The Feltex crash and subsequent takeover by Godfrey Hirst (with attendant plant closures and mass redundancies) was one of the big scandals of 2006. For the background, see Watchdog 113, December 2006, “The Feltex Fiasco”, by Sue Bradford, which can be read online at http://www.converge.org.nz/watchdog/13/03.htm. The reverberations continue, and there is the makings of a very interesting story indeed hidden away in the March 2007 Decisions of the Overseas Investment Office (OIO). So interesting that we decided to highlight it by running it as a separate article. We hope to have a more detailed follow up on this in our next issue. Ed.

Kakariki Equities Limited and Foxton Equities Limited, owned by Rudyard Grant McKendrick of Aotearoa, have approval to acquire 43 hectares comprising seven hectares at Lady’s Mile and Duncan Street, Foxton and 35 hectares at Kakariki Road, Marton, Manawatu, for $5,861,508 from Feltex Carpets Limited, owned 97.8% in Aotearoa and 2.2% by “various overseas persons”. The OIO states:

“Godfrey Hirst NZ Limited (GHNZ) has entered into an agreement to acquire the business operations and certain assets of Feltex Carpets Limited (Feltex) from receivers appointed by ANZ National Bank Limited (ANZ). GHNZ is a vertically integrated carpet manufacturing and wool processing company with operations in both the North and South Islands of New Zealand. The Godfrey Hirst group primarily produces woollen carpets for the residential and commercial sectors of the flooring market in New Zealand and for export.

“The Applicants propose to acquire the properties owned by Feltex at Kakariki Road, Marton and Lady’s Mile and Duncan Street, Foxton. The Applicants’ intention is to close the Kakariki Road site. Kakariki Equities Limited (one of the Applicants) is in the process of finalising an agreement to sell the Kakariki Road site to Kakariki Industrial Park Limited (a consortium involving Turks Poultry Farm, Whaitiri Potato Company Limited and a local farmer)”.

Feltex’s Kakariki scouring plant was closed by Godfrey Hirst with the loss of 44 jobs. Kakariki is 10km south-east of Marton. The Foxton plant manufacturing tufted carpet was not closed (NZPA, “Feltex put into receivership”, 22/9/06; New Zealand Herald, “Feltex deal leaves staff out of pocket”, by Richard Inder and James Ihaka, 4/10/06).

OIO Does Not Spell Out The Significance Of the Buyer

It is not made clear why this purchase, apparently by a New Zealand entity, requires OIO approval. The OIO does not mention that Rudyard Grant (known as “Kim”) McKendrick is the chairman and Chief Executive of Godfrey Hirst Australia, and also a principal shareholder of the McKendrick family-owned Australian and New Zealand companies. He lives, according to the official Companies Office record, in Newton, Victoria, Australia but is a New Zealander according to press reports (New Zealand Herald, “Hirst takes bigger share of carpet rival Feltex”, by Georgina Bond, 13/1/06, http://www.nzherald.co.nz/topic/story.cfm?c_id=257&objectid=10363468; “Brothers seek quick decision on Feltex”, by Richard Inder, 9/8/06, http://www.nzherald.co.nz/section/3/story.cfm?c_id=3&objectid=10395269&pnum=0.)

The two companies of which McKendrick is the sole shareholder, Kakariki Equities Limited and Foxton Equities Limited, were first incorporated on September 7, 2006 according to their official Companies Office records. Godfrey Hirst had been negotiating until days before that to take over an increasingly desperate Feltex, but cut off talks on September 6 because it “was not interested in a bidding war with Craig and Graeme Turner, the Sleepyhead owners” who had a plan they were about to present to the Feltex board. In fact Godfrey Hirst never lost interest, and may have continued talking to Feltex’s bank, ANZ. By September 20 it was publicly reported that Godfrey Hirst was back negotiating with ANZ. On September 22 the bank announced it had dismissed the Turner proposal and put Feltex into receivership. Godfrey Hirst made an official bid for the assets and business of Feltex to the Receivers on September 29 which was accepted on October 3. Settlement of the sale was on November 30 (Dominion Post, “Feltex investors told to sell or sue as woes mount”, by Gareth Vaughan, 7/9/06; Dominion Post, “Hirst back in Feltex frame”, by Gareth Vaughan, 20/9/06; “ANZ bank intends to appoint receivers”, Feltex Stock Exchange Announcement, 22/9/06; Press Release and NZX announcement, 29/9/06, Receivership update, Feltex Carpets Limited (In Receivership); Press Release and NZX Annoucement, 3/10/06 Receivership update, Feltex Carpets Limited (Receivers and Man agers Appointed); Receivers’ 1st Report on the State of Affairs of Feltex Carpets Ltd (In Receivership), 27/11/06; Receivers’ [6 Monthly] Report on the State of Affairs of EXFTX LTD Feltex Carpets Ltd (In Receivership) (In Liquidation) which previously traded as Feltex Carpets Ltd, 30/4/07)

Has McKendrick Personally Pocketed Profit?

It is therefore likely that the two companies, Kakariki Equities Limited and Foxton Equities Limited, were created with a specific purpose in mind. In the case of the Kakariki plant, the plan seems to have been for McKendrick to purchase it with the aim of a quick resale. The buyer, Kakariki Industrial Park Ltd (which appears to be independent of McKendrick and Godfrey Hirst), was itself registered only on December 15, 2006. If there was a profit on the resale (which seems likely), then Feltex’s creditors and shareholders, many already unhappy at the way the sale and liquidation were conducted, have missed out on it. If that is the case, it is remarkable that Kim McKendrick has apparently personally pocketed the profit rather than either the creditors of Feltex or his family company, Godfrey Hirst. It would be interesting to know what he has in mind for the Foxton property. Of further interest would be the price McKendrick paid to ANZ for those properties as well as the price obtained from the subsequent re-sale.

Vanuatu Connection: Possible Tax Avoidance?

Neither is the OIO’s description of Feltex Carpets Ltd as 97.8% New Zealand owned apparently consistent with its Companies Office record. The official record shows it is 100% owned by Godfrey Hirst NZ Ltd (and its two directors are McKendrick and Godfrey Hirst NZ Ltd General Man ager and Director, Tania Pauling), which in turn is owned by Avon Pacific Holdings Ltd, with three directors in common with Godfrey Hirst NZ Ltd including McKendrick and Pauling, but 100% owned by a Vanuatu company Olympic Pacific Ltd whose address is KPMG House, Port Vila. A possible reason for this would be tax avoidance, but there could be others. We can only conclude that Olympic Pacific is 97.8% owned in New Zealand. The August 2006 Godfrey Hirst application to the Commerce Commission to take over Feltex says that Olympic Pacific is 100% owned by “McKendrick Family interests” – at least some of whom are Australian resident (p24). (Note that there are actually two different Feltex Carpets Ltd. The first one was put into receivership and then liquidated. A condition of Godfrey Hirst’s acquisition of its assets and business was that it be renamed. It is now known by the memorable title of “EXFTX Limited (In Receivership)(In Liquidation)”. A new Feltex Carpets Limited was registered at the Companies Office on February 22, 2007, and since this OIO decision occurred in March 2007 we assume that it is this second Feltex Carpets Ltd that is the one referred to.)

The land involved “either alone or together with any associated land … adjoins land over 0.4 hectares that includes a historic place, historic area, wahi tapu, or wahi tapu area that is registered or for which there is an application or proposal for registration under the Historic Places Act 1993; and adjoins land that is listed, or in a class listed, as a reserve, a public park, or other sensitive area”.