZ and we believe that is resulting in an unfair assessment of the Feltex matter to the NZ public. Mr John Hagen, who replaced her was a long standing chairman of the Accounting Standards Review Board and senior accountant of Deloittes of the big five or six. . He, one would think, almost more than anyone was the person who knew of Feltex's disclosure obligation and should have ensured that it was done right. But in law perhaps he was just a director and entitled to perhaps just to see that some presumed experts were employed to recommend appropriate action and see that it was carried out. We suspect that he would have noticed that the funding agreement with the ANZ had not been reinstated to the previous position but that that was the impression given to the public. This site had of course brought deeds of Mr Hagen to attention, in particular his evidence in support of certain defendants in the Hedley v Kiwi case and perpetuating an impression that a once only lump sum was an annual payment.

We wish to now make comment on the Dominion Posts highly right wing Businessday pages of 19 April. Comment on C1 goes on about the announced closure of the Fisher and Paykel household appliance factory in Dunedin. It gets blamed on the "high kiwi dollar". Its not very nice for affected workers especially if they are not very versatile. But we say this is but a continuation of the phase out of the car assembly industry. Unlike the cars assembled most of this product is consumed here so there is less reason to make it here. There are better things for NZers to be doing and we need to make the most of our labour force. Their next work is likely to be more interesting we suspect. The only question is whether the development team still be viable without the factory. It might be harder to get hold of parts to experiment with or to talk the factory manager into making small changes to see what happens. The NZ dollar is not particularly high. The main change is that the US one has fallen considerably.

Then on page C2 we have a piece that seems to be designed to ensure that expected tax cuts are to income tax and not to GST. It quotes four conditions which the Government has in selecting where to cut including "no increase in inflationary pressure" and "no increase in inequality". We think they will be fairly quoted.

But the economist, Matt Nolan" argues that a reduction in GST would not reduce inflationary pressures. It may not be by much but we disagree. Prices should go down by the 1% or whatever is chosen and that should tend to have the effect of reducing wage demands or whatever factors cause the spiral. He is trying to blind the public with science on this point we say.

Then he comes to the inequality aspect. He agrees that poor people tend to spend a greater portion of their income as do we. We think however that poor people probably spend a significantly greater portion of their income on rent and mortgage payments which are not directly subject to GST so they would get less of a cash benefit from lower GST in the short term at least but that is not part of his argument. He says that people in general aim to spend their whole income over their life and hence in longer term get hit with GST in proportion to their income. We say this is nonsense and the rich are more likely to pass their wealth on to the next generation and to keep sizeable wealth to the end just in case an important need for it turns up. The longer wealth goes unspent the more negligible GST becomes. Interest is earned on unpaid GST. Spending overseas is also more likely. The earnings of the poor are more steady. The tendency is for them to spend what they have now and just hope that their retirement will somehow be provided for. They wish to give their young family the best start they can physically manage. We are not at all convinced.

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