To Contact Us
to page back through Previous Editions click here Index is in right hand column

December 2010 Edition ----

We have more on the Feltex saga because it is a very bad example of corrupt accounting and of government corruption. It is high time the subscribers to the IPO got their money back and the many wilfully responsible went off to gaol.

Our attention was drawn to a half a sentence used by Radio New Zealand in a news item on concern about Joan Withers being elected chair of Auckland International Airport. Because of copyright considerations we will not publish the item in full but it was timed at 6.39am on 29 October 2010. We heard the item read on National Radio then or soon after then. The relevant sentence was the fourth paragraph which reads :

Some at the meeting questioned her suitability as she was a former director of Feltex, even though she left the failed carpet company 15 months before its collapse.

The company being referred to is Exftx Ltd in receivership and liquidation, known as Feltex Carpets Ltd during the time being discussed here.

The part sentence appears to have been used by the reporter to ostensibly describe Ms Withers tenure at Feltex but we claim it was in fact a wilful attempt to unfairly minimise Ms Withers involvement in the demise of Feltex. We say it is in breach of Radio standards 5 and 6.

The NZ Herald quotes Ms Withers using similar wording but according to them she said she resigned 15 months before Feltex's liquidation which we say is something quite different. But we are sure that is the origin of the part sentence of Radio New Zealand which we are questioning.

The "collapse" of Feltex, if one wants to use that term took place either before or during Ms Withers tenure there. We are of the opinion that it took place the day in the year 2000 that it bought the Australian manufacturing plants of Shaw Industries. It no longer was a viable operation as a carpet manufacturer after that. The owner of Feltex nursed it along and in 2004 was able the make a spectacular sale to an unsuspecting New Zealand public. However from a public pronouncements point of view the collapse came in early April 2005 when the company issued a substantial profit downgrade from that projected in the prospectus which Ms Withers signed just days after joining the Feltex board. Ms Withers was still a director at the time of this downgrade when share prices fell from about $1.50 to 98 cents.

As far as shareholders are concerned the "collapse" did not occur at liquidation. The liquidation event was generally predicted well in advance. That is not where there was a "fall, give way, loss of strength or failure" as our dictionary defines the word. That is when the body went to the undertaker.

The part sentence we complain about suggests that Feltex was going along swimmingly when Ms Withers exited it. At that time, June 2005, a second profit downgrade had been made or was pending. She had only been there for little over a year. She had a clear duty to the shareholders to try and get them out of trouble if she still saw herself as being a competent director.

The words "even though" in the broadcast suggest that the reporter is minimising the relevance of the objections expressed by certain Auckland Airport shareholders to Ms Withers becoming its chairperson because of her involvement with Feltex. We say this minimisation is completely deceitful. The time of going into liquidation has nothing whatsoever to do with the time that a company may have collapsed except perhaps that normally the liquidation would follow any collapse. If someone was prepared to pay the annual registration fees, which is quite plausible, a company could exist in a dormant state for very many years without being liquidated and many do. As it was Feltex had been deprived of its former assets and in a helpless state for some months before going into liquidation, The liquidation was no surprise and no "spectacle" which one associates with a collapse. The earlier profit down-grades and the receivership were big news probably worthy of being called collapses. Directors at the time of any collapse are far more likely to have some culpability than people who become directors following the collapse or collapses but prior to the liquidation.

The broadcaster came up with the argument that "the timing of Feltexs demise is not a material fact bearing on her appointment to chair of a different company's board". When the demise or collapse took place determines whether Ms Withers was a director at that time and in the time immediately prior to it. There is a significant possibility that such directors had some or much responsibility for the demise or collapse and perhaps to be on the safe side such a director should not be appointed chair of any large company.

It would be proper to include this clause "even though she left the failed carpet company 15 months before its collapse" in the report if the objecting shareholders were conceding this point as an obstacle to their argument but we are satisfied that that did not happen.. Ms Withers has said that she left 15 months before the (start of) liquidation in the hope of convincing people that she was not around at the relevant time. Many people however would know that the time of liquidation is not the relevant time. Radio New Zealand would however have falsely convinced a great many people that she was not around at the relevant time because people would rightly think that a collapse and the months before it is the relevant time and that is the time that Radio New Zealand said that she was not there.

Why did the broadcaster not use the word "liquidation" that Ms Withers had used? We say that it is because it wanted to help Ms Withers to deceive. It would not be acceptable for Ms Withers to use the word "collapse", but by taking it one step at a time they think they can get away with it.

It is not "reasonable to refer to the time that a company goes into liquidation as its collapse" as the broadcaster claims. An active man falls over in the street and is taken to hospital where he survives in bed in a semi conscious state for a year or two before dieing. When did he collapse? Companies are able to survive in a useless state far longer than humans.

What other reason did the broadcaster have to include the clause "even though she left the failed carpet company 15 months before its collapse" in its brief news item other than to give the impression that she could have no responsibility for Feltex's failure? There is none.

This is clear evidence of the broadcaster being bossed by its government owner. We will try and establish how TVNZ handled that news item. Ms Withers is deputy chair of TVNZ.

We wish to now go over the big picture concerning the Feltex IPO.

These two newspapers groups have the resources and the obligation to expose Government corruption with respect to the May 2004 Feltex Carpets IPO but have decided not to do so.

The Labour Government of 2003-04 has given an undertaking not to have the IPO genuinely investigated on the understanding that this would result in NZ winning several gold and silver medals at the August 2004 Athens Olympics. The motive for the Government doing this was perceived (probably correctly) to be getting a further three years in power while the National Party has chosen not to expose the scam because many of its people are involved.

Evidence for this Government initiated or endorsed scam is as follows.

1 The Securities Commission investigation into the Feltex IPO was irrational. It was undertaken without any announcement that such an investigation was going to be held. On 26 August 2006 the Commission issued a one page report saying that it found no breaches of securities laws in the prospectus and that no further action would be taken in respect of the matter. In breach of this statement, on 27 October 2007 it issued a report on the "Feltex Inquiry" which includes over two pages on "the IPO" without making reference to its previous report. This second report acknowledged the assumptions of 1% p.a. market growth and a 1% increase in market share (among others) to be critical but it is clear that the Commission has wilfully ignored matters which make these assumptions unrealistic and hence in breach of the Securities Act.

As the Commission's report mentioned the prospectus at page 91 sought to imply that the 1% p.a. growth was approximately 1%, which is below the average growth rate over the past 10 years" The basis for this calculation is to be found on page 37 of the prospectus where it is claimed that between 1993 and 2003 the market size of Australia had grown by 1.7% compounding. But only those two years had been taken into account in the calculation. The market size for 1993 was very low while that for 2003 was very high. Using trend analysis for the 10 years 1994 to 2003 on Microsoft Excel gives a predicted size for 2005 of 3% less than the actual 2003 figure not 3.4% more which Feltex there claim. This results in an $18m overstatement of revenue. Similarly Feltex had been losing market share at the rate of 5% p,a. and the 1% gain assumption was unrealistic.

There has to be a reason for this false reporting, and government corruption, probably instigated with the appointment of the female Australian chair of the Commission, is the obvious conclusion.

2 Eion Edgar was managing director of Forsyth Barr, one of two lead brokers of the IPO. He had a responsibility to check out the validity of the prospectus. Prior to the IPO he was appointed chair of the ACC Investment committee. ACC was about the only Institution to "invest" in the IPO. It put in $9m. An ACC property manager currently faces corruption charges dating back to about this time suggesting poor governance. About the year 2000 ACC bought National Mail shares from Cliff Cook about ten days before that company decided to go out of its controversial challenge to NZ Post in the mail business. A close associate of Mr Cook was on the National Mail board. Credit Suisse First Boston was the broker for both parties in the transaction. This firm is closely associated with the vendor, promoter, and the other lead broker of the Feltex IPO. Eion Edgar was also chair of the NZ Olympic committee. He was awarded a high NZ honour at that time which subsequently converted to a knighthood when surprisingly knighthoods were reinstated. Knighthoods are great for covering up corruption. That is why the USA has had nothing to do with them. Last year Sir Eion was made NZ Senior of the Year under a new awards scheme. He just met the qualification age of 65. Probably the awards were instigated with him in mind.

3 Joan Withers was appointed the only female director of Feltex just days before the IPO was released. Her presence on the board would have been critical for luring in of "Mum and Dad" investors who made up a large proportion of the subscribers. Soon after the first profit downgrade announcement she deserted ship by resigning from Feltex to take up a CEO appointment at Fairfax. David Kirk who appointed her was later made a director of Forsyth Barr. Part of Ms Withers duties at Fairfax was to downsize the staff. We expect sure staff showing the slightest inclination to criticise her were put on the redundant list. Ms Withers could have relinquished her Auckland Airport seat instead of the Feltex one but she did not. Feltex was in trouble and in dire need of good directors. The shareholders had a right to expect that she would be with them for more than a year, and that she would have checked over the IPO. She is now chair of Mighty River Power, deputy chair of TVNZ and chair of Auckland Airport. The Government exercises much control over the airport because it regulates the monopoly. She told the Airport meeting that she left Feltex 15 months before its liquidation, so suggesting that she was not around when it got into trouble. She was no doubt promised by the Government and opposition that she would be "looked after" before joining Feltex and it sure has done that.

4 NZ won 3 gold and two silver medals at the Athens Olympics held about four months after the IPO. In Sydney in 2000 it got one gold and no silvers. It got 3 bronzes there but no bronzes in Athens. Two of the golds and one silver at Athens involved cycling a sport known to be rife with drug taking . Ms Ulmer's time was absolutely exceptional. Such cheating is known to be commonplace at the Olympics. It is likely that this cheating was done through an international syndicate which had something of a monopoly and "represented" several or many countries. It would only drug one or two athletes in an event so giving a greater guarantee of success. It is likely that many countries bought a "successful" Olympics in this manner causing many rank and file citizens to think that their country is in good shape. Possibly the athletes concerned merely assigned control of their nutrition and medication to the Olympic Committee "to be on the safe side" and did not know that their success was the result of cheating.

5 Mr Nichol of McGrath Nichol has given evidence in the Auckland district court that the ANZ bank was concerned about the security of loans to Feltex in 2002 and appointed his firm to investigate. In his opinion the situation was relieved by the proposal to float an IPO.

6 Kevin Simpkins, an accountant retained by the Securities Commission to investigate the Feltex case, Tim Saunders the Feltex chairman at the time of the IPO and Des Tolan the Chief Financial Officer are all of South African origin with experience of the apartheid regime. Mr Simpkins chairs the Accounting Standards Review Board and has a high accounting position at Victoria University of Wellington.

7 One would expect that the scamsters would arrange some sort of fake action against those responsible for the IPO to absorb subscriber fury and the action being taken by Mr Gavigan appears to fit that bill. The judiciary is of course as susceptible to state sponsored corruption as anyone else. Four of the Feltex directors at the time of the IPO were charged with offences concerning the content of Feltex's half yearly accounts to 31 Dec 2005. The judge not only found them not guilty but went out of her way to describe them as "all honest men". This is in spite of hearing the evidence of Mr Nichol concerning ANZ's concern for the security of its loans to Feltex in 2002. The shareholders and many creditors stood to lose everything before the ANZ lost anything. To then suggest that the shareholding was worth $250m is ridiculous and beyond the pail.

The scam has extracted an enormous toll on the NZ economy effecting the welfare of every person considerably. It is the duty of the press (and honest accountants) to expose it.

Advertising section

------------------------

Suitable Objectives

Register of Members

Members Forum - Topical
* open to all meantime:

Plenty of Opinion

Magazine Plans

Need an Accountant?
or Prepared to Change?

Users Forum
* have your say

Ready to Join?

Knowledge Tests
* being developed

What's Wrong with
the existing 
accounting body?

So called BNZ Audit
an extensive case study

 Visit our Advertising
page from 
Here