Second Places Victoria official grilled on trust collapse

A SECOND member of the Baillieu government's urban renewal authority, Places Victoria, is in the spotlight over links to the collapse of a property empire that last week forced the authority's chairman, Peter Clarke, to step aside.

By InvestSMART · 7 Sep 2012

By InvestSMART ·
7 Sep 2012

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Lorna Gelbert, a partner at law firm Madgwicks, was legal adviser to the company behind the Prime Retirement and Aged Care Property Trust, which failed in October 2010 after taking $550 million from investors.

Grilled under oath about the Prime Trust collapse in August last year, Ms Gelbert admitted she "did not consider" the interests of investors in the trust during a complex series of corporate manoeuvres that culminated in the retirement village empire's chief executive personally reaping $60 million.

No benefit flowed to investors from the deal, in which chief executive Bill Lewski received a $60 million fee by selling management rights over 12 of Prime Trust's retirement villages to merchant bank Babcock & Brown.

A third Places Victoria board member, acting chairman Ken Fehily, also has a connection to Prime Trust through tax advice he gave to the company that controlled it, Australian Property Custodian Holdings (APCH).

Mr Fehily last week became acting chairman of Places Victoria after The Age revealed the corporate regulator was seeking to have Mr Clarke banned from corporate life over his behaviour at Prime Trust.

Contacted by email, Ms Gelbert told The Age: "In view of civil proceedings on foot I am unable to make any response to the matters raised in your email."

The Age also contacted Mr Fehily by email but he did not comment.

In a Federal Court civil lawsuit, the Australian Securities and Investments Commission is seeking bans on Mr Clarke and other former directors of APCH: Michael Wooldridge, who is the brother of Baillieu government Community Services Minister Mary Wooldridge and a former federal health minister real estate agent Mark Butler former 7-Eleven franchising manager Kim Jaques and Mr Lewski.

ASIC alleges the directors made improper use of their position when approving a fee to Mr Lewski, of $33 million, paid when Prime Trust listed on the ASX.

Separately, bank-appointed receiver Craig Shepard, of KordaMentha, has also been investigating the failure of APCH and Prime Trust.

As part of that investigation, Mr Shepard last August put in the witness box key figures in the collapse, including Ms Gelbert.

Under questioning by counsel for Mr Shepard, Robert Newlinds, SC, Ms Gelbert told the Victorian Supreme Court she acted for APCH as it restructured in preparation for its stock exchange listing in late July 2007.

She admitted she also acted for Mr Lewski's company, Retirement Guide, which held the management rights and sold them to Babcock & Brown in early September 2007.

Prime Trust spent the three years before the listing building its portfolio of retirement villages, assigning management rights over each to Retirement Guide. The trust received nothing from Retirement Guide in return for the rights and nothing when they were on-sold.

Ms Gelbert admitted that by July 30, 2007 she knew the management rights were extremely valuable.

Asked if she had forgotten about the unitholders, Ms Gelbert told the court: "I didn't consider them, no."

She accepted she acted for Mr Lewski while he was "wearing two hats" as the head of both APCH and Retirement Guide.

"I saw all of the interests as being interlinked at that stage, the management rights had been developed separately as a separate asset," she said.

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Frequently Asked Questions about this Article…

What happened in the collapse of the Prime Retirement and Aged Care Property Trust?

Prime Retirement and Aged Care Property Trust (Prime Trust) failed in October 2010 after taking about $550 million from investors. A series of corporate manoeuvres before the collapse resulted in the trust's chief executive receiving large fees and investigators — including a bank-appointed receiver and ASIC — probing the trust's affairs. The trust’s management rights were sold to merchant bank Babcock & Brown and the trust and its unitholders received no benefit from those transactions.

Why are Places Victoria board members being questioned over the Prime Trust collapse?

Two Places Victoria board members have links to the Prime Trust affairs. Lorna Gelbert, a partner at Madgwicks, was legal adviser to the company behind Prime Trust, and Ken Fehily provided tax advice to the company that controlled Prime Trust (APCH). Peter Clarke, Places Victoria’s chairman, stepped aside after the corporate regulator sought to have him banned over his behaviour at Prime Trust.

What role did lawyer Lorna Gelbert play in the Prime Trust transactions?

Lorna Gelbert acted as legal adviser to the company that controlled Prime Trust (APCH) and also acted for Retirement Guide, the company that held management rights. Under oath she admitted she did not consider unitholders’ interests during the complex corporate restructuring and acknowledged she acted for related parties while the CEO was effectively ‘wearing two hats.’ She declined further comment because of civil proceedings.

How did Prime Trust’s chief executive, Bill Lewski, benefit and did investors share in that benefit?

Bill Lewski received a reportedly large personal benefit: a $60 million fee from selling management rights over 12 Prime Trust retirement villages to Babcock & Brown. Separately, ASIC alleges directors approved another fee of about $33 million to Lewski when Prime Trust listed on the ASX. According to the reporting, no benefit from those deals flowed to the trust’s investors.

What legal and regulatory actions followed the Prime Trust collapse?

ASIC launched a Federal Court civil lawsuit seeking bans on former APCH directors, and a bank-appointed receiver from KordaMentha (Craig Shepard) investigated the failure. ASIC’s action names several former directors including Peter Clarke, Michael Wooldridge, Mark Butler, Kim Jaques and Bill Lewski. Court testimony from key figures, including Lorna Gelbert, formed part of those investigations.

What are 'management rights' and how were they used in the Prime Trust case?

In this context, management rights are the contractual rights to manage retirement villages. Prime Trust assigned those rights to Retirement Guide during the three years before its ASX listing. The trust reportedly received nothing from Retirement Guide in return, and received nothing when those management rights were later sold on to Babcock & Brown.

How were everyday investors affected by the Prime Trust and APCH collapse?

Everyday investors were adversely affected: the trust failed after taking about $550 million from investors and the reported corporate transactions delivered outsized fees to executives rather than benefits to unitholders. Investigations and legal action followed, reflecting serious investor harm and disputed director conduct.

What lessons for investors does the Prime Trust/Places Victoria situation highlight?

The case highlights the importance of checking for conflicts of interest, understanding who controls valuable assets (like management rights), and watching corporate governance and regulator action. If executives or advisers represent multiple related parties, investors should seek clarity on whether unitholder or investor interests are being protected.