It was one of the lower-profile collapses of the global financial crisis, but the downfall of Prime Retirement & Aged Care Property Trust was also one of the most devastating, taking with it hundreds of millions of dollars of retirees savings, leaving devastation and reports of suicide.

The Australian Securities and Investments Commission is taking action against Prime founder Bill Lewski and his fellow directors in the Federal Court for breaches of the Corporations Act. The regulator is seeking to have the directors, including former federal health minister Michael Wooldridge, banned (and substantial fines imposed).

It revolves around one specific event: the decision by Prime’s responsible entity (which was owned by Lewski) to change Prime’s constitution and make a subsequent $33 million “listing fee” to entities associated with Lewski.

The quantum of the listing fee — $33 million — was unprecedented, five times the entity’s net operating cash flow of only $6.5 million in 2006. Moreover, the ASX listing raised around $100 million, which meant Prime paid Lewski $33 million to raise $67 million.

To take a step back — Prime Trust was founded by Lewski as a vehicle to allow investment in the fast-growing retirement home sector. Essentially, Lewski would source properties (for which he received substantial fees of more than $5 million annually) and would use funds from unit holders to purchase the properties. Prime would then manage the retirement homes and return a distribution back to unit holders. Much of the money raised by Prime came from financial planners, specifically from Richard Beck, one of the key architects of the disastrous Westpoint property fund.

The ASX listing was essentially a way to improve liquidity for unit holders and also raise additional funds. It was not essential, though, as most unit holders were happy to continue to receive income from the trust, as most were retiring.

The trust’s constitution didn’t allow for it to simply pay a fee (let alone a $33 million fee) to entities associated with Lewski. To allow for that, the constitution of the trust needed to be changed. In most cases, such a change would require (morally, if not legally) the approval of unit holders. But the Prime directors resolved to change the constitution themselves and simply pay the listing fee to Lewski. This is the subject of ASIC’s legal action.

This is where is gets even murkier: last week, under cross examination in the Federal Court, Prime’s two most senior directors — Wooldridge and former Melbourne City councillor Peter Clarke — gave what appeared to be conflicting testimony. On Friday, Clarke stated the directors didn’t consider the best interests of shareholders when determining to pay the $33 million listing fee to Lewski. Clarke also claimed a board minute signed by Wooldridge was not reflective of the board meeting held.

However, Wooldridge told the court that only 24 hours earlier he thought directors had no choice but to allow for the change in constitution — otherwise Lewski would have been able to “wind up” the trust.

It appears he’s alleging that had the board not authorised the change in constitution and payment of $33 million to Lewski, Lewski would have closed the trust down by winding it up.

Lewski told the Federal Court the $33 million payment was required, as the responsible entity needed to do a “large amount of additional work” prior to the listing. One wonders exactly what that work was, given Prime was advised by teams of lawyers and accountants, and Lewski himself was presumably busy sourcing properties for and consulting to the trust, upon which he was paid $13.9 million in 2007 — an amount greater than Prime’s operating cash flow.

Prime’s 2007 annual report notes real estate agent and Prime executive Mark Butler was handed 3 million options and another executive director, Kinsman “Kim” Jacques, also a real estate agent, was given 4.5 million options. Wooldridge got 2.45 million options, while Clarke was handed 1.2 million options in Prime.

Prime collapsed a few years after the fee was paid to Lewski, with most unit holders losing all of their investment. Lewski’s payments were transferred to family trusts and appear outside the reach of creditors.

The case continues in the Federal Court, as does a liquidator’s action against the Prime directors and its former solicitors, Madgwicks.