As the Federal Court determines penalties for Bill Lewski and his fellow directors of the collapsed Prime Retirement and Aged Care Property Trust after they were found guilty of breaching corporate laws, the trust’s liquidator is also taking aim, launching a $100 million-plus class action. The class action is backed by litigation funder LCM and directly targets Lewski, as well as his legal advisers Madgwicks Lawyers and Kidder Williams. It is understood that Prime’s liquidators are considering a further action against former auditors Pitcher Partners.
To add a further element of murkiness, Crikey
can reveal further allegations that have not yet been prosecuted by the Australian Securities and Investments Commission. The allegations surround several directors of Prime Trust who authorised multimillion-dollar payments to interests associated with Lewski, while allegedly receiving substantial payments from companies controlled by Lewski.
Prime Trust collapsed in 2010, owing more than $550 million to investors and creditors. While unit-holders lost virtually all their investment, Lewski fared far better. In 2007 and 2008, Prime paid interests associated with Lewski a "listing fee" of $33 million (this was the subject of the recent Federal Court finding). And between 2006 and 2008, Lewski’s entities received a total of more than $65 million from Prime Trust for various fees and payments. In addition, another of Lewski’s companies received $60 million from Babcock & Brown (now part of Lend Lease) for the sale of valuable management rights attached to Prime’s retirement homes (Lewski was given those management rights for no payment shortly beforehand). It is the $60 million payment that is subject of the class action (ASIC chose only to take action for the $33 million "listing fee").
In determining the validity of the $33 million listing fee, Justice Bernard Murphy of the Federal Court was critical of Lewski, noting that his evidence was “implausible … self-serving and designed to assist his defence”, and that Lewski's statements under oath were “quite unreliable”.
While the subject matter of the court case is complex, in basic terms what happened was the directors of Prime Trust (which included Lewski, former Liberal Party figure Michael Wooldridge, as well as Peter Clarke, Kim Jaques and Mark Butler) resolved to alter the trust’s constitution to allow for the payment of a $33 million "listing fee" to Lewski, without seeking approval from unit-holders. The Federal Court observed that the motion to alter the trust (and allow the payment to Lewski) was proposed by none other than Lewski himself, and seconded by Jaques (before being unanimously approved by all directors).
Furthermore, buried deep in ASIC and Federal Court transcripts, it became apparent that two long-serving directors of Prime Trust (who approved the controversial $33 million and $60 million payments to Lewski) might have had extra incentive to make the controversial payments -- they were receiving substantial bonuses.
Court transcripts also reveal that Kim Jaques admitted to receiving a $1.6 million bonus -- substantially more than his annual salary of $125,000 --- which was based on Prime’s decision to grant management rights to Lewski (who then sold those rights for $60 million). Several years after Prime’s collapse, Jaques is still employed by Lewski’s company, Australian Property Custodians. Another director of Prime Trust, Mark Butler, revealed to the Federal Court that he had an agreement directly with Lewski that provided him a $750,000 cash bonus if Lewski received the balance of the $33 million listing fee.
Despite receiving payments of upwards of $140 million from his dealings with Prime Trust, Lewski told the Federal Court that he has no assets. Lewski currently resides in a multimillion-dollar Brighton seaside mansion, drives a late-model Porsche and has access to a $4.6 million Gold Coast luxury apartment. ASIC is seeking that Lewski receive a lifelong ban from acting as a director, but declined to pursue criminal sanctions against him or the directors or Prime Trust.
*Adam Schwab is a former corporate lawyer and the author of
Pigs at the Trough: Lessons from Australia’s Decade of Corporate Greed, published by John Wiley & Sons in 2010.