Dr Michael Wooldridge, a former Federal Health Minister and now the Chairman of the Responsible Entity for the Prime Retirement and Aged Care Property Trust (in administration), said that it was “perfectly proper" for $33 million to have been taken from the Trust without unitholder approval (Australian Financial Review, 13 January 2011).

 

The background to this issue is that, in August 2006, the Responsible Entity (RE) unilaterally amended the Trust’s Constitution to provide for fees to be paid to the RE in the event of the units being listed on the ASX, and also in the event of the RE being removed from office. Both of these fees, the listing fee and the removal fee, were to be calculated as 2.5% of the gross value of the Trust’s assets .  The RE did not consult the unitholders about the amendment, nor did it make any attempt to obtain unitholder approval for the amendment.  The amendment to the Trust’s Constitution was signed by Dr Wooldridge himself.

 

Following the listing of Prime Trust on the ASX in August 2007, the RE, under Dr Wooldridge's Chairmanship, received a listing fee of $33 million, representing more than 7% of the unitholders' funds at that time.  Furthermore, if the unitholders, once they eventually became aware of the new fees introduced by the RE without consultation, had dared to remove the RE, the RE would have been expected to claim the removal fee, another payment of more than $30 million.

 

The Prime Trust Action Group believes that the payment of the $33 million listing fee to parties associated with the RE was illegal.  We would draw Dr Wooldridge’s attention to the following legal requirements:

 

• Section 601FC(1)(c) of the Corporations Act requires that the RE must, at all times, act in the best interests of unitholders and, in the event of a conflict between the interests of the RE and the interests of the unitholders, the RE must give priority to the unitholders' interests.  The Action Group strongly believes that, by taking $33 million of unitholders’ funds and paying them to interests associated with the RE, Dr Wooldridge and his colleagues blatantly ignored their legal responsibilities.

 

• Section 601GC(1)(b) of the Corporations Act requires that unitholder approval is required for any amendment to the Constitution which adversely affects unitholders’ rights.  Furthermore, the Corporations Act defines “right” as including an interest or status and an “interest” in a managed investment scheme means a right to benefits produced by the scheme (whether the right is actual, prospective or contingent and whether it is enforceable or not).  At risk of stating the obvious, unitholders have an inherent interest in, or right to, the benefits arising from  the Trust’s income less expenses and also the assets of the Trust.  When unitholders invest in the Trust, they contract with the RE on the basis of the Trust’s Constitution, Product Disclosure Statements and the Corporations Act.  Subsequent amendment of the Constitution to increase fees payable from the Trust has a clear and adverse effect on unitholders’ rights.

 

• Clause 25 of the Trust’s Constitution stipulates that the RE can only unilaterally change the Constitution in cases where the change “shall not be in favour of or result in any benefit to the Responsible Entity”.  As the listing fee clearly benefitted the RE, it appears that Dr Wooldridge and his colleagues blatantly ignored their Constitutional responsibilities.  

 

 

 

In the Product Disclosure Statements issued by the RE prior to 2007, the RE advised prospective investors that it intended to pass a resolution before 31 July 2007 to list the Trust on the ASX and if it did not do so then the assets would be sold and the Trust wound up.  There was no mention whatsoever of the RE’s intention to claim a listing fee.  

 

The Prime Trust Action Group believes that the parties who received the listing fee, together with the parties that aided and abetted this process, must be ordered to return the listing fee to the Trust.  The Action Group believes that interest at rates applicable to high risk unsecured debt should apply to the recovery of the listing fee and note that the amount to be returned to the Trust, inclusive of interest would be more than $50 million currently.

 

At the time of unilaterally changing the Trust’s Constitution to introduce the listing fee, the RE stated that the amendment did not adversely affect unitholders’ rights.  The Prime Trust Action Group believes that it was blatantly dishonest for the RE to declare that an amendment with the potential to divert at least 14% of the unitholders' funds to the RE itself had no adverse impact on the rights of unitholders - 7% of unitholders’ funds being actually transferred to the RE via the listing fee in 2007 and then potentially a further 7% or more of unitholders’ funds being transferred to the RE via the removal fee.  

 

The Prime Trust Action Group believes that there are many other cases of potentially improper and illegal acts, which occurred under Dr Wooldridge's Chairmanship.  The Action Group believes that these acts brought Prime Trust to its knees and to a point where the Trust’s creditors placed the Trust’s retirement villages into receivership.  The Action Group notes that Dr Wooldridge’s tenure as Chairman has coincided with potential unitholder losses of more than $500 million.

 

The Action Group intends to ensure that the appropriate investigations are undertaken to identify all acts of the RE which were to the benefit of the RE and associated parties and to the great detriment of unitholders, and also identify all instances of misleading and deceptive statements made by the RE.

 

The Action Group believes that the Australian financial system has no place for any parties who are found to have acted in direct and blatant contravention of the requirements of the Corporations Act, and plans to bring to account all those responsible for the parlous financial condition of the Trust.  

 

The Action Group urges the administrator to complete his investigations into the Trust as soon as possible and to recover all funds, and all assets, which are found to have been misappropriated.  

 

The Action Group urges ASIC to launch a formal investigation into the Trust and to prosecute, to the full extent of the law, all parties who are found to have acted illegally.

 

 

Prime Trust Action Group

17 January 2011

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