Prime Trust Action Group Unitholder Update No. 24 – 18 March 2014
Investors will recall the Federal Court judgment in December 2013 that APCH (the Responsible Entity for Prime Trust) and several APCH directors (namely Bill Lewski, Michael Wooldridge, Peter Clarke, Kim Jaques and Mark Butler) breached various provisions of the Corporations Act.
Specifically the Federal Court found that the directors did not have the power to amend the Constitution in the manner that they did and that the amendment of the Prime Trust Constitution so as to provide APCH with a $33m listing fee was invalid.
The next stage of the above proceedings is to consider whether penalties should be imposed on the directors in terms of both financial penalties and disqualification periods as company directors. It had been expected that this second stage of proceedings would be conducted in early 2014, but we now understand that the Court will not hear this matter until late July 2014. Whilst these continued delays are unfortunate and indeed frustrating for investors, the timetable is at the discretion of the Court and we therefore have no choice but to wait for the decisions on penalties in due course.
Having digested the Federal Court judgment, we have made a submission to ASIC providing our views on the financial penalties and disqualification periods that we consider would be appropriate in the circumstances. Given the strength of the judgment, if directors are unable to prove that they have grounds to be relieved from liability, we would hope that, given the number of contraventions that occurred, the penalties imposed on the directors will be at the higher end of the scale for each contravention and therefore appropriate to the damage caused to the Trust and investors.
Other Legal Proceedings
The other legal proceedings currently on foot include the following:
Listing Fee Compensation Proceedings
These proceedings are being conducted by the Receivers on behalf of secured creditors and seek compensation for the damage caused to the Trust by the payment of the $33m listing fee. In addition to those parties included in the ASIC proceedings, the Receivers have also included Madgwicks and Kidder Williams, respectively the lawyers and corporate advisers to the Trust, whom they allege were complicit in APCH breaching the provisions of the Corporations Act. As these proceedings relate to matters very similar to those considered by the Federal Court above, it is currently expected that the proceedings will follow-on from the conclusion of the ASIC Proceedings.
Management Rights Compensation Proceedings
These proceedings are being conducted by the Receivers and seek compensation for the damage caused to the Trust by the various dealings in the village management rights. 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 Bill Lewski) for no consideration, and the subsequent sale of those rights by RG to Babcock & Brown Communities Pty Ltd (“BBC”, now Lend Lease Primelife), which resulted in the Lewski family receiving $60 million.
Legal Action Against Lend Lease Primelife
These proceedings have been initiated by the Liquidators and seek compensation from Lend Lease Primelife (“LLP”) in relation to LLP’s purported ownership of the village management rights.
Legal Action Against Pitcher Partners
These proceedings have been initiated by the Liquidators and seek compensation from the Trust’s auditors (Pitcher Partners) in relation to a number of issues.
Each of the above five proceedings is based on a number of claims originally identified by the Prime Trust Action Group and outlined in submissions made to ASIC and the Liquidators.
A recent report (please refer to the attached article) suggests that the entire $5m available under APCH’s Professional Indemnity Insurance Policy has been reserved for the exclusive use of the APCH directors for their legal defence costs. Our concerns about this disturbing development include the following:
• As a condition of its Australian Financial Services Licence, APCH was required to hold, and did maintain, a Professional Indemnity Insurance Policy (“PI Policy”).
• The requirement for each Responsible Entity to hold adequate PI cover is an integral part of the investor protection regime administered by ASIC.
• It is understood that the APCH directors maintained the bare minimum required amount of cover under the PI Policy, being $5m only, notwithstanding that the Trust disclosed in excess of $1.5 billion in total assets and investors funds exceeding $500m.
• It is understood that the PI Policy was a composite type, whereby the sum insured is available to meet certain defence costs incurred by directors as well as valid claims from third parties such as investors.
• In early 2011, prior to the commencement of any legal action by ASIC, the Prime Trust Action Group notified the Trust’s Liquidators of extensive investor claims against APCH, including claims in relation to the unauthorized Listing Fee of $33m, claims in relation to allegedly improper dealings in the Management Rights to the Trust’s villages and a host of other disputed transactions.
• PI policies, of this nature, generally include a number of exclusions, including an exclusion preventing directors from claiming defence costs if they have been found by a Court to have gained a profit or advantage to which they are not legally entitled, or in cases where directors have engaged in a deliberate conflict of interest.
• The Federal Court ruled that the APCH directors breached the Corporations Act on several occasions in relation to the Listing Fee of $33m. The Court also found that conflicts of interest were not properly managed by the APCH Board.
• Notwithstanding the Federal Court ruling against the APCH directors, we understand that the directors have claimed defence costs exceeding $5m and the insurer, AIG Australia Limited (“AIG", formerly known as Chartis Australia Insurance Ltd), has indicated that it will accept liability for these claims up to $5m.
• Section 199A of the Corporations Act stipulates that directors are not entitled to be indemnified against legal costs “in defending or resisting proceedings brought by ASIC or a liquidator for a court order if the grounds for making the order are found by the court to have been established”.
• It appears that AIG has given priority to the claims of the APCH directors, who have been found to have contravened the law, ahead of the interests of genuine claimants, by not excluding directors’ claims based on the Federal Court judgment in December 2013, and by failing to comply with its obligations under Section 199A of the Corporations Act.
• Strong representations have been made to both ASIC and the Liquidators over this matter, protesting about what we consider to be AIG’s unconscionable conduct in this matter.
Lewski Family’s Internet Gambling Business
Investors may have seen the recent article by Ben Butler, published in The Sydney Morning Herald and other Fairfax publications, outlining the activities of the Lewski family in establishing an internet gambling business, Tailorbet, in the Isle of Man. The article reports that Bill Lewski’s eldest son, Ari Lewski, is the Chief Financial Officer of the company and that, according to documents filed with the Isle of Man’s corporate regulator, his second son, Joshua Lewski, is a director and the sole shareholder and that funding for the business has been provided through an entity controlled by Bill Lewski, NG Sports Pty Ltd.
We first became aware of this gambling venture around a year ago and were particularly concerned by the funding arrangement between Tailorbet and NG Sports Pty Ltd.
We believe that Tailorbet now employs up to 15 professionals in what represents a significant capital investment.
The information we have obtained on Tailorbet has been communicated to ASIC on several occasions during the last twelve months. We wait to see what action ASIC will take in relation to this matter. In the meantime, we are continuing investigations to find further information that may assist in this regard.
Sale of Retirement Villages
Investors will recall that when the Trust collapsed, the Trust owned 12 resort-style retirement villages in Queensland and NSW. We are very disturbed to note that Lend Lease has now acquired eight of the villages and may soon acquire additional villages.
We have a number of concerns about the sale of these villages to Lend Lease including the following:
• We maintain that the valuable management rights to the Trust’s villages represented the Trust’s entitlement, as owner of the villages, to receive deferred management fee income from village residents. We maintain that these management rights were a trust asset, but were transferred to RG (an entity associated with Bill Lewski) without fair consideration.
• As RG did not pay fair consideration for the management rights, we allege that it did not have valid title to those rights, indeed we believe that there are strong grounds for the Liquidator’s action as noted above and that application could be made to the Court that the transaction is voidable.
• RG subsequently sold the management rights to Babcock & Brown Communities Ltd (“BBC”) with the Lewski family receiving $60m.
• When BBC acquired the management rights, it acquired a number of entities formerly under the control of Bill Lewski, such entities, we would argue, being burdened with the knowledge that RG did not have proper title to the rights having not paid for them.
• BBC was subsequently acquired by Lend Lease Primelife (“LLP”) which currently purports to manage the Trust’s retirement villages.
• We maintain that the issues surrounding the management rights needed to be resolved before selling the retirement villages as the resolution of these issues had the potential to substantially improve the market value of the villages, and greatly improve the recovery prospects for creditors and investors alike.
• We consider that the return of the management rights to the Trust, prior to the sale of the villages, would have facilitated a substantial improvement in the value of the villages and greatly improved the recovery prospects for all creditors.
We have made numerous submissions and representations to the Liquidators detailing potential claims against LLP and it is pleasing to note that the Liquidators filed proceedings against LLP in the Supreme Court of Victoria in late 2013.
Letter to Local Member of Parliament
Given the above disturbing developments, in relation to the PI Insurance, Tailorbet and the sale of the villages, we wish to marshal our troops and call on all investors to express the above concerns to their local Member of Parliament.
If the insurer continues to prioritise the claims of directors and exclude investors’ claims, and if the Receivers are able to dispose of the retirement villages without first resolving the issue of the management rights, we feel that this would represent a breakdown of the Australian financial services system of the highest order.
To prevent such a breakdown, we have prepared a letter for each investor to consider sending to their local Federal Member of Parliament. We would be most grateful if each investor could download the letter, edit as appropriate by inserting names, address etc and forward accordingly.
If you are unsure who your local Federal MP is at present, we suggest that the following link may be useful:
Also, so that we can monitor the total number of representations made, if you could send a quick email to us at [email protected] confirming that the letter has been submitted, that would be much appreciated.
We wish to gratefully acknowledge the financial assistance provided by investors to date in enabling us to continue to represent investors in this matter. Following our call for further contributions in December 2013, we are pleased to report that additional funds of approximately $40,000 were raised, thereby enabling us to continue to make representations on behalf of investors and engage a modest amount of legal advice as needed.
Thank you once again for your continued support of the Prime Trust Action Group.
Prime Trust Action Group