FeltexClaimants now have until Monday 13 July 2020 to complete Stage 2 funding. The decision of Justice Dobson dated 22
May 2020 (the decision) suggests at  a Stage 2 trial date of 27 October 2020 for a hearing of up to 6 weeks.The FeltexClaimants’ chosen funding mechanism is the Company’s Crowdfunding Offer at www.ccfl.co.nz
. Claimants have so far invested $200,500 towards a $500,000 minimum.The public Offer closing date has been extended by the Company to 10 July 2020 to allow a road show in June as social
restrictions are (hopefully) further reduced.The claims, which seek compensation of $1.70 per share on 71 million shares, or just over $100m (net of loss
mitigation), plus interest of approximately the same amount again on top.If the funding is not completed and $1.65m security for costs provided, those claims, which were supported by the
Supreme Court in its decision  NZSC 74, will be struck out on 14 July 2020 and the Feltex Defendants and their
insurers will get off the Supreme Court liability hook.
The decision of Justice Dobson was released Friday 22 May 2020 after a one day hearing on May 11 in CIV 2008-409-348
Houghton v Saunders (the Feltex claim). A pdf copy of the decision is attached. The decision sets out a complete history
of the efforts to date by Houghton and JAFL to comply with the Court’s security for costs requirements. Considerable
criticism of these efforts to date and indeed of aspects the Company’s Offer is set out at paragraphs  to .
The Company is complying with the Court order to distribute a copy of the decision to all those to whom the crowdfunding
offer has been made. This compliance discloses the issues raised in the decision. This update also accepts the Court’s
invitation at  to provide any factually accurate comments on, or corrections of, the defendants’ criticisms.Criticisms of the Company’s Offer
One criticism alleges inadequate disclosure of the failure to date of efforts by Houghton and JAFL to provide, as yet,
the Court ordered security for costs. That is the very objective of the Offer and is being addressed by it.
As explained below, the claim was not commercially viable after the 2019 evidence admissibility rulings. However the
Supreme Court clarification at  of its decision dated 13 December 2019 repeated their 15 August 2018 findings of fact
including that sales results in January, February, April and May 2004 were bad. This clarified a dispute with the
Defendants throughout 2019 over whether or not those words were findings of fact. This in turn enabled the expert
valuation evidence to be revised.
The Company says its Offer, as advised by Lowndes Limited, includes the disclosure of many additional Offer Documents on
website so is compliant with the regime. The Defendants are being nosey about some details such as how much of the
deferred legal fees were owed by Houghton and JAFL to respective members of the legal team. Mr Carruthers QC had advised
the Court that the split was not of any significance.
Stage 1 legal costs and costs recovery work in 2019 would not be funded from the Offer or FGL resources, but the Lawyers
will have priority of payment for any deferred fees at Resolution.
The FMCA regime and exemptions places limitations on overwhelming potential investors with extraneous material and
detail so that they end up reading nothing. For example, as a direct result of the failures of the Feltex IPO document,
Product Disclosure Statements (PDS) are now limited to 60 pages. In the 2004 Feltex prospectus the untrue statement
about revenue capable of causing loss was hidden at page 85 of a 155 page glossy brochure that had cost $562,000 to
print on 300gsm card.
All the Offer investors to date are FeltexClaimants. They have the advantage of background of the full picture going
back to 2004. They are, with few exceptions, fully supportive of the roles being played on their behalf by Houghton and
JAFL and success of the Offer being vital to their own claims not being struck out.
The Company accepts that the general public may not have all that detail. Out of an abundance of caution the Company
discloses and updates the following information.Measurement of Loss
A major impediment in 2019 had been expert valuation of the Supreme Courts alternative remedy of Measurement of Loss.
The Supreme Court decided this applies if a claimant is unable to establish that he or she would have changed their
investment decision had they known the true Feltex revenue position as at 2 June 2004.
The judgment of Justice Dobson records at  that [pre-eminent Sydney based share valuation expert witness] Mr Houston
) deposes his revised upper bound Measurement of Loss at 53cps [on one conservative basis].
If none of the claimants establish their entitlement to a full refund, based on their own evidence that they would have
reversed their investment decision as at 2 June 2004, that basis will apply if Mr Houston’s evidence prevails. The
claims will total around $35m, plus interest since 2004, so around $70m in total.
So far at least 862 claimants have replied in writing to the 8 January 2020 questionnaire email that YES they would have
changed their investment decision. Many witnesses are too old and frail to give that evidence in person, or are
deceased. Documentary evidence and statements by estate trustees will be brought, led by the estate of former Fonterra
head Craig Norgate, whose trustee will say Mr Norgate would have reversed his investment decision to invest $100,000.
If the Court determines the Measurement of Loss falls in the middle of Mr Houston’s range (13cps to 53cps loss) ie 33cps
the total amount of claim in that scenario would be reduced to $23.5m plus interest plus costs. At $47m plus costs the
claim is still worth pursuing. The actual costs since 2006 are almost half that amount and naturally they and the
proposed new investment by the Company have to be repaid first.
Sir Paul Collins affidavit evidence recorded at  of the decision is that had he known of [Feltex’s] revenue
performance he would not have invested. His associated entities claim their total loss of $666,000 plus interest.
Many other claimants have advised JAFL that, for example, they would not have converted their bonds worth for $1.70
shares (about $38m of $50m underwritten by the brokers were converted) into shares worth only $1.17 to $1.57. The bonds
could only be redeemed early by payment of a 10% premium. The premium was non-existent when the true value of the shares
was up to 53 cents less than $1.70. Yet the Forbars catch cry was “we’re getting the float away at $1.70, we’ll get you
out on market”. They didn't.
Even if only half the claimants (by value) persuade the Court that they are entitled to the Supreme Court’s full refund
remedy, claims will total around $61.5m plus interest. The decision seems to ignore the possibility that at Stage 2 the
minimum measure of loss will be sought for all claimants with those who claim the higher reversal of investment decision
payout to be dealt with successively. At page 21 the Offer states an expectation this process could take another 3 years
The fact of the matter is that the Credit Suisse vendor and squeezed the lemon Peter Thomas were adamant at the Stage 1 trial they would not have sold Feltex below $1.70 per share ($254m, a USD 100m
profit to Credit Suisse Asian Merchant Partners LP, the 3rd defendant).
Mr Houghton’s case is that no one pays $1.70 in a quarter of a billion float for a share that would trade at $1.57 at
best once the truth came out, let alone one that in the same valuation range might be worth only $1.17.
When the truth actually came out, on 1 April 2005 ACC’s Nick Bagnall revalued the company instantly and sold 4.8% of
Feltex shares down to $1.00 then all the way down to 42cps when the part truth told on 1 April was further revised
downwards on 22 July 2004.
Forsyth Barr’s Neil Paviour Smith had given evidence at Stage 1 that he thought the price was too high and First NZ
Capital’s Robert Hamilton gave evidence that one institution would do no work on the float unless the price was below
$1.50, another thought it should be below $1.45.
Those values were assessed without the knowledge that revenue in 4 of the 5 months pre 2 June allotment had come up
short of management expectations and/or IPO forecasts, which were found to be untrue. The float should have been pulled
on 2 June 2004.
JAFL Partners sticks by its assessment that the Feltex Claims are now bankable and the risks in investment in the
Company are properly disclosed.
The Offer has already raised $200,500 towards the $500,000 minimum in a Level 3 interrupted month of May 2020. An
insured security for costs solution requires that minimum investment (and potentially some sort of success based
kicker), or it can be cash funded by public investment in the Company for the 2 for 1 pre tax return set out on page 22
of the Offer. The higher return is offered to the Company by JAFL because the Company has agreed it will not try to
force on the Houghton led Feltex Claimants an early or low settlement.
The main issue at present is that the world has simply stopped turning over. Brokers advise that capacity in traditional
insurance markets is uncertain. The Offer provides smaller New Zealand investors with an opportunity - to take an even
money bet in an area of investment risk not normally open to them.
Lloyds in London is looked on as one place to shop, but many New Zealanders know only too well that the ultimate risk
placed there in the past has fallen on the shoulders of Kiwi names. The cash funded security option cuts through the
insurance world structure.
In addition to funds invested through the Offer, the FGL facility arranged a year ago with five Auckland businessmen,
described at  of the decision, has been topped up during May 2020 by an ex-pat Kiwi claimant to $375,000 of trial
funding. That indicates resources of $575,500 are potentially available to Houghton and the Claimants. That contrasts to
$230,000 raised at the Supreme Court stage where security for costs was about $25,000.Summary of the issues - Strike Out or Extension of Time
The hearing had been held at the Wellington High Court and by VMR link on Monday 11 May 2020 under Level 3 lockdown
The purpose of the hearing was to address an application by the Feltex defendants to Strike out Houghton’s
representative claims because the orders for security for costs, made to allow the Stage 2 compensation phase to be
heard, had not yet been fulfilled. The claims of 3,639 mostly New Zealand based investors total $200 million including
In response, Eric Houghton and Joint Action Funding Limited (JAFL) made an application for extension of time to allow
the Feltex Claimants to organize a mechanism for raising the capital required, so that the orders could be met by
Houghton with JAFL’s assistance.
The two central issues for Houghton and JAFL had been admissibility of expert valuation evidence (see above) and delays,
including those caused by Covid19 lockdown.
The mechanism decided upon by Houghton, the represented Feltex Claimants through their committee and JAFL was the JAFL
Partners Offer made May 1, 2020 on the Collinson Crowdfunding platform at www.ccfl.co.nz
The decision of Justice Dobson
 I accept that a case has been made out for striking out this proceeding. Given the length of its history and the
number of interests affected by its determination, that is a regrettable outcome. However, in balancing the competing
interests of justice as reflected for claimants and defendants, it is an outcome I am satisfied is warranted, subject to
affording the claimants and their funder one last opportunity to perform.
 There will accordingly be a striking out of the proceeding on 14 July 2020, unless, by 13 July 2020:
(a) security for costs for stage two in the sum of $1.65 million has been either lodged with the Registry of the Court
or provided on other terms reasonably agreed to by the defendants and accepted by the Court by that date; and
(b) senior counsel for the claimants has confirmed that, in his opinion, the claimants are adequately resourced to
prepare for and present all aspects of their stage two claims.
---------------------------------------------------------------------------------------Other matters – Offer progress extension of closing date to 10 July 2020
Up to date the Offer has received $200,500 in investment support during May entirely from Feltex Claimants. The minimum
required for allotment is $500,000. Following the extension of time granted by Justice Dobson the Offer closing date
will be extended to Friday 10 July 2020.
In addition to the above financial support, during the course of the Offer JAFL’s May 2019 FGL facility has been topped
up to $375,000, indicating total resources available to Houghton of $572,500 less Offer costs.
No decision has been made as yet by Mr Houghton’s Lawyers on whether or not to appeal any aspect of the decision, and in
particular the time frame now allowed. The world we are living in has changed. Old case law has never faced a global
shut down of business and airlines. We don't know if there will be a return to Level 3 conditions in the near future.
Singapore has already gone back into a second lockdown.
JAFL and JAFL Partners will not stop working for the FeltexClaimants who now very much want their Feltex money back in a
world where their other investments and nest eggs face unexpected pressures. New Zealand can hardly afford to turn its
back on an AIG $90m insured recovery of $200m of kiwi savings exported to issuer Credit Suisse New York in the second
week of June 2004.