THE LION DEAL.....
All unit holders in Equititrust must consider the following:
1. David Hickie is a director of Equititrust, the present RE of EIF and is also CEO and director of Lion, an entity that proposes to become (with Hall Chadwick support) the new RE of EIF.
2. If McIvor, as per undertakings, takes no active part in Equititrust then Hickie must by definition be involved in active management of EIF in circumstances where he is promoting his own entity to take over as RE of EIF.
3. Hall Chadwick who are there as independent Administrators on behalf of creditors are openly working with Hickie on a proposal whereby Lion becomes the RE of EIF – this is set out in the Minutes of Equititrust and internal e-mails. That documentation is now with various authorities.
4. Equititrust acknowledges that the unit value has dropped to at least 44 cents per unit. Bear in mind, this figure is provided by the auditors KPMG who up until a year ago had given a clean bill of health to all Equititrust financials and NTA calculations.
5. Also, the NTA estimate of 44 cents does not take into account further decreases in value; asset operating costs; administration costs; property costs such as rates, land tax etc; realisation and agency selling costs. It is speculation, but I think it is safe to assume that 44 cents becomes 22 cents very easily. This is important as you will read further on.
6. Why is Lion promoting itself as the new RE? Under the scheme that they propose, they in fact never pay unit holders back and don’t become responsible to ever pay unit holders back. Presently, as assets are finalised realised (and the banks are paid out) the money must start to go to unit holders. David Whyte and BDO (appointed by court) must do this – they have no choice. Once unit holders become shareholders in Hickie’s entity, they are not entitled to participate in the realisation funds, they are and remain shareholders.
7. So, what rights do the shareholders have and what are these shares about? The internal e-mails show that the shares will be listed on the NSX and must not be traded for one year. In other words, even if there is a market for these shares (doubtful), you cannot do a thing with them for a year. Secondly, they do not become entitled to any dividend until the NTA goes up to 55 cents. If you assume that 44 cents is inflated and more than likely 22 cents, what prospect is there realistically that the shares will ever, in effect, double in value – none. Thirdly, shareholders cannot convert these shares to proper ordinary shares until the NTA hits $5.00! As the EIF is a mortgage fund and not a property owner, there is no opportunity for capital gain. In other words, the best that we could ever be entitled to is the original $1.00 back that we advanced. The NTA can never go to $5.00 unless Hickie does something absolutely magical with the cash while it sits under his control. Highly unlikely!
8. But, Lion and VantageAxess do stand to get management fees and do control, firstly, the mortgage assets and then as they are realised, the cash. They can use that cash for almost anything – go out and do property deals, make profits, make loans to their own entities, anything. We don’t have an entitlement to share in profits until the NTA virtually doubles and if we want to get out, our shares are frozen.
9. This is not just opinion – look what happened when MFS did the same thing with its PIF units which Jenny Hutson listed on the NSX. The units went into free-fall, unit holders are still locked in with no prospect of a market or ever getting out.
10. But why would McIvor be promoting this? Well, clearly he knows that Equititrust is a basket case and he faces a raft of attacks from ASIC, AFP and unit holders. There is a strong argument that if unit holders voluntarily make a decision to switch their units for shares offered to them by David Hickie then, if they subsequently take a loss, McIvor can simply say in his defence that this was our choice – he did not recommend it and he might, effectively, get off the hook. Any claim that we have against his professional indemnity insurer is lost.
11. From Hall Chadwick’s point of view, the Lion deal is a great one. Presently all the unit holders are in effect creditors. Because their position is contingent, they can only vote in a meeting for $1.00 but creditors they remain. If a new RE is appointed and the EIF transfers to it, then Equititrust can be liquidated and everybody’s liability ends at that point. Hall Chadwick can say “Job well done” – McIvor pays them – he is potentially off the hook – David Hickie now has control of tens of millions of dollars at no cost and with no obligation in reality to anybody.
12. Now if you are a 70 plus year old investor/pensioner with all your money tied up in EIF, then any well-presented argument that you might get your money back one day has to be a more beguiling prospect than the harsh reality of winding up the EIF now and distributing funds. The technique being used, however, is the oldest one in the book. We are all vulnerable and desperate. None of us want to believe that we have lost our capital. Any prospect that we might get it back is good. The prospect of having to litigate through Piper Alderman sounds all too hard and complicated with an uncertain outcome. But, don’t lose sight of the fact that the PI insurance in place over the Equititrust directors is probably our strongest asset. Proof of this is the fact that the insurers cancelled the insurance policy as soon as they legally could – they knew that their liability existed and would only get worse. Amanda Banton from Piper Alderman is right on to this and although she only has 39 unit holders supporting her, the best recovery is from the insurance. You can’t put value back into mortgages which the Equititrust board now admit are toxic. Toxic borrowers and toxic loans are and remain just that.
13. Is there an independent alternative? Well, yes there is. Trilogy are prepared to become the RE. The advantage of Trilogy is that they are experienced mortgage managers but, more importantly, they are not promoting some exotic share swap for units. They will manage and realise the mortgage assets and, under the EIF constitution, will return capital to unit holders as collected. We still remain entitled to claim any shortfall as damages under the PI insurance. In other words, a win/win – we get money progressively sooner than later and still stand to get all our money back.
14. Elsewhere on this website I presented some questions to Mr Hickie. Those questions were presented to him in his capacity as a director of Equititrust, the present RE. Not surprisingly, he has not answered them because the answers are self-evident.
15. Unit holders must stand up for themselves. They have been plundered for over 5 years. ASIC and others have material on hand to show that the Equititrust board knew for years that many of the assets were impaired, yet they kept promoting the values to unit holders and new investors. They did nothing. KPMG did nothing. They are all liable and, properly prosecuted, they will pay and we will get recovery.
You cannot ignore the facts. You must not be beguiled by any exotic unit and share swap deal. The rights attached to the shares are onerous. There is no prospect of liquidity. There is no liability on anyone to ever repay capital. We have no realistic entitlement to a dividend. In those circumstances, who in the marketplace would ever buy these shares, so even the limited prospect of market liquidity on a fly-blown NSX listed company would be “Nil”.
It is time to get independent professional advice. You will form the view that winding up the EIF now under a responsible and professional RE makes good sense and you must retain your rights to damages through a solicitor such as Piper Alderman.
This will only become as bad and disastrous as we allow it to become.We are being “handled” by professionals and we must make a stand.