Prime Trust Action Group Unitholder Update No. 6 – 31 May 2011


This Unitholder Update focuses on an application by Stirling Horne and Petr Vrsecky, as joint administrators of Australian Property Custodian Holdings Ltd (“APCH”), in seeking directions from the Supreme Court of Victoria to strike out claims made to the Financial Ombudsman Service (“FOS”) by Prime Trust unitholders.   For the reasons set out below, this matter is of special significance to all Prime Trust unitholders, not just those that have lodged complaints to FOS.


In seeking directions from the Court, the administrators have lodged an “Originating Process” dated 5 May 2011 and an undated “Affidavit of Stirling Lindley Horne”, (“Affidavit”).  


The above matter was heard in the Supreme Court of Victoria on 27 May 2011.  In attendance were representatives from the administrators, FOS, ASIC, the Prime Trust Action Group (“PTAG”) and selected Prime Trust unitholders who had submitted complaint to FOS.  The outcome of the Hearing was that FOS, ASIC, PTAG, selected Prime Trust unitholders and other interested parties were granted leave to make representations  as follows:


• FOS, as the defendant, is required to lodge its affidavit by 22 June 2011

• PTAG, selected Prime Trust unitholders (who had submitted complaints to FOS) and other interested parties have the opportunity                    to lodge affidavits by 22 June 2011

• The administrators are required to lodge their submissions (legal arguments) by 13 July 2011

• FOS is required to lodge their submissions by 3 August 2011

• PTAG, selected Prime Trust unitholders (who had submitted complaints to FOS) and other interested parties have the opportunity to lodge submissions by 3 August 2011

• ASIC, operating as “amicus curiae” (“friend of the Court”) is expected to make a submission once all other parties have lodged their submissions

• The Hearing will be conducted on 5 October 2011 (estimated duration 2 days)


The background to the above Court proceedings is as follows:


• Steve O’Reilly (a Prime Trust unitholder and one of the principals of the Prime Trust Action Group) and Joanna O’Reilly (a Prime Trust unitholder), lodged a complaint to Dr Wooldridge, Chairman of APCH, on 31 October 2008, raising concerns about the listing fee of $33 million being paid from the Trust and a number of other serious matters.  The O’Reillys never received a response to their letter and we understand that this represents not only a breach by APCH of its AFSL but also a breach of Clauses 35(a), (b), (c), (d) and (e) of the Trust’s Constitution.


• The O’Reillys lodged a second complaint to Dr Wooldridge on 26 June 2009 reiterating a number of serious allegations against APCH and once again, no response was ever provided.  PTAG believes that the lack of response by APCH to the serious allegations made against it represent a further breach by APCH of its AFSL and further breaches of Clause 35 of the Constitution.  



• On 7 June 2010, the O’Reillys escalated their complaint against APCH by lodging a detailed complaint to FOS alleging misleading and deceptive conduct and seeking a refund of their investment.   Although the O’Reillys did receive an incomplete response from APCH dated 26 July 2010, APCH was given an ultimatum by FOS - either resolve the O’Reillys’ dispute, or provide a detailed response to all of their allegations, by 28 October 2010.  Shortly before the deadline expired, APCH entered administration.


• On 18 March 2011, the administrators took what we consider to be the highly unusual step of writing to FOS (the independent complaints resolution body) and demanding that the investigations into the O’Reillys’ complaint cease and that FOS refrain from making any determination on the O’Reillys’ claim.  On 20 April 2011, FOS rejected the approach from the administrators, insisted that the O’Reillys’ complaint  fell within its jurisdiction, and demanded that the administrators formally respond by 4 May 2011.   The administrators then decided to go to Court in an attempt to prevent FOS from ruling on the O’Reillys’ complaint, which resulted in the matter being set down for 27 May 2011.  Other unitholders have also lodged complaints to FOS which the administrator is attempting to deal with similarly.


We understand that it is a condition of all Australian Financial Services Licensees to have in place a disputes resolution process and to also have membership of an external disputes resolution service.  The administrators, by their actions and comments in their Affidavit, appear to be taking steps to directly avoid complying with this condition.   We are unaware that a Licensee is exempt from the provisions of Section 912(A)(2) of the Corporations Act in circumstances where administrators are appointed and we understand that it is a breach of an Australian Financial Services Licence to not properly deal with complaints.


We are aware that the O’Reillys have been pursuing their complaint against APCH for more than two and a half years (since 31 October 2008), and note that it appears that, firstly APCH and now the administrators, are doing everything in their power to avoid responding to the serious issues that have been raised.  We are aware that every unitholder:


• has the right to make a complaint;

• has the right to access the external dispute resolution scheme; and

• has the right to expect that APCH and the administrator would act in accordance with the Trust’s Constitution.


We therefore strongly object to any actions taken by the administrators which seek to deny unitholders their rights in this matter.


In their Affidavit, the administrators state as follows:


“For the reasons set out in this affidavit, we believe that dealing with the FOS complaints is an unnecessary distraction from the conduct of the administration and is not in the best interests of unitholders generally".



In response, PTAG strongly objects to the above statement for the following reasons:


• At present, certain unitholders have already been recognised by the administrators as contingent creditors and admitted for voting purposes at all Creditors’ Meetings for a nominal amount of $1.  The administrators have confirmed, in paragraph 84(a) of their Affidavit, that all unitholders are indeed eligible to be considered as contingent creditors.


• The administrators have also confirmed, in paragraph 84(b) of their Affidavit, that if unitholders are able to prove their claim, then they would be admitted as ordinary unsecured creditors for the value of their claim.  


• If the O’Reillys were able to prove their FOS claim, for example by receiving a Determination by FOS in their favour, we would expect the O’Reillys to be elevated to ordinary unsecured creditors for the value of their claim (from their current position of contingent creditors voting for a nominal amount of $1) and we would expect that this precedent would pave the way for all unitholders to be upgraded similarly.  


• Accordingly, dealing with the FOS complaints may therefore lead to a situation where all unitholders are elevated to rank alongside ordinary unsecured creditors, a situation which, if achieved, would certainly and clearly be in the best interests of unitholders, and we believe it is mischievous for the administrators to suggest otherwise.


• Although the voting position of PTAG is already substantial, given its membership base of more than 6,000 unitholders (representing approximately 70% of total units), the elevation of all unitholders to the status of ordinary unsecured creditors would substantially further strengthen PTAG’s voting position.


There are many, many issues with the Affidavit prepared by the administrators and it is not appropriate for all such matters to be addressed here.  We find it extraordinary that the administrators, who have acknowledged in writing that they have “responsibilities to unitholders”, would now seek to deny unitholders from having their complaints determined by an independent party.  Suffice to say that the material to be submitted to Court by the Prime Trust Action Group will cover all of the relevant issues.  



Prime Trust Action Group

31 May 2011






 “Originating Process” and “Affidavit of Stirling Lindley Horne”  are below:


Originating Process Affidavit