Don’t worry about the Dick Smith sideshow playing out in the business pages this week. It’s highly unlikely those who ran (and handsomely profited) from the electronic retailer will receive any sort of penalty. That’s the lesson, anyway, from the decision of the Federal Court in hearing an appeal by the disgraced directors of the responsible entity of collapsed retirement home provider Prime Trust. 

Unlike Dick Smith, Prime wasn’t a retail business, so you may not have heard of its untimely collapse. But it represents arguably the most calculated swindle in Australian corporate history. And courtesy of the intransigence of the Australian Securities and Investments Commission (largely under former chair Tony D’Aloisio), with able assistance from the Federal Court, the perpetrators appear to be escaping completely scot-free.

For those unfamiliar with the Prime Trust saga, let me quickly explain. Prime was effectively created by founder Bill Lewski to buy retirement homes and package them in an investment vehicle to appeal to yield hungry retirees. Along the way, Prime Trust (which Lewski controlled through his ownership of APCH, the responsible entity until September 2007) paid Lewski tens of millions of dollars in fees (these included responsible entity fees, custodial fees, agency services fees, property management fees and even consultancy fees). In 2007 alone, Lewski’s companies were paid more than $20 million in fees.

But those fees, while excessive, are not illegal and were not the subject of any legal action. The ASIC action revolved only around the decision by Prime to pay Lewski a controversial $33 million “listing fee” — the fee became payable after Prime directors (who had effectively been hired by Lewski as contractors and were handsomely paid significant bonuses by Lewski) allowed the Trust’s constitution to be changed without unit holder approval. Lewski essentially did no genuine work to earn the fee and unit holders clearly didn’t benefit from the listing (the Trust collapsed three years later).

Not content with appropriating $33 million of unit holder funds, Lewski then quietly proceeded to sell the management rights to Prime’s retirement villages (those management rights were a key asset of Prime) to Babcock & Brown for $60 million in cash. Without the benefit of those management rights, Prime’s income dwindled (the Victoria Supreme Court was told the value of individual villages owned by Prime reduced by between 20-60%). Those two actions arguably were the precipitating cause of Prime’s collapse, which cost investors (many of whom were self-funded retirees) upwards of $400 million.

[Prime payouts become intriguing courtroom drama]

Justice Bernard Murphy of the Victorian Supreme Court found in December 2014 that Lewski and fellow APCH directors (which included former federal health minister Michael Wooldridge) breached their directors’ duties, imposing fines and banned them from acting as company directors. It was a somewhat pyrrhic judgment given that there is more chance of Bernie Madoff being appointed to chair the Federal Reserve than the Prime directors ever getting another corporate role.

However, now even that small victory has been overturned courtesy of the full Federal Court, which last week found that ASIC was statute-barred from taking its civil action as more than six years elapsed from the date of the first director’s meeting that approved the $33 million listing fee. ASIC had relied on a meeting that occurred on August 22 for their action, but the full Federal Court found that the earlier meeting was the key act. In short, Lewski and his fellow directors, much like John Elliott before him, were able to use a legal technicality to avoid a justified penalty.

ASIC, despite being requested on numerous occasions by aggrieved investors to take action against Lewski and his fellow directors, inexplicably waited until August 2012 to commence proceedings. This meant, according to the Federal Court, ASIC couldn’t rely on the alleged illegal conduct that transpired in July 2006. ASIC is understood to be considering an appeal.

Why did ASIC take so long to bring the civil charges? Had it launched the action merely a month earlier it appears the appeal would not have been upheld. Should Lewski have been charged with a criminal offence, which would have no statute of limitations? Lewski’s actions were far more damaging than the various insider trading offences ASIC has vigorously pursued in recent years. Why did ASIC not take any action on the sale of Prime’s management rights for $60 million (that is currently subject to a mere civil action)?

Lewski, arguably Australia’s most colourful teflon-coated businessman, appears to have gotten away with it again — this time, $150 million dollars richer, while investors lost the lot and ASIC looked on.

*Adam Schwab is a former lawyer, company director and the author of Pigs at The Trough: Lessons from Australia’s Decade of Corporate Greed