16 Aug 2018

Supreme Court rules Feltex claim was untrue

11:30 am on 16 August 2018

The Supreme Court has opened the door for further action against the directors of the failed Feltex Carpets after finding that a revenue forecast provided to shareholders was untrue.

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Photo: 123rf

Feltex was floated on the stock exchange in 2004 at an issue price of a $1.70 a share, but those shares were "effectively worthless" just 18 months later when the company was placed into liquidation.

Former investor Eric Houghton, on behalf of more than 3600 shareholders, argued that Feltex's prospectus was misleading and resulted in losses to investors.

The Supreme Court upheld an earlier finding by the Court of Appeal that the forecast operating revenue for the June 2004 financial year was an untrue statement, because the Feltex directors knew that the forecast would not be achieved when the shares were alloted.

However, the two courts differed on whether the untrue statement caused losses to investors.

The Supreme Court found the untrue statement could cause loss, but the Court of Appeal found it didn't because it could not have influenced any decision to invest.

All of the other claims by Mr Houghton relating to the prospectus were rejected by the Supreme Court.

The Supreme Court also found the untrue statement breached the Fair Trading Act, though it dismissed the claim against the joint lead managers, as Mr Houghton failed to prove the untrue statement in the revenue forecast "could be attributed to them as primary parties".

The decision means these investors will be able to make a claim for losses at the High Court in a second stage hearing.