Prime Trust Action Group Unitholder Update No. 33 – 22 February 2018
In light of recent developments, we would like to provide investors with a further update on various matters as set out below.
Supreme Court Proceedings
As investors may recall from our previous Update, these Supreme Court proceedings encompassed three separate claims, namely the Listing Fee Claim, the Management Rights Claim and the Auditors’ Claim. Having been postponed on several occasions during 2017, the proceedings were finally due to commence on 19 February 2018 and were expected to run for approximately three months.
Investors may also recall that the above proceedings were being funded by litigation funders, and that without the considerable financial support from the funders, these claims would have lapsed several years ago without any compensation paid by any defendant.
In a major recent development, we understand that an out of Court settlement deal was reached and all parties have now agreed that the above proceedings will be discontinued.
In concert with the withdrawal of the proceedings, we understand that certain defendants have agreed to pay compensation and various confidential settlement deeds have been executed by certain parties. As per the terms of the Funding Agreements entered into with the litigation funders, the funders are entitled to firstly recover the costs they have expended in the pursuit of these claims, and are also entitled to a success fee.
It is not clear to us at this stage what amounts have been paid to settle the claims and by which parties, but we would expect the amounts paid to be significantly less than the compensation that may have potentially been awarded following the successful prosecution of the various cases in Court. We note also that, if the cases continued in Court, and a favourable judgment was eventually obtained, there would be the prospect of appeals and considerable further delays before the final outcome became certain.
Although we are currently unaware of the details, we would expect that the litigation funders will receive the majority of the settlement proceeds. We are aware that this is the usual scenario for disputes which are subject to litigation funding. Reports in the media suggest that the total amount of compensation paid was of the order of $40m with the major beneficiary being the litigation funders. In addition, we would also expect that the usual settlement terms would apply whereby each party to these proceedings would be required to meet their own, potentially considerable, legal expenses.
Media reports suggest that the parties which contributed to the settlement were Madgwicks (the former lawyers for Prime Trust), Pitchers Partners (the former auditors of Prime Trust), Kidder Williams (the former corporate advisers to Prime Trust) as well as Lend Lease (the party which acquired the management rights to the Prime Trust retirement villages).
We would also expect:
the Receivers and Liquidators to receive some funds from the settlement of the various proceedings;
the Liquidators, and their lawyers, to have considerable unpaid expenses which would need to be met from their share of the settlement proceeds;
any distribution of funds to investors at this stage to be highly uncertain; and
the Liquidators to provide more details to investors in due course.
Although the prospect of a low or nil distribution to investors is obviously a disappointing outcome, a minor consolation for investors may be that various parties appear to have paid considerable amounts in order to settle the proceedings. The fact that an out-of-Court settlement was reached also provides some validation or vindication for the various claims that we first identified several years ago.
Although we are naturally disappointed with the potential of a nil or meagre return to investors, we acknowledge that, as the Liquidators did not have the funds to pursue these claims directly, these proceedings would not have proceeded to Court without the considerable financial support of the funders. Without litigation funding, these proceedings would have been permanently halted several years ago without any compensation being paid by any party. We are also well aware that the funders stood to lose the entirety of their sizeable investment in these cases in the event of no settlement or an unfavourable Court judgment, and may have also faced liability for the defendants’ considerable costs.
Although investors may have preferred the various proceedings to run their course, even though that may have entailed several further years for the processes and appeals to play out, we acknowledge that the funders, being responsible for all of the costs of these matters, are entitled to settle these proceedings on a commercial basis as they see fit.
Further information about the settlement is contained in the attached article by Fairfax Media’s Sarah Danckert dated 6 February 2018.
There remains on foot one further legal proceeding, which is the Daytree proceeding. This matter refers to a dispute over an amount of $5m, which is held by APCH but which is disputed by Mr Lewski, who claims that the amount is covered by a charge in his favour. This matter has been in abeyance pending the outcome of the Listing Fee Claim and can now be reactivated.
We intend to advise investors further once there are any developments with the Daytree proceeding.
Federal Court Proceedings Brought by ASIC Against Prime Trust Directors
Our previous Update referred to ASIC’s intention to refer this dispute to the High Court.
At this stage, we are not aware as to whether the High Court will allow ASIC’s application for leave to appeal, and will update investors further in due course.
Further Options for Investors
Now that the bulk of the Supreme Court proceedings have been finalised, we are currently considering whether there are any other avenues for redress available to investors. We intend to seek legal advice on this point and will update investors further in due course.
Although investors will be naturally disappointed with the settlement of the various proceedings, the stark reality of the situation was that the litigation funders were the only party prepared to take on the considerable financial risks in running the various cases. Having already committed substantial funds to this exercise, we can well understand the funders’ motivation for settling the cases without running the risk of an unfavourable judgment and/or further appeals, and note that this approach is common practice within the litigation funding industry.
We would expect the Liquidators to issue a report in due course which may include further details of the above developments.
We intend to issue a further Update in mid-2018 but will certainly advise all PTAG members earlier if there are any significant developments.
Thank you once again for your continued support of the Prime Trust Action Group.
Prime Trust Action Group