Ruling a blow to Tweed

The NSW Supreme Court (Justice Richard White) ruled that a mortgage fund run by Challenger Managed Investments does not have to register or honour transfers of units to Direct Share Purchasing Corporation (DSPC). The judge found there was a serious disparity between the price DSPC offered and Challenger’s estimate of fair value, raising doubts about the validity of those transfers.

Justice White said complaints from fund investors and a ‘gross disparity’ between DSPC’s offered price and Challenger’s own fair-value estimate suggested DSPC might have taken an “unconscientious advantage” of unit holders. For that reason the court said Challenger would be justified in refusing to register the transfers.

For investors in the Challenger Howard Mortgage Fund, the ruling means transfers to DSPC may be left unregistered and therefore in doubt. If Challenger refuses to register a transfer, DSPC would have to enforce any contracts itself rather than have the fund accept the transfers on its register.

David Tweed is known in the media as a ‘low‑ball’ buyer who makes very low offers to buy shares. According to the article, he has branched out into making similar low-priced offers to holders of units in unlisted trusts, including offers targeting holders in the Challenger Howard Mortgage Fund.

Yes. The court heard evidence that one investor was an 83‑year‑old widow who had invested $50,000 in the fund. She accepted Challenger’s special withdrawal offer, then two days later received an offer letter from DSPC that she mistakenly believed was from Challenger, and she signed and returned it in error.

The court was told DSPC’s offer letters included prominent wording such as a large subheading reading “Acceptance Form Challenger Howard Mortgage Fund,” which led at least some investors to believe they were dealing directly with Challenger rather than DSPC and to sign authorities they otherwise would not have.

Yes. The article notes a similar ruling against David Tweed was obtained by Perpetual and delivered by the same judge, indicating this was not an isolated judicial response to DSPC’s tactics.

If Challenger refuses to register the transfers, Justice White said that refusal would leave DSPC to enforce its contracts itself. In other words, DSPC could pursue contractual remedies, but the fund would not be compelled to register the unit transfers on its register.