ANZ Bank increased its scrutiny of Feltex Carpets Ltd as the company's financial situation deteriorated in 2005 and Feltex was aware of this, a court has been told.
Five directors of Feltex are on trial at the Auckland District Court accused of failing to make proper disclosures about the company.
The Companies Office says investors were not told about the true state of Feltex, which went into liquidation in 2006.
John Feeney, John Hagen, Peter Hunter, Timothy Saunders and Peter Thomas face two charges relating to information provided in the company's 2005 half-yearly financial statements.
The charges have been brought under the Financial Reporting Act. Each accused faces a fine of up to $100,000 if convicted.
Peter Holland was head of corporate portfolio management which looked after problem and distressed loans at ANZ and was assigned to work with Feltex.
Mr Holland told the court on Monday that Feltex was advised in 2005 that ANZ's credit group would be shadowing it, as the company's financial situation grew worse.
Mr Holland says his team's involvement would have signalled to Feltex that it would be open to more scrutiny.
Earlier, Crown prosecutor Brian Dickey told the court the directors failed to disclose the true state of Feltex as they feared financial support would be withdrawn.
Mr Dickey said ANZ Bank was the fundamental financial backer for Feltex and that the nature of the loans was crucial to the company.
The trial is set to continue for three weeks.
