Prime Trust Action Group Unitholder Update No. 15 – 2 May 2012

Supreme Court Hearing

As unitholders will recall, the Liquidators proposed taking action against Lend Lease Primelife (“LLP”) for alleged mismanagement of the Trust’s retirement villages (“Proposed LLP Proceeding”). Unitholders will also recall that it was Mr Lewski who had brought this potential claim to the Liquidators’ attention and a Funding Agreement had been proposed whereby interests associated with Mr Lewski, in exchange for funding the action, stood to receive a success fee of approximately $50m if the claim was successful and the full value of the damages sought be recovered.

From the very beginning, the Prime Trust Action Group argued strongly against the Proposed LLP Proceeding on a number of bases, including our belief that the funding proposal was ill-conceived, unwarranted and heavily conflicted. The Proposed LLP Proceeding was also strongly opposed by the Trust’s secured creditors. Unitholders may recall that Mr Lewski was the Managing Director and owner of the Trust’s Responsible Entity up to June 2008 and has been named as a defendant in the Listing Fee Claim.

We are pleased to report that, following a hearing in the Supreme Court of Victoria in March 2012, Justice Ferguson ruled, amongst other things, that it was not appropriate for the Liquidators to enter into a Funding Agreement with Mr Lewski.

It should be noted however that, although we were strongly opposed to the Proposed LLP Proceeding, we do believe that there may be a course of action against LLP (see below).

As part of the above hearing, Capital Finance Australia Limited (“CFAL”), as a secured creditor of the Trust, made a counter-claim against the Liquidators and argued that the security under their charges extends to all the assets of the Trust, and was not limited only to the assets of the specific villages to which the loans they provided were applied . Justice Ferguson ruled in favour of CFAL on this point with the result that the Liquidators are now restricted in how they deal with Trust assets and are restricted in what legal actions they can take, until such time as APCH has discharged its loans from CFAL or CFAL provides consent to the Liquidators taking action.

A direct result of Justice Ferguson’s ruling is CFAL has control of the Listing Fee Claim (Justice Ferguson finding it was an asset of the Trust to which their charges extended). Unitholders will recall that the Listing Fee Claim was first identified and developed by the Prime Trust Action Group. The effect of this is that the Listing Fee Claim is under the control of the Receivers appointed by CFAL and will only return to the Liquidators’ control if the Trust’s debts to CFAL are discharged or if the CFAL Receivers consent to the Liquidators assuming control of the proceeding.

Unitholders should also note that, on 27 April 2012, the Liquidators lodged a notice of intention to appeal the judgment of Justice Ferguson. We note that it may be a month or so before any actual appeal is lodged and possibly several months before any such appeal is heard.

Legal Costs

In the Supreme Court hearing, Justice Ferguson also ordered that APCH and the Liquidators pay the costs of the other parties, and that these costs be “costs of the Liquidators in the liquidation of APCH”. This means that, unless the Liquidators’ appeal is successful, the costs of the other parties in the proceeding will be borne by the Trust.

Having campaigned long and hard to the Liquidators against the Proposed LLP Proceeding and the Funding Agreement, it is very disappointing that the Liquidators now have to pay the costs of the secured creditors in defending this matter, which will be passed on to the Trust. It is also likely that the Liquidators’ own costs in pursuing this matter will be borne by the Trust.

We note also that there may not currently be sufficient cash in the Trust for the Liquidators to pay the costs of the other parties, in which case the Liquidators may have to finance these expenses pending sufficient funds becoming available in the Trust to facilitate reimbursement. Should sufficient funds not become available in the Trust in due course, it is possible that the Liquidators may have to meet some or all of these costs directly.

Listing Fee Claim

Following the judgment of Justice Ferguson, following which the CFAL Receivers assumed control of the Listing Fee Claim, the matter has been adjourned until 24 May 2012, at which point it will return to Court for a Directions Hearing.

Clayton Utz, the CFAL Receivers’ lawyers, have indicated that they may amend the Originating Process filed by the Liquidators on 5 March 2012. It is also possible that the list of defendants may be revised following review by Clayton Utz and the CFAL Receivers. It is not clear at this stage whether this Directions Hearing may be further delayed beyond the scheduled date of 24 May 2012 due to the Liquidators’ intention to appeal the recent Court judgments.

Proposed Sale of Trust Retirement Villages

As reported in the press recently, the CFAL Receivers have allegedly reached agreement with LLP to sell seven of the Trust’s 12 villages, with the proceeds to be shared between CFAL (and its joint financier, National Australia Bank) and LLP.

We continue to believe that LLP does not have proper title to the village management rights (which are now being sold together with the villages) and that these rights must be immediately forfeited back to the Trust. We understand that the Liquidators wrote to LLP in March 2012 putting LLP on notice of serious concerns about these management rights. We continue to believe that LLP’s title to the management rights is capable of being voided by the Liquidators under section 588FF of the Corporations Act.

We have identified what we believe are numerous issues with, and deficiencies in, the sale of the management rights to LLP including a number of irregularities in the exercise of a series of Options Deeds used to effect the restructure and sale. We do not propose to provide details here but note that, based on our investigations, we firmly maintain that the transaction was improper and that LLP must immediately forfeit the management rights back to the Trust and also, as a minimum, return to the Trust all revenue earned from managing the villages since 2007, plus interest at commercial rates, plus potentially other amounts.

Given the serious concerns that have been repeatedly raised by ourselves and others about LLP’s title to the management rights, we note that prospective purchasers may be reluctant to bid for the villages which are currently being offered for sale, and that this may act as a major impediment to achieving a proper price for the villages.

Furthermore, we note that LLP is a major player in the retirement village sector and we expect they may be interested in the Trust’s villages which have been put up for sale by CFAL.

We expect that much of the information being provided to prospective purchasers about the villages for “due diligence” is being provided by LLP, as current manager of the villages. Accordingly, we are concerned that LLP is in a heavily conflicted position given the price that may be offered by prospective purchasers may be reliant upon the information available for due diligence yet, as a prospective purchaser, LLP would desire lower prices be offered. We would strongly suggest that LLP’s conflict of interest is not in unitholders’ best interests.

We also believe that LLP claims to have a first right of refusal over the sale of the various villages, meaning that it can gain ownership of the villages by simply matching any genuine offer made by another party. Our position is that LLP does not hold proper title to the management rights and therefore should not be in a position to take advantage of this first right of refusal. We hope that LLP is forced to waive its claimed first right of refusal as part of the sale process in the interest of achieving the highest maximum price.

Unitholders may also have noticed extensive media reports last week regarding Lend Lease’s US operations which report that Lend Lease was required to pay more than $50 million in fines and refunds in order to avoid criminal charges being laid over fraud at its New York construction operations. These articles reported that the fines and refunds followed a three year investigation by the FBI. Some of these media reports also refer to concerns raised by the National Secretary of the Construction Forestry Mining and Energy Union (CFMEU) about the conduct of Lend Lease's Australian operations. Unitholders can view these reports at our website.

Approach By Liquidators

Our previous Unitholder Updates mentioned that two of the Prime Trust Action Group principals had been approached by the Liquidators 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.

Other Matters

Representatives of the Prime Trust Action Group recently travelled to Melbourne to attend Court Hearings as well as meet with ASIC, the Liquidators and several other parties.

We have also recently completed some lengthy additional investigations and passed the results of these investigations to both ASIC and the Liquidators.

Unitholders may be interested to read the attached articles from the Australian Financial Review dated 5 April 2012 and 12 April 2012 for further information about the matters referred to in this Update.

Following the recent Court rulings, we are seeking extensive legal advice on a number of options currently available to unitholders. We may need to canvass contributions from those who have not yet contributed to our fighting fund and will advise further in due course.

We would again like to thank all those who have contributed to our fighting fund. More than 1,500 unitholders have answered the call and contributed $100 to the cause. In particular, we would like to thank the following unitholders for their large contributions:

Warman Investments Pty Ltd  $5,000 Robert Green                                 $1,000
Penny Svasti Family Trust      $1,500     Taylor Financial Planners           $  600
Umboi Superannuation Fund $1,010       C Kelly Super Fund                       $ 550
  Michael Goodwin           $1,000

Contributions of $500 each:

Chris Jarvis                            Ian Auld                                
Raymond & Carmel Catford Super Fund Spira Family Super Fund
Pat McIntosh Mark Phillips
A L McDonald A J & J A Superannuation Fund
Edward Carter Klaus Korgitta
Langley Park Gardens Pty Ltd Invest International Pty Ltd
M C Ainsworth

We intend to issue Unitholder Updates at the end of each month and encourage unitholders to periodically check our website (www.primetrustactiongroup.com) for breaking news.

Thank you once again for your continued support of the Prime Trust Action Group.

Prime Trust Action Group
2 May 2012

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