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14-323MR Prime Trust directors disqualified and fined
The Federal Court today delivered its penalty judgment against 5 former directors of Australian Property Custodian Holdings Ltd (APCHL) who breached their directors’ duties by making an illegal related party payment of more than $30 million.
The judgment follows an ASIC investigation into the directors’ role in amending Prime Trust’s constitution so a $33 million fee could be paid to the trust’s founder and one of its directors, Bill Lewski. ASIC launched its civil penalty proceedings in 2012 and the Federal Court found in December 2013 the directors breached their corporate duties by failing to act in members’ best interest (refer: 13-339MR).
Today’s judgment in the Federal Court in Melbourne saw Justice Murphy deliver the following disqualifications and penalties:
William Lionel Lewski – disqualified for managing a company for 15 years and fined $230,000
Mark Frederick Butler – disqualified for managing a company for 4 years and fined $20,000
Kim Jaques – disqualified for managing a company for 4 years and fined $20,000
Dr Michael Wooldridge – disqualified for managing a company for 2 years, 3 months and fined $20,000
Peter Clarke – was not disqualified from managing a company but fined $20,000
The Court also ordered that the defendant directors pay the costs of ASIC’s proceeding.
ASIC Commissioner Greg Tanzer said, ‘These individuals, through their actions, showed a complete disregard for the unit holders of Prime Trust to which they owed important obligations.’
In delivering his judgment, Justice Murphy stated that Mr Lewski’s conduct was ‘central in Prime Trust’s suffering a substantial loss’ and that he had failed to demonstrate any real understanding of the seriousness of the breaches. He also found that there was a risk of re-offending by Mr Lewski and that ‘the lengthy disqualification and significant pecuniary penalty attempt to put a price on his contraventions that will show him that the game is not worth the candle’.
In regards to the other defendant directors, Justice Murphy found that ‘rather than acting in the best interests of the Members’ Mr Wooldridge, Mr Butler and Mr Jaques had ‘capitulated to the interests of Mr Lewski’.
In relation to Mr Clarke, Justice Murphy said, ‘he sat passively’ and ‘merely waved through a resolution which allowed a $33 million breach of trust’.
Declarations of contravention were also made against APCHL, the first defendant. APCHL did not participate in the proceeding and the only relief sought by ASIC against it was declaratory relief.
A stay of the orders in respect of Mr Lewski and Dr Wooldridge was granted until 23 December 2014.
The defendants have 21 days within which to lodge an appeal to the Full Court of the Federal Court.
One of APCHL’s receivers and managers is conducting separate civil proceedings in relation to the fee in the Supreme Court of Victoria. The Supreme Court proceedings were adjourned pending the conclusion of the exoneration and penalty phase of the ASIC proceedings. Investors and unit holders should check our dedicated Prime Trust webpage for further information.
Editor's Note 1:
On 3 December 2014 an order was made staying the declarations and orders in relation to Mr Butler, Mr Jaques and Mr Clarke until 4.00 pm on 23 December 2014.
Editor's Note 2:
On 12 December 2014, Dr Wooldridge and Mr Lewski each filed an appeal of the Federal Court's decision. The appeals have been listed for a callover in the Federal Court on 5 February 2015.
Editor’s Note 3:
On 15 December 2014, Dr Wooldridge filed an application to further stay the Federal Court’s declarations and orders made on 2 December 2014 until the hearing and determination of his appeal. On the same day Dr Wooldridge also filed an application for an order granting him leave to manage certain corporations, either until the hearing and determination of his appeal or generally. Both applications have been set down for hearing on 18 December 2014.
Editor’s Note 4:
On 18 December 2014, the Federal Court adjourned the hearing of Dr Wooldridge's applications for a stay and for leave to manage corporations until 30 January 2015.
The Court further stayed the orders made by Justice Murphy on 2 December 2014 in relation to Dr Wooldridge until 4.00 pm on 30 January 2015.
The Court also ordered that the callovers in relation to Dr Wooldridge's and Mr Lewski's appeals will now be heard on 30 January 2015.
Editor’s Note 5:
On 23 December 2014, Mr Butler, Mr Jaques and Mr Clarke each filed an appeal of the Federal Court's decision. The appeals have been listed for a callover in the Federal Court on 30 January 2015.
Editor's Note 6:
ASIC has cross-appealed the disqualification and pecuniary penalty orders made against Mr Lewski, and the pecuniary penalty orders made against Dr Wooldridge, Mr Butler and Mr Jaques. On 30 January 2015, at the call over, the Federal Court made procedural orders in relation to the appeals. The Federal Court has indicated that the appeals will be heard sometime in May 2015.
Editor's Note 7:
On 30 January 2015, Middleton J ordered that the order of Murphy J made on 2 December 2014, that Dr Michael Wooldridge be disqualified for 2 years and 3 months, be stayed until the hearing and determination of the appeal or further order only to the extent necessary to permit Dr Wooldridge to continue as a director of CRC for Mental Health Ltd (ACN 151 016 492). Dr Wooldridge remains disqualified from managing any other corporation for the disqualification period.
Editor's Note 8:
From 25-27 May 2015 the Full Court of the Federal Court of Australia heard the appeals and cross-appeals. The decision was reserved.
Editor's note 9:
On July 14 2016, the Full Court of the Federal Court of Australia upheld the appeals by the directors against the decision. (refer: 16-225MR)
Editor's note 10:
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 11:
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 12:
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.