Call it a couple of wins for the good guys. After years, the whipping boy of corporate Australia, ASIC, has had a week to savour. First, former Qantas and Leightons CFO (and later Primary Health CEO), Peter Gregg, was found guilty of falsifying records. But even better, ASIC had a win over Bill Lewski, a man who destroyed the retirement savings of thousands.
The High Court agreed with ASIC and overruled an earlier bizarre decision by the full Federal Court to exonerate Lewski and his fellow directors (which included disgraced former federal health minister, Michael Wooldridge).
Lewski founded the Prime Retirement and Aged Care Property Trust, aka Prime Trust, which specialised in building and acquiring retirement villages. It collapsed within three years, owing investors $550 million — many of whom were self-funded retirees, and at least one of whom committed suicide as a result of the catastrophe.
Lewski came out of the tragedy a very wealthy man — with interests and related parties collecting more than $150 million in fees from Prime Trust.
Lewski’s actions at Prime Trust through were among the most brazen acts in Australian corporate history. The first was when Lewski, who the High Court found was the “driving force” behind the responsible entity of Prime Trust, resolved alongside directors (who were receiving bonuses essentially paid for by Lewski) to change the trust’s constitution to allow for a $33 million payment to entities associated with himself. Lewski avoided seeking approval from unit-holders, who he knew would have blocked the payment.
A second, potentially even more egregious deal saw Lewski sell Prime Trust’s management rights to the now defunct Babcock & Brown for $60 million. This transaction may have been a major cause of Prime Trust’s collapse (the management rights and associated income were a key asset of the trust). Lewski had been given those management rights earlier for no payment.
ASIC’s original action against Lewski and his fellow Prime Trust directors concerned only the $33 million listing fee. ASIC won at first instance, with Justice Bernard Murphy finding that the directors breached their duties. Lewski was handed a 15-year ban and $230,000 fine, while fellow directors Mark Butler and Kim Jacques were banned for four years. Wooldridge was originally banned for 27 months.
The full Federal Court, led by Justice Peter Greenwood, alongside Justices Foster and Middleton, overturned that decision. It was a strange finding which largely revolved around ASIC waiting a few weeks too long to launch its action, and was completely rejected by the High Court.
The High Court was especially scathing of the Federal Court’s legal gymnastics and interpretations, which it noted essentially ignored “the injustice caused to members by an amendment that permits $33 million of their equity to be paid away without authority”. The High Court rejected virtually every finding of the Federal Court, upholding the original decision and sending the matter back to the full Federal Court of determination of penalties.
In a separate class action, Lend Lease, investment bank Kidder Williams, Lewski’s lawyers Madgwicks and his accountants, Pitcher Partners, were forced to pay $40 million to claimants over the listing fee and management rights sale, which was settled earlier this year.
While ASIC’s win was sweet, Lewski will serve no jail time for his actions.
Adam Schwab is a former corporate lawyer and the author of Pigs at the Tough: Lessons from Australia’s Decade of Corporate Greed, published by John Wiley & Sons.