Prime Trust Action Group Unitholder Update No. 13 – 2 March 2012

Listing Fee Claim

As unitholders will recall, we have made a number of detailed submissions relating to the Listing Fee Claim and identified the relevant sections of the Corporations Act and the Trust’s Constitution which we believe were seriously breached in allowing such a transaction to occur. We have also made detailed submissions identifying those parties whom we believe should be included as defendants to the Listing Fee Claim, and we note that, as the case progresses, it is possible that other parties may be subsequently included as defendants.

We remain keen to see the Listing Fee Claim pursued as soon as possible and note that this claim is the first of what we believe are many legal actions that will need to be pursued in order to maximize the recovery of funds for unitholders. We are hopeful that that the Listing Fee Claim will be filed in Court in the near future and would encourage all unitholders to regularly visit our website for further updates (www.primetrustactiongroup.com). Once the Listing Fee Claim has been filed in Court, we will advise further details of the proposed timetable as soon as it becomes available.

Proposed Sale of Trust Retirement Villages

As reported in “The Australian” on 23 February 2012, Receivers for National Australia Bank and Capital Finance propose to sell seven of the Trust’s retirement villages. An industry source is reported as saying that that the Receivers and Lend Lease Primelife (“LLP”, the manager of the villages) have done a deal so that the villages can be sold, presumably inclusive of the management rights, with an agreed portion of the sale proceeds being paid to LLP as consideration for relinquishing the management rights.

The attached letter to village residents dated 23 February 2012 from KordaMentha, as Receivers for National Australia Bank and Capital Finance, confirms the intention to sell the villages but notes that the villages have not yet been placed on the market.

We have argued and continue to maintain that the biggest single issue leading to the demise of the Trust was the Management Restructure that occurred in July 2007 and subsequent Management Rights Sale to Babcock & Brown Communities (now known as LLP). For the reasons given below, we strongly oppose any payment from the Trust, directly or indirectly, for the recovery of the management rights.

Information disclosed in the audited financial statements of the Trust disclose that prior to the restructure a number of villages were managed on behalf of the Trust by Retirement Guide Pty Ltd (“RG”), an entity associated with Mr William Lewski. The Trust received the benefit of the income from the resident agreements and paid a fee to RG. Importantly, we believe that the cash flows from the resident agreements, representing the management rights, did and continue to have a value and were initially acquired by the Trust when it originally purchased the relevant villages.

The Management Restructure, as outlined in the 2007 Product Disclosure Statement, disclosed that the Trust, or a wholly owned subsidiary of the Trust, owned the villages and entered into a lease with a tenant whereby the tenant was leased the business of the village, which included the right to receive the resident fees and deferred management fees for a period of 25 years.
Searches of the tenant companies in the corporate records maintained by ASIC show that these tenant entities, operating under leases over the majority of the villages, were initially wholly owned subsidiaries of the Trust and were subsequently transferred to an entity related to RG at the end of July 2007. Those tenant entities that were not initially wholly owned subsidiaries of APCH were incorporated shortly before the management restructure and were owned by entities associated with Mr. William Lewski. The effect of the leases was the same. Six weeks later all the tenant entities were transferred to an entity related to Babcock & Brown Communities (“BBC”, which subsequently changed its name to Lend Lease Primelife when that company was acquired by Lend Lease).

The audited financial statements for the Trust do not disclose the Trust receiving any consideration from RG for the tenant entities which at that time held the management rights for the next 25 years or the value of the income stream that would have been received from the leases. In contrast, when these tenant entities were acquired by BBC it was disclosed that BBC had paid $60 million for them.

We believe that RG, having paid no consideration for the tenant entities or the management rights, did not have proper title to the tenant entities or the management rights and was therefore not entitled to sell these to BBC for $60 million. We also believe that the deficiency in RG’s title now extends to LLP, and the management rights should now be returned to their rightful owner, the Trust.

Further we believe that the Management Restructure effected in July 2007 served to not only reduce the cash flows to the Trust but also had the effect of dramatically increasing the cash flows to RG. We have undertaken detailed modeling and analysis which we believe supports our position. We also believe that the Management Restructure led to the valuation of the retirement villages falling by more than $100 million. Despite what we believe was a clear and entirely predictable impact on Trust cash flows and Trust assets, unitholders were assured in the 2007 Product Disclosure Statement that the “The Responsible Entity considers that the management restructure will not be adverse to Prime Trust or Unitholders“.

In our opinion, the Management Restructure, which we believe provided a huge financial benefit to interests associated with Mr Lewski, is an “unreasonable director-related transaction”, as defined in Section 588FDA of the Corporations Act, and is capable of being voided under Section 588FE of the Corporations Act.

We have made strong representations, with supporting rationale and arguments, that the transfer of the management rights to RG for no consideration and the Management Restructure should be immediately voided.

Flowing on from this, we strongly believe that the voiding of the above transactions should automatically lead to a voiding of the Management Rights Sale from RG to BBC (LLP) and the return of such management rights to the Trust, with LLP being required to repay the Trust for all of the income earned since 2007.

We are also concerned that the Management Restructure may have breached a number of other sections of the Corporations Act, including the requirement for the Responsible Entity, and its directors, to act in the best interests of the unitholders (section 601FC and 601FD), a failure of directors to exercise the degree of care and diligence that a reasonable person would exercise (Section 180), a failure of directors to exercise their duties in good faith, in the best interests of the corporation and for a proper purpose (Section 181 and 184) etc.
We have also identified numerous issues with the transactions used to effect the Management Rights Sale. The sale to BBC (LLP) was achieved through a series of Option Deeds. In essence, a Babcock & Brown entity had a Call Option (the first Call Option) to require RG to enter into a Put and Call Option Deed, and then a further Call Option (the second Call Option) which, if exercised, would lead to the management rights being sold to BBC.

We believe that there are numerous issues associated with both the first and second Call Options. We do not intend to discuss all the issues here but believe that there are additional compelling grounds for voiding the Management Rights Sale, and we have made several detailed submissions in this regard.

Approach By Liquidator

Our previous Unitholder Update mentioned that two of the Prime Trust Action Group principals, namely Roger Pratt and Steve O’Reilly, had been approached by the liquidator to formally assist him in certain investigations into the affairs of Prime Trust.

Following our previous Update, a number of unitholders contacted us to indicate their support for such a proposal and we are pleased to report that there were no expressions of dissent. The matter has also been discussed at length with the Prime Action Support Group Management Committee to ensure that any conflicts of interest can be properly managed and that the arrangement can be terminated at short notice if necessary. We have therefore informed the liquidator that we are willing to enter into such an arrangement, and expect to receive details of the proposed terms of the arrangement in the near future. Should the discussions with the liquidator lead to consultancy agreements being executed, we will inform unitholders accordingly.

Prime Action Support Group

Thanks to the generosity of unitholders and their advisers, we have raised approximately $200,000 to date. Our main expense to date has been legal costs paid to Clarendon Lawyers of approximately $27,000. The main areas of advice have been issues relating to the Second Creditors’ Meeting in November 2011, including the renegotiation of fees with the administrator (and the administrator’s legal adviser), as well as several legal issues that have been addressed in order to further substantiate and develop unitholders’ claims against certain parties. We have also been invoiced for various administrative costs totaling around $6,000 which we intend to pay shortly. Our funds currently stand at approximately $171,000.

Our legal representatives at Clarendon Lawyers (namely Mr Mark Bland and Mr Dan Mackay) recently moved from Clarendon Lawyers to Mills Oakley and we have therefore discontinued our relationship with Clarendon Lawyers and appointed Mills Oakley. We continue to believe that Mr Bland and Mr Mackay have the necessary knowledge and experience with which to effectively represent the interests of unitholders in an attempt to maximize the recovery of funds for investors.

We intend to issue Unitholder Updates at the end of each month but would 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
2 March 2012

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