Prime Trust Action Group Unitholder Update No. 9 – 18 October 2011
Over the course of the last year, the Prime Trust Action Group (PTAG) has made considerable progress in establishing the case against certain parties whom we believe acted illegally or improperly. During this time we have received invaluable advice from Clarendon Lawyers, who have particular expertise in cases such as these, and we note that the progress to date has been achieved without any funding whatsoever. We are very grateful to Clarendon Lawyers who have provided their services to date on an honorary basis, but we consider that it is not reasonable for them to continue to operate on this basis indefinitely.
As per the Administrator’s Update dated 12 October 2011, we are pleased to have now reached the point where our campaign for legal action to be initiated for the recovery of funds relating to our listing fee claim and the management rights claim has been accepted by the administrator. There are, however, a number of other important claims that we are developing against certain parties. In order to further develop these claims and maximize our prospects for success, we are increasingly finding the need to obtain legal and other professional advice.
With the above in mind, we have therefore decided to raise funds from unitholders and financial advisers. We see this fund-raising as an essential step in order to continue to represent the interests of unitholders and in seeking to maximise the recovery of funds for unitholders. As PTAG is not an incorporated body, it was necessary to establish a new entity for this purpose and we have therefore established Prime Action Support Group Incorporated (PASG), which will operate hand-in-hand with PTAG.
The Management Committee of PASG is set out below, together with additional information about each member’s involvement with the Trust and PTAG:
We are now calling on all unitholders to make a voluntary contribution to PASG in order that we can continue our efforts to make all those who improperly contributed to the demise of the Trust accountable for their actions. Please note that all funds raised by PASG can only be used for the payment of professional advice and for direct out-of-pocket costs incurred by PASG in pursuing unitholders’ objectives. In the same way that all PTAG principals are providing their time on an honorary basis, all Management Committee members of PASG will also be providing their time free of charge. In the event that PASG has surplus funds available when all actions to recover unitholder funds have run their course, the proceeds will, as per the Rules of PASG, be donated to charity.
PASG has appointed Clarendon Lawyers as it legal advisers, Mr Michael Hillgrove (of Grant Thornton) as auditor and Grosvenor Corporate Management Pty Ltd and Optima Partners (entities associated with Mr Roger Pratt) to undertake some administrative tasks.
We expect to be able to communicate with unitholders next week as to the methods available for making contributions.
We would suggest that all unitholders consider making a contribution of $100 and we would encourage larger unitholders to consider a larger contribution. We would also suggest that financial advisers consider a contribution of $100 for each client invested in the Trust. Please note that all contributions will be gratefully received.
Unitholders may have recently received, or will shortly receive, an Update from the Administrator dated 12 October 2011. This Update is also available from our website. We have a number of comments on the Update including the following:
We expect the Second Creditors Meeting to be held in Melbourne on 23 November 2011. Please rest assured that we will be communicating with unitholders well in advance of the meeting to organise proxy forms and voting entitlements.
We welcome the Administrator’s actions in issuing Letters of Demand to ten directors of APCH demanding the recovery of funds. We note that the Prime Trust Action Group, via Clarendon Lawyers, has also issued Letters of Demand to APCH directors.
We especially welcome the Administrator’s statement that, in relation to our listing fee claim, it is intended to commence Court proceedings in the near future.
The Administrator has acknowledged that the return of the management rights is a key factor in determining the amount that unitholders may receive from the Trust. We believe, and have maintained this position from the very beginning, that the management restructure and subsequent sale of the management rights to an external party were not only improper transactions but transactions which financially crippled the Trust. We expect legal action to be taken in order to recover the management rights.
We welcome the comment by the Administrator that there are a number of other parties that are likely to have claims made against them. In his Update, the Administrator has identified the following parties as being likely to face legal action:
• Madgwicks (legal advisers)
• Pitcher Partners (auditors)
• Kidder Williams (corporate adviser)
• Balmain Commercial (corporate adviser)
• Rees Partners (compliance adviser)
• Various property valuers
In relation to the proposed legal action against Lend Lease Primelife (LLP), we note the apparent conflict in the Administrator, on the one hand, issuing a Letter of Demand to Mr Lewski and then, on the other hand, contemplating a funding agreement with Mr Lewski to pursue LLP.
In terms of the large losses sustained by the Trust due to loans to developers, we would argue that such loans were contrary to the Trust’s Constitution. We believe that APCH made no attempt to disclose to unitholders that such loans could be undertaken on a highly risky second or even third mortgage basis. We also believe that there was no attempt to disclose to unitholders that developer loans would be made available to interests associated with Mr Lewski. We expect legal action to be pursued on this point accordingly.
We note the very large expenses incurred to date by the Administrator. We note that the Administrator had incurred costs of $776,000 up to 31 May 2011 and note that no figure has been provided for costs over the last four months.
Of even more concern is the more than $2m in costs claimed by the Administrator’s legal advisers, comprising $1.4m up to 31 May 2011 and more than $600,000 between June and September 2011. Looking at the breakdown of legal costs, we note that several of the claims appear to relate to actions which we believe were either unwarranted or which should be borne by other parties.
We note the very poor performance figures noted in the report where it is disclosed that, despite expectations that 194 units would rollover in 2011 (with each rollover generating income for the Trust), the actual performance was only 108 (56%).
We note, with a certain amount of skepticism, the comment that rollovers should increase to 174 in 2012 and would take issue with the comment that “There appears to be no reason why such a result cannot be achieved”. In our opinion, there are a multitude of issues which may prevent such an outcome in 2012. Apart from the villages being managed by LLP (who is a competitor to the Trust), we understand that, under LLP’s management, the village vacancy rates have increased significantly and this may have made prospective residents reluctant to purchase. In addition, the feedback we have received from residents is that the condition of many of the villages is not up to standard and the uncertain future of the Trust may be acting as a further deterrent to prospective residents.
Previously, unitholders had only been accepted as contingent creditors with a nominal voting entitlement of $1. We welcome the decision of the Administrator to take into account our listing fee claim ($33m plus interest) and part of our management rights claim ($60m plus interest) in determining unitholders’ voting entitlements. Based on these two claims alone, unitholders may be allowed to vote as unsecured creditors for around 30% of their investment in the Trust.
Our position is that, although the recognition of the listing fee and management rights claims is welcomed, we believe that the total value currently attributed to unitholders’ claims is inadequate.
We believe that:
• The value ascribed to the management rights claim is insufficient as it fails to allow for the very substantial diminution in the value of the Trust’s retirement villages precipitated by the sale of the management rights;
• The value ascribed to the management rights claim is inconsistent with the value of the management rights claim against LLP as endorsed by the Administrator;
• There is a strong argument that the management rights issue is the single issue most responsible for financially crippling the Trust, in which case the unitholders’ claim as a result of this issue is their total investment;
• As a result of several other serious allegations that unitholders have made against APCH, including the improper payment of distributions from capital, the improper investment of funds in developer loans, misleading and deceptive conduct etc, we consider that the Administrator, having had a year to consider these claims, is now in a position to admit such claims;
• The Administrator took the highly unusual step of interfering in the resolution of the unitholders’ claims to the Financial Ombudsman Service (FOS) by commencing Supreme Court action designed to prevent such claims from being recognised, only to several months later, withdraw such an action. We note that this action, which we have maintained all along was unwarranted, has prevented FOS from being able to determine the unitholders’ claims ahead of the Creditors’ Meeting. We note that the Administrator has therefore created the most unusual situation whereby the voting entitlements of unitholders are now dependent on the timing of the Creditors’ Meeting. We would urge the Administrator to complete his investigations into the other serious matters raised by unitholders as a matter of urgency so that the Creditors Meeting can be held with unitholders having their proper voting entitlements.
We are continuing to make representations to the Administrator about unitholders’ voting entitlements and will provide further updates on this important issue in due course.
We are most grateful for the efforts of our small army of volunteers who have kindly assisted in previous mailings to unitholders. We are currently seeking further volunteers to undertake mailings to those Action Group members who do not have email access. If you are able to assist in this regard, perhaps in lieu of making a contribution to PASG, please send an email to us
Thank you for your continued support of the Prime Trust Action Group.
Prime Trust Action Group
18 October 2011