The Federal Court of Australia has upheld an appeal by the former directors of Australian Property Custodian Holdings Ltd, finding that the trial judge should not have found that any of them had contravened the Corporations Act, as alleged by the Australian Securities and Investments Commission.

The previous disqualifications and pecuniary penalties imposed on the directors will be revoked and the regulators will have to pay the costs.

The former directors, headed up by William Lewski, had appealed against Justice Murphy's findings that they had breached their duties as officers of Australian Property Custodian Holdings or APCHL. APCHL was also found to have breached its duties as responsible entity. ASIC cross-appealed the disqualification and pecuniary penalties made against Mr Lewski, and the pecuniary penalty orders made against the others on the basis that they were manifestly inadequate. In Lewski v Australian Securities & Investments Commission [2016] FCAFC 96, the Full Court of the Federal Court considered that it was unnecessary to make findings on ASIC's cross-appeal.

Australian Property Custodian Holdings or APCHL was the responsible entity of the Prime Retirement and Aged Care Property Trust, a managed investment scheme which owned retirement villages in Queensland, New South Wales and Victoria. In 2010, voluntary administrators were appointed to APCHL. The next year, liquidators were appointed after the creditors voted to place the company into liquidation. Approximately 9,700 investors contributed over $500 million in the Prime Trust.

The issues for determination in each appeal broadly concern three topics, which correspond to the three ‘groups of contraventions’ pleaded by ASIC at trial:
(a) whether the trial judge erred in finding that the conduct of the directors in relation to the resolution to lodge the amended APCHL constitution at a board meeting in 2006 involved a contravention of duties in s601FD Corporations Act 2001;
(b) whether conduct in relation to the payment of a ‘listing fee’ (the board approved a new constitution in 2006 which necessitated a new fee to be payable if the trust was listed on the Australian Stock Exchange) involved contraventions of s208 of the Act, which involves a consideration of the rules prohibiting related party transactions by the responsible entity of a managed investment scheme; and
(c) whether the trial judge erred in finding that the making of the decision to pay the ‘listing fee’ involved contraventions of s601FD of the Act.

The court concluded that the trial judge should not have concluded that any of the directors had contravened the Act, as alleged by ASIC.