Prime Trust Action Group Unitholder Update No. 14 – 29 March 2012

Listing Fee Claim

We are delighted to advise that the Listing Fee Claim was filed in the Supreme Court of Victoria on 5 March 2012. The quantum of the Listing Fee Claim is approximately $33 million plus interest which we expect could total at least $50 million. The defendants named in this claim are as follows:

Former APCH Directors

Dr Michael Wooldridge
Mr Peter Clarke
Mr William Lewski (also a director of the three entities associated with Mr Lewski shown below)
Mr Mark Butler
Mr Kim Jaques
Mr Philip Powell (also a director of Kidder Williams)
Mr Anthony Hancy
Mr Neil Rodaway

Entities Associated with Mr Lewski

Daytree Pty Ltd
Carey Bay Pty Ltd
Australian Property Administrators Pty Ltd

Entities Associated with Kidder Williams, APCH’s Corporate Adviser

Kidder Williams Limited
Kidder Communities Pty Ltd
Mr David Williams

APCH’s Legal Adviser

Madgwicks Lawyers

Further information about the Listing Fee Claim is provided in the attached article published in the Australian Financial Review on 7 March 2012.

Although the Liquidator had initially refused to include several of the above defendants, we are particularly pleased to see them included in the claim and consider that our strong representations contributed to their inclusion. Unitholders who attended the Second Creditors’ Meeting in November 2011 may recall that the Liquidator stated he did not intend to include Madgwicks as a defendant in the Listing Fee Claim. It is encouraging that Madgwicks has now been included on the list of defendants following our further submissions.

On 23 March 2012, the First Directions Hearing in respect of the Listing Fee Claim proceeded before Justice Ferguson and was adjourned until 13 April 2012. The reason for the adjournment was to allow time to deal with another matter currently before the Courts, as elaborated upon below.

Proposed Legal Action by Liquidator and Mr Lewski Against Lend Lease Primelife (“LLP”)

As unitholders will recall, Mr Lewski has proposed a course of action to be pursued by the Liquidator against LLP for alleged mismanagement of the Trust’s retirement villages. The quantum of damages sought in this action is understood to be approximately $170m. A Funding Agreement has been proposed whereby interests associated with Mr Lewski, in exchange for funding the action, stand to receive a success fee of approximately $50m should the action be successful and the full value of the damages sought be recovered.

Unitholders remain outraged about the above proposal and the Liquidator’s support for such a proposal.

We have written extensively to the Liquidator, and ASIC, opposing the proposed action and Funding Arrangement between the Liquidator and Mr Lewski, and providing details of what we consider to be grounds to void the sale of the management rights to LLP (see below). It is our opinion that the recovery of the management rights through the manner we have outlined provides a better alternative to that of pursuing a claim proposed by, and accepting funding from, a party who has been named as a defendant to the Listing Fee Claim. We fail to comprehend how the Liquidator can, on the one hand, commence civil action against Mr Lewski (as per the case filed in Court on 5 March 2012) and then, on the other hand, engage an entity controlled by Mr Lewski as a “partner” in pursuing the proposed action. Many unitholders have contacted us to express their concerns over the Liquidator’s independence and we are certainly well aware of those concerns.

The Liquidator applied to Court recently to seek approval for the above Funding Agreement, with the matter being heard on 13, 14 and 22 March 2012. ASIC sought and was granted leave to appear in the application as amicus curiae (friend of the court).  It did not support or oppose the orders sought by the liquidators, nor did it seek any relief in the application.  Rather, ASIC made submissions bringing to the court's attention matters relevant to the exercise of the court's discretion on the application.  This included matters such as the independence of the liquidators and conflicts of interest in relation to the funder and the then proposed solicitors, Madgwicks.

One development of interest was that Madgwicks, the solicitors retained by the Liquidator and Mr Lewski to pursue the action against LLP, recently withdrew from the case. We were not overly surprised by this development given that Madgwicks has now been included as a defendant in the Listing Fee Claim.

As part of the above Hearing, NAB and Capital Finance, as secured creditors to the Trust, submitted to the Court that the security under their charge extends over the entire Trust, and was not limited to the assets of the specific villages which they financed. As such, these secured creditors contend that the Liquidator does not have the power to undertake the proposed action against LLP. The Liquidator disputes this contention and maintains that the security held by NAB and Capital Finance is limited to the assets related to their specific villages only and does not extend to the other assets of the Trust.
 
If NAB and Capital Finance’s security is found to extend to all of the Trust assets, then this will likely have implications for the Liquidator’s ability to run the Listing Fee Claim, and NAB and Capital Finance will have priority to any funds that may be recovered. We believe the arguments as proposed by the secured creditors to be without merit and support the efforts by the Liquidator to defend his position. We await the Court decision with interest.

Justice Ferguson is currently considering both of the above matters (the proposed Funding Agreement and the claim by NAB and Capital Finance) and it is expected that a decision will be handed down within the next few weeks.

Unitholders may be interested to read the attached article from the Australian Financial Review dated 14 March 2012 for further information.

Proposed Sale of Trust Retirement Villages

As reported in the press recently, Receivers for NAB and Capital Finance have allegedly done a deal with LLP to sell seven of the Trust’s 12 villages, with the proceeds to be shared between the above secured creditors and LLP.

We have always maintained that there are major irregularities surrounding the circumstances in which the management rights, an asset acquired by the Trust when it originally purchased the villages, were transferred to Mr Lewski’s company Retirement Guide Pty Ltd (“RG”) for no consideration and then on-sold to Babcock & Brown Communities (now LLP) for $60 million, with none of the proceeds being paid to the Trust. We have always maintained that RG did not have proper title to the management rights and, similarly, LLP does not have proper title to these rights. Accordingly, we have made numerous submissions to the Liquidator and ASIC noting what we believe to be several deficiencies in the sale of these management rights and called on the transactions to be immediately voided by the Liquidator.

Following these submissions, we appreciate and support the recent action taken by the Liquidator to issue Letters of Demand to several parties including Mr Lewski, RG and several entities associated with LLP, challenging the sale of the management rights. We maintain that the management rights are a Trust asset and must be immediately returned to the Trust and that LLP must also, as a minimum, return to the Trust all revenue earned from managing the villages over the last four and a half years, plus interest at commercial rates.
We are also aware of the role played by Madgwicks in facilitating the transfer of the management rights from the Trust to RG in the first place. At the Public Examinations conducted in the Supreme Court of Victoria on 22 August 2011, one of the Madgwicks’ Partners provided sworn testimony that:

Madgwicks acted for APCH in transferring the management rights from APCH to RG and, in so doing, accepted instructions from Mr Lewski;
Madgwicks understood that RG did not have any legal representation and that Mr Lewski was acting for RG; and
Madgwicks then acted for RG in the sale of the management rights from RG to Babcock and Brown Communities (now LLP).

Counsel for the Receiver / Manager, who were conducting the Public Examinations, pointed out that Mr Lewski, who was effectively in control of both APCH and RG, stood to gain substantially from the transfer of the management rights and was therefore in a heavily conflicted position.

Approach By Liquidator

Our previous Unitholder Updates mentioned that two of the Prime Trust Action Group principals, namely Roger Pratt and Steve O’Reilly, had been approached by the liquidator to assist in certain investigations into the affairs of Prime Trust. At this stage no agreements have been entered into and we will advise unitholders accordingly if this situation changes.
 
Prime Action Support Group

We are pleased to report that we have reached our initial fund-raising target of $200,000 and wish to thank unitholders and their advisers for their generous and wonderful support.

Although we have sufficient funds for the short term, we are still gratefully accepting contributions and may make a further call to those unitholders and advisers who have not yet contributed. Further funds may be required depending on the course of action adopted in order to progress several of the unitholders’ claims that have been identified.

We intend to issue Unitholder Updates at the end of each month and encourage unitholders to periodically check our website (www.primetrustactiongroup.com) for developments in the interim period. Thank you once again for your continued support of the Prime Trust Action Group.

Prime Trust Action Group
29 March 2012

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