Prime Trust Action Group Unitholder Update No. 17 – 2 July 2012

Proposed Sale of Trust Retirement Villages

As reported in previous Unitholder Updates, Expressions of Interest for the purchase of seven of the Trust’s retirement villages closed on 31 May 2012. The attached article from the Australian Financial Review suggests that both Stockland and Retire Australia are both potentially interested in acquiring some or all of these seven villages, but also notes that moves by the secured creditors to sell their debt exposure to Prime Trust at the same time may have served to create uncertainty for potential bidders.

We expect that Capital Finance Australia Ltd (“CFAL”), as the secured creditor of the Trust with security over those villages, will now be negotiating with the remaining interested parties through its Receiver, KordaMentha (“KM”) and we anticipate an announcement to be made KM, on behalf of CFAL, in due course. Should the offers fail to be sufficiently attractive, it is possible that KM may choose to continue with the current management and ownership arrangements and possibly defer the sale of the portfolio.

We continue to believe that Lend Lease Primelife (“LLP”) does not hold legal title to the management rights and we object to any part of the sale proceeds being paid to LLP. We understand that the Liquidator wrote a Letter of Demand to LLP in relation to this issue some months ago.

Listing Fee Claim

As unitholders will recall, the Supreme Court of Victoria determined earlier this year that the security held by CFAL extended over all Prime Trust assets, including various actions such as the Listing Fee Claim, and not just the assets associated with the specific retirement villages mortgaged to CFAL.

The Liquidators have lodged a notice of intention to appeal the Court’s decision although we understand that no appeal has been lodged at this time. Unfortunately, should the appeal proceed, it is possible that it may not be heard until 2013. We will advise unitholders as and when the timing for any appeal becomes known. In the meantime, we understand that the Listing Fee Claim, currently under the control of CFAL, will return to Court on 10 August 2012 for a Directions Hearing.

Unitholders should note that, in the event that the sale of the seven retirement villages above results in CFAL’s security being satisfied, then we would expect control of the Listing Fee Claim to revert back to the Liquidator. In the event that the sale of the villages fails to satisfy CFAL’s security, then CFAL, subject to any appeal by the Liquidators, may be able to use any proceeds from the Listing Fee Claim towards recovering its debt, with any surplus expected to be returned to the Trust.
 
Regrettably, until such time as any appeal is determined, the Liquidators may be restricted in what actions they can undertake and this is likely to be a source of frustration for unitholders.

Daytree Claim

On 5 April 2012, Daytree Pty Ltd in its capacity as trustee for the ARJO Investment Trust (“Daytree”), and other entities also associated with Mr William Lewski, commenced Court action against APCH seeking the payment of such part of the $5 million cash at bank held by APCH that is no longer required to satisfy the requirements of APCH’s Australian Financial Services Licence (“AFSL”). According to the ASIC website, this matter has been referred for mediation between the parties on 6 August 2012 with the matter due to return to Court for a Directions Hearing on 10 August 2012.

Several unitholders have contacted us for further information about this issue. The history of this transaction dates back to 2008 when Daytree sold the shares it owned in APCH to Kidder Communities Pty Ltd (“KC”). We understand that KC was a company with very limited financial resources specifically established to acquire APCH and was a wholly owned subsidiary of Kidder Williams Ltd, who were the corporate advisers to APCH. We understand that Daytree provided KC with vendor finance in order for KC to be able to complete the transaction. As a result of the vendor finance, we understand that APCH provided its assets to Daytree as additional security, but excluding the $5m that it held in order to satisfy its AFSL and those assets that it held in its capacity as trustee of the Trust. We understand that Daytree is claiming a charge over APCH in the amount of $24.75m.

We understand that the above sale was deemed to constitute a change of control of APCH, thereby triggering the payment of the balance of the Listing Fee, with entities associated with Mr Lewski receiving a further $30m (in addition to the $3m received in 2007). Had the change of control not occurred before 30 June 2008, then it is likely the first tranche of the Listing Fee (approximately $10m) would not have been payable as the performance pre-conditions for its payment were unlikely to have been satisfied. Given the performance of the Trust since 30 June 2008, there is also doubt over whether performance preconditions for payment of the second and third tranches ($10m each), would have been met, and those payments ever made, absent the change of control.

Interestingly, we understand that the change of control was effected three days before the deadline of 30 June 2008, not by KC acquiring the APCH shares, but by APCH issuing a single K Class share (for $1) to KC, such share being deemed to hold 51% of the voting rights in APCH.

Two years after acquiring APCH, KC was unable to meet its obligations under the vendor finance agreement and Daytree exercised its security and resumed ownership of the APCH shares.

We expect the propriety of the above arrangements to be fully tested in Court to determine, amongst other things, whether or not the sale of APCH to KC was a bona-fide arm’s length transaction.

We also understand that since the Trust collapsed, entities associated with Mr Lewski have sought to create charges over various other entities associated with him that transacted with the Trust.

Fighting Fund

Following recent developments, we are continuing to review our strategic options and appreciate the additional contributions received from unitholders over the last month. We would welcome contributions from those that have not yet contributed, and who are in a position to do so, and would encourage unitholders to refer to our previous Unitholder Update No. 16 for details of payment options.

Other Matters

Please note that all previous Unitholder Updates are available from our website at www.primetrustactiongroup.com. We intend to issue Unitholder Updates at the end of each month and encourage unitholders to periodically check our website for breaking news. Thank you once again for your continued support of the Prime Trust Action Group.

Prime Trust Action Group
2 July 2012

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