Prime Trust Action Group Unitholder Update No. 23 – 23 December 2013

ASIC Proceedings

As per our recent email communication, we are delighted to note that ASIC was successful in its proceedings against APCH and the APCH Directors. Justice Murphy issued his judgment in the Federal Court on 12 December 2013 and found in favour of ASIC in relation to each of the allegations that had been made.

Specifically, Justice Murphy found that in:

* passing a resolution to lodge various amendments to the Trust’s Constitution on 22 August 2006;
* giving the benefit of the Listing Fee to APCH without obtaining investors’ approval; and
* making the decision to pay the Listing Fee;

APCH and each of the APCH Directors (namely Bill Lewski, Michael Wooldridge, Peter Clarke, Kim Jaques and Mark Butler) breached various provisions of the Corporations Act.

Justice Murphy also found that the Directors did not have the power to amend the Constitution in the manner that they did and that the various amendments (including the insertion of the listing fee) were therefore invalid.

The proceedings are now expected to move to the next stage in early 2014. The purpose of this stage is for the Court to determine whether the directors had any reasonable excuse for their actions and if not, to consider the imposition of penalties. We understand that ASIC will be seeking to impose pecuniary penalties on each director and also have the directors disqualified from managing corporations for a period of time. Given the strength of the judgment, if directors are unable to prove that they have grounds to be relieved from liability, we would be hopeful that, given the number of contraventions that occurred, the penalties imposed on the directors will be at the higher end of the scale and appropriate to the damage caused to the Trust and the directors’ failure to consider the interests of investors.

We would like to take this opportunity to thank ASIC for listening to the concerns raised by the Prime Trust Action Group and congratulate them on their overwhelming success in this case.

Since the judgment was delivered there has been considerable media interest in the Trust. A selection of articles is attached with more articles available from our website (www.primetrustactiongroup.com), including a recent story on the Trust by “A Current Affair” on 12 December 2013.

For those who are interested in knowing more about the judgment and the detailed analysis undertaken by Justice Murphy, please note that the judgment (in excess of 200 pages) has been uploaded on to our website . Investors may be interested to note that the judgment also contains an assessment as to the reliability of the directors’ evidence, including comments such as the following:

• “I reached an unfavourable view of his credibility and consider his evidence to be quite unreliable”
• “My rejection of his testimony is broad … “
• “I see his evidence about both meetings as unreliable, although I do not conclude that he was being deliberately untruthful”
• “My view about the unreliability of his evidence was confirmed by the fact that he sometimes crafted his answers to suit his defence”
• “I also found his evidence sometimes implausible…”
• “I reached an unfavourable view of his credibility and his reliability as a witness”

Likely Future Legal Proceedings

Apart from the next stage of the ASIC Proceedings, we currently anticipate that a number of other legal actions will proceed as follows.

Firstly, and subject to the final outcome of the ASIC Proceedings, we would not be surprised to see additional proceedings filed in the Federal Court seeking compensation orders against the APCH Directors demanding that they reimburse the Trust for the detriment caused to the Trust by their breaches of the Corporations Act.

Secondly, we would expect that the Listing Fee Proceedings in the Supreme Court, which had been delayed pending the outcome of the ASIC Proceedings in the Federal Court, would now be reactivated. In these proceedings, APCH (through one of the Trust’s Receivers) is seeking to recover the $33m listing fee plus interest with the defendants being eight APCH Directors, entities associated with Mr Lewski, APCH’s advisers and selected other parties.

Thirdly, we would expect that the Management Rights Proceedings in the Supreme Court, which had also been delayed pending the outcome of the ASIC Proceedings, would now be reactivated without further delay. We expect these Proceedings to explore the circumstances in which the management rights for various Trust retirement villages were transferred to Retirement Guide Pty Ltd (“RG”, an entity associated with Mr Lewski) for no consideration, and the subsequent sale of those rights by RG to Babcock & Brown Communities Pty Ltd (now Lend Lease Primelife) which resulted in the Lewski family benefitting to the tune of $60 million. The defendants to this action are likely to be various APCH Directors, various entities associated with Mr Lewski, various members of the Lewski family and various advisers to APCH.

We note that each of the above proceedings is based on claims originally identified by the Prime Trust Action Group.

In addition, we continue to make representations seeking additional legal proceedings against various parties who have not been included in the above proceedings. These additional proceedings are aimed at various parties including, but not limited to, Pitcher Partners (the Trust’s auditors) and Lend Lease Primelife (who claims to be the manager of the Trust’s retirement villages). We intend to update investors further on these matters as and when we are able to do so.

In terms of other legal proceedings, we note that Daytree Pty Ltd (an entity associated with Mr Lewski) has made a claim for $5m against APCH (as represented by the Liquidators). We understand that the Liquidators are vigorously defending this claim and the matter is due to be heard in the Supreme Court of Victoria in February 2014.

New Developments

In recent times, we have become very concerned about reports that several of the Trust’s retirement villages are proposed to be sold. We understand that the Receivers are in the process of selling numerous villages to Lend Lease Primelife and we have a number of concerns about the propriety of such a transaction and the potential adverse impact that this transaction may have on the eventual recovery of funds for investors. Our concerns with this proposed transaction include the following:

• We maintain that the management rights to the Trust’s villages were a trust asset, but were transferred to Retirement Guide Pty Ltd (“RG”, an entity associated with Mr Lewski) for no consideration;
• As RG did not pay valuable consideration for the management rights, we allege that it did not have valid title to those rights;
• RG subsequently sold the management rights to Babcock & Brown Communities Ltd (“BBC”) with the Lewski family receiving $60m;
• BBC was subsequently acquired by Lend Lease Primelife (“LLP”) which currently purports to manage the Trust’s retirement villages;
• As the title to the management rights is in dispute, and could be subject of future legal proceedings, we understand that no third party has been prepared to make an attractive offer to purchase the villages;
• We are aware that the Receivers have a duty of care to ensure that assets are not disposed of for less than market value;
• We suggest that the issues surrounding the management rights need to be resolved before any attempt is made to dispose of the retirement villages and that the resolution of these issues has the potential to substantially improve the market value of the villages;
• The return of the management rights to the Trust, prior to the sale of the villages, would facilitate a substantial improvement in the value of the villages and greatly improve the recovery prospects for all creditors.

We have made strong representations to certain parties about the above matters and will continue to do so. We will also be monitoring future developments, and seeking to ensure that the various parties fulfil, and are not impeded from fulfilling, their statutory obligations.

Fighting Fund

We wish to gratefully acknowledge the financial assistance provided by investors to date in enabling us to continue to represent investors in this matter. We consider that the recent Federal Court judgment is a direct result of our efforts in developing the case against the Directors and in lobbying ASIC to take strong and decisive action.

Despite the recent success, much remains to be done and we would like to take this opportunity to again make a call for contributions to our fighting fund. In particular, the recent manouevrings between the Receivers and Lend Lease have the potential to become the next battleground as the proposed sale of the villages may have a hugely detrimental effect on the eventual recovery of funds for investors.

Since forming the Action Group three years ago, we have raised approximately $240,000, and the vast majority of these funds (around $170,000) have been absorbed by legal costs. The Principals of the Action Group have undertaken numerous trips to Melbourne to further enhance the interests of investors and to make representations on behalf of investors. More than 20 trips have been undertaken, which in aggregate, have resulted in out-of-pocket costs of approximately $35,000. Of course, no costs have been claimed by any person associated with the Action Group for the time spent on Prime Trust. Our funds on hand currently stand at around $40,000.

Following the Federal Court judgment, there are several issues that we wish to obtain legal advice on, and we expect that there will be a steady demand for legal advice as the entire case moves forward. We also wish to retain the capability to continue to travel to Melbourne to continue to represent the interests of investors and to attend meetings with various parties.

We continue to engage with various stakeholders exploring potential claims against APCH and its former directors and their associated parties and entities, and are continuing to share the results of our research and investigations with the appropriate authorities.

We would therefore be most grateful if all investors could consider a contribution to the fighting fund. We would particularly like to encourage the majority of investors who have not yet made a contribution and would suggest, as per our previous fundraising some time ago, that a contribution of $100 per investor be considered. Please refer to the attached document which contains details of the two payment options which we are able to provide. We expect that contributions to our fighting fund would be tax deductible but encourage investors to obtain their own advice in this regard.

Thank you once again for your continued support of the Prime Trust Action Group. Despite the long and frustrating path to this point, it is very pleasing that the year has ended with such a strong and decisive judgment against the Directors in the Federal Court.

We would also like to take this opportunity to wish all investors and their families a safe, healthy and happy festive season as well as a prosperous New Year.

Prime Trust Action Group
www.primetrustactiongroup.com

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