In the matter of Australian Securities & Investments Commission v Lewski & Anor, the High Court has partly allowed an appeal by the corporate regulator, after it alleged the directors of Australian Property Custodian Holdings Pty Ltd (APCHL) breached their duties by amending the constitution of a failed aged care and retirement trust.

In December 2000, Australian Property Custodian Holdings Pty Ltd (APCHL) created a unit trust called the Prime Retirement and Aged Care Property Trust, of which it was the responsible entity. The trust was subsequently registered by ASIC as a managed investment scheme in July 2001, and the consolidated trust deed became the constitution of the managed investment scheme.

In July 2006, after struggling to sell the units, the directors of APCHL amended the constitution by introducing substantial new fees payable to APCHL. In doing so, the directors introduced a ‘listing fee’, which was payable once the scheme’s units were listed on the Australian Securities Exchange.

The amended constitution was lodged in 2006, and the following year the directors determined that the listing fee would be paid to companies associated with William Lewski, one of APCHL’s directors who controlled the trust’s responsible entity.

Subsequently, the case ensued after ASIC alleged that Mr Lewski was improperly granted $33 million from the company for consulting on its ASX listing, and a further $60 million for the purchase of the management rights for the portfolio of villages owned by the company.

At first instance the trial judge held that the fees were invalid, and that the directors had subsequently breached their duties.

However, the directors subsequently appealed to the Full Federal Court, where it was held that the trial judge erred in its finding. In doing so, the court held that the certain amendments had ‘interim validity’ unless and until they were set aside, and that the directors were thus entitled to act in accordance with their honest belief that the amendments were valid.

ASIC then appealed to the High Court, which ultimately held that the Full Federal Court had erred in this decision. In doing so, the court concluded that the directors had breached various provisions of the Corporations Act 2001 (Cth), having failed to take reasonable care, to be loyal to members of the trust, to not use their position improperly and to comply with the legal requirements for amendment.

Despite this, the court held that the Full Federal Court was correct in finding that the directors had not been complicit in a breach of s 208. The case has now been remitted to the Full Federal Court for determination of penalty and disqualification orders, costs and ASIC’s cross-appeal to that court.