Prime Trust Action Group Unitholder Update No. 28 – 4 January 2016

First of all, we would like to thank investors for their continued patience in light of the slow progress of the various legal proceedings through the Court system. In part, the slow progress of the proceedings has been caused by defendants, not unexpectedly, raising objections and lodging appeals, and the time it takes for these matters to be considered and determined by the Courts. Although we would like to see the various matters expedited, we take some comfort from the fact that, at present, the majority of the claims that have been identified remain on foot.

We are pleased to provide investors with a further update on relevant matters as set out below.

Federal Court Proceedings Against Prime Trust Directors

Investors may recall that:

• in December 2013, the Federal Court found that the directors of Prime Trust had breached the Corporations Act in relation to the $33m listing fee that was paid from the Trust without investor approval;

• in December 2014, the Federal Court imposed financial penalties on the five directors in question, with a fine of $230,000 being imposed on Mr Lewski and fines of $20,000 for each of the other directors; and

• in December 2014, the Federal Court disqualified Mr Lewski from being a company director for 15 years, and imposed shorter disqualification periods on Mr Butler and Mr Jaques (4 years each) and Dr Wooldridge (2.25 years).

Following the Federal Court judgment being handed down in December 2014, all five directors lodged appeals, and ASIC also lodged a cross-appeal. The appeals were heard in May 2015, and we are still currently awaiting the outcome. We will advise investors in due course once the appeal decision is known.

Case Management

The various other legal proceedings which have been pursued are as follows:

Proceedings Brought by the Liquidators

• Management Rights Claim
• Auditors’ Claim
• Voidable Transaction Claim

Proceedings Brought by the Receivers

• Listing Fee Claim

In relation to the Voidable Transaction Claim, the defendants (namely various Lend Lease companies and various parties related to Mr Lewski) attempted to have these proceedings struck out and we note that the Supreme Court, in the first instance, ruled that the Liquidators were indeed entitled to pursue these proceedings. The defendants then appealed the judgment, and on 18 December 2015, the Supreme Court ruled that the Liquidators were not entitled to continue these claims as the proceedings had not been commenced within the prescribed time. We are obviously disappointed with this result and would make the following two observations, firstly, the judgment dealt purely with the technical matter of whether the proceedings were commenced in time and not with the allegations that have been made concerning the various dealings in the management rights, and secondly, it is not known at this time whether the Liquidators intend to appeal the latest judgment.

In October 2015, and in the interests of conducting the cases in an efficient manner, Associate Justice Efthim of the Supreme Court of Victoria considered whether it would be appropriate to bring the various outstanding proceedings together before a single judge. The advantage of an approach such as this is that the issues and evidence are treated consistently across each of the proceedings and unnecessary replication is avoided. The outcome of these deliberations was as follows:

• Firstly, as the Voidable Transaction Claim was at the time subject to appeal, no orders were made in relation to this claim;
• For the other three claims, namely the Management Rights Claim, the Auditors’ Claim and the Listing Fee Claim, various Orders were made concerning discovery protocols in an attempt to streamline the administrative processes and minimise associated costs;
• It is currently expected that the trial will commence in the fourth quarter of 2016.

In December 2015, a further Directions Hearing was conducted before Associate Justice Efthim and further progress was made in relation to the discovery protocols to be followed. The next Directions Hearing has been set for March 2016.

Lend Lease

In relation to legal proceedings against Lend Lease, we note that although the Liquidators have attempted to pursue proceedings against Lend Lease in relation to the Voidable Transaction Claim (as noted above), the Liquidators were prevented from directly including Lend Lease as a defendant to the Management Rights Claim. We note, however, that a number of the defendants to the Management Rights Claim have now joined Lend Lease to those proceedings.

Security of Costs

In relation to legal proceedings against Pitcher Partners (“Pitchers”), the long-time auditors of Prime Trust, Pitchers applied to the Court to require the Liquidators to provide additional security for legal costs, such as a bank guarantee or payment of funds into the Court. We are pleased to report that, in a judgment dated 24 September 2015, Associate Justice Ierodiaconou of the Supreme Court of Victoria found against Pitchers and did not require any further security for legal costs to be provided by the Liquidators. Pitchers have appealed this decision and the appeal is currently set for March 2016.

Investor Capital Losses

A number of investors have contacted us asking whether their capital losses in respect of their investments in Prime Trust can be claimed for tax purposes.

Although we are unable to provide taxation or other advice, we understand that capital losses can generally only be claimed once the Liquidators have made a determination that there is no likelihood of a return. Given the current status of the various legal proceedings, the Liquidators are not in a position to make such a determination. We recently made an application to the Australian Taxation Office for a class ruling allowing investors to be able to claim their capital losses in relation to Prime Trust. At this stage, no decision has been received from the ATO and we will update investors further in due course.

Summary

Although another year of pursuing investor losses has come and gone, and the various proceedings in relation to Prime Trust continue to remain outstanding, we take some comfort from the fact that:

• the Federal Court decision to disqualify, and impose pecuniary penalties on, the various Prime Trust directors currently stands (subject to appeal);
• litigation funding remains in place for the various legal proceedings;
• in recognition of the overlap between the various legal proceedings, attempts are being made to case manage the various outstanding proceedings and have all matters heard by a single Supreme Court judge in late 2016; and
• attempts during 2015 by Pitcher Partners to require the Liquidators to provide additional security for costs were unsuccessful (subject to appeal).

We are naturally disappointed with the latest developments in relation to the Voidable Transaction Claim and await the decision by the Liquidators as to whether this latest judgment will be subject to further appeal.

The current indication is that the remaining outstanding proceedings will commence to be heard in the fourth quarter of 2016. We continue to provide assistance to the Liquidators as required, and remain determined to ensure that all parties that can be proven to have unlawfully contributed to the demise of Prime Trust be held fully accountable for their actions.

Thank you once again for your continued support of the Prime Trust Action Group, and may we take this opportunity to wish you and your family all the very best for the holiday season and New Year.

Prime Trust Action Group
www.primetrustactiongroup.com

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