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13-339MR Prime Trust directors found to have breached duties
The Federal Court in Melbourne today found five former directors of Australian Property Custodian Holdings Ltd (APCHL) liable for breaching their duties as officers of APCHL. Findings were also made in relation to the conduct of APCHL.
APCHL was the responsible entity of the Prime Retirement and Aged Care Property Trust (Prime Trust), a managed investment scheme which owned retirement villages in Queensland, NSW and Victoria. APCHL collapsed in 2010 when administrators were appointed owing investors approximately $550 million.
ASIC Commissioner Greg Tanzer said today's judgment was a reminder that responsible entities have to put the interests of their unit holders first.
‘This is a significant outcome for investors. Directors are important gatekeepers who must discharge their duties with the appropriate care and diligence. This has not happened here. The conduct of the APCHL Board was unacceptable and today's judgment reflects that’.
ASIC sought a declaration that APCHL breached its duties in exercising its powers and carrying out its duties as the responsible entity of Prime Trust, and that APCHL and its directors failed to act in the best interests of the members.
Justice Murphy found that:
each of the directors had breached various duties, including the responsibility to act in the best interests of scheme members
APCHL had breached similar duties under the Corporations Act 2001(the Corporations Act)
amendments to the constitution of Prime Trust were not permitted to be made without approval of a special resolution of the unitholders, and
the directors breached the law in paying a 'listing fee' to APCHL as a result of it becoming listed on the ASX.
ASIC is seeking from the court pecuniary penalties as well as orders banning the following directors from managing companies:
Dr Michael Wooldridge
Mr Peter Clarke
Mr William Lionel Lewski
Mr Mark Frederick Butler
Mr Kim Jaques
The penalty hearing will begin early next year.
ASIC commenced its proceeding on 22 August 2012 (refer: 12-208MR).
ASIC challenged the lawfulness of a decision by APCHL's Board in 2006 to amend the constitution of the Prime Trust to introduce and or amend various fees payable to APCHL. The amendments resulted in a fee of approximately $33 million being paid to APCHL (an entity owned by interests associated with Mr Lewski) subsequent to the listing of Prime Trust on the ASX in August 2007.
Prior to the amendments the constitution did not provide for a listing fee. The Board did not seek approval from unit holders of the Prime Trust in relation to the constitutional changes, or in respect of the payment of the listing fee.
The Court can order a maximum pecuniary penalty of $200,000 to be paid by each director in respect of declarations of contravention.
The receivers and managers of APCHL are running separate civil proceedings against directors of APCHL and various other parties in the Supreme Court of Victoria, seeking remedies including compensation and damages in relation to the listing fee payment. See our dedicated Prime Trust page for more information.
Editor's note 1:
A hearing on exoneration and penalty will be heard on 28 July 2014 and will run for four days.
Editor's note 2:
The hearing on exoneration and penalty took place from 28–31 July 2014. The judgment on exoneration and penalty will be handed down in due course. No date has been set.
Editor's note 3:
The Federal Court of Australia delivered its judgment on exoneration and penalty on 2 December 2014 (refer: 14-323MR).
Editor's note 4:
On July 14 2016, the Full Court of the Federal Court of Australia upheld an appeal by the directors against the decision. (refer: 16-225MR)
Editor's note 5:
On 10 August 2016, the Full Court stayed the orders made by Justice Murphy against each of the directors until final orders in the appeals are made. At a directions hearing on 15 August 2016, Justice Middleton made timetabling orders in relation to finalising the form of final orders in the appeals.
Editor's note 6:
On 22 September 2016, the Court made orders that the appeals be set down for a further hearing on 12 and 13 December 2016.
Editor's note 7:
The further hearing in the appeals was held on 12 and 13 December 2016 before the Full Court of the Federal Court of Australia. The Full Court has reserved its decision.
Editor's note 8:
On 1 November 2017, the Full Federal Court of Australia made final orders allowing the appeals of the former directors of Australian Property Custodian Holdings Ltd, the responsible entity of The Prime Retirement and Aged Care Property Trust and setting aside the declarations of contravention and orders made by the trial judge against the directors and APCHL.
Editor's note 9:
On 29 and 30 November 2017 ASIC applied to the High Court of Australia for special leave to appeal from the orders made by the Full Court on 1 November 2017. APCHL has been joined as a respondent in all applications.
In relation to Mr Lewski, Dr Wooldridge, Mr Butler and Mr Jaques, if special leave is granted ASIC will seek to set aside all orders made by the Full Court insofar as they relate to those individuals and APCHL and restore the orders made by the trial judge (Justice Murphy) in December 2014.
In relation to Mr Clarke, if special leave is granted ASIC will not seek to appeal against the Full Court’s decision setting aside the orders that Justice Murphy made against Mr Clarke personally. Its proposed appeal relates only to those parts of the Full Court’s orders made in Mr Clarke's case that apply to the other directors and APCHL.
The hearing of ASIC's application to the High Court for special leave to appeal has been listed for 18 May 2018 in Sydney.
Editor's note 10:
On 18 May 2018, ASIC was granted leave to appeal to the High Court. The appeal will be heard on 17 and 18 October 2018 in the High Court in Canberra.
Editor's note 11:
The appeal was heard on 17 and 18 October 2018 in Canberra. On 13 December 2018 the High Court unanimously allowed ASIC’s appeal in part, finding that ASIC had succeeded in two of its three grounds of appeal and ordered the remittal of the matters to the Full Court of the Federal Court (18-377MR).
Editor's note 12:
On 15 March 2019 at a case management hearing the Court said that it would list the matter for hearing on a date (to be advised) in August 2019. Download the Court’s procedural orders - 15 March 2019