A statement from Trustees Executors Limited

13 July 2012

A statement from Trustees Executors Limited

Trustees Executors Limited (TEL) is Statutory Supervisor for two Perpetual Trust Limited Group (Perpetual) Investment Funds: the Perpetual Cash Management Fund (Cash Management Fund) and the Perpetual Mortgage Fund (Mortgage Fund). Perpetual Trust Limited is the Trustee and therefore owner of the two funds.

In April 2012, TEL became aware of an advance from the Cash Management Fund of $18m to Torchlight Fund No 1 LP (Torchlight), a limited partnership related to Perpetual’s parent company Pyne Gould Corporation Limited (PGC). This advance was subsequently increased to $28m or more than 50% of the Cash Fund. TEL initially became aware of the advance through analysis of monthly management accounts for the fund, despite certification from the Directors of Perpetual that no related party advances had been made by the fund. TEL considers these advances to have been made in breach of the Cash Fund’s Trust Deed and Offer Documentation.

In its capacity as Statutory Supervisor, TEL immediately notified the Financial Markets Authority (FMA) when the breach was discovered. This is required under the Securities Trustees and Statutory Supervisors Act 2011. TEL has since worked closely with the FMA to try and recover the money from Torchlight. The loan currently outstanding is about $13m.

Recent publicity concerning the advances to Torchlight has caused a significant increase in the level of redemption requests experienced by the Mortgage Fund. To preserve equity across all investors, TEL has sought, and has had granted, a Court order temporarily to suspend redemptions in the Mortgage Fund.

On 12 July 2012, following an application by TEL to the High Court, the High Court made further directions in respect of the Funds. These include the appointment of observers (Vivian Fatupaito and Christopher Duffy of WHK) to oversee the activities of Perpetual in its management of the Mortgage and Cash Funds. The High Court noted that PGC has indicated through a stock exchange announcement that it expects repayment of the Torchlight loan prior to the end of July.

The High Court has also directed that valuations of the land secured by the Torchlight loan must be obtained from a valuer nominated by TEL, at the cost of PTL, not the investors, by 25 July. A further court hearing is timetabled to occur on 3 August 2012.

A copy of the High Court judgement of Heath J. can be found here: http://www.courtsofnz.govt.nz/from/decisions/judgments.html

TEL’s role:
Trustees Executors Limited (TEL) was appointed as Statutory Supervisor for two Perpetual Trust Limited Group Investment Funds established under a Trust Deed dated 14 October 1991. Such Group Investment Funds can be set up by trustee companies like Perpetual Trust, but as they do not have an external or independent trustee, such funds are required to also have a Statutory Supervisor.

As detailed in the Deed of Participation, the role of the Statutory Supervisor is to exercise reasonable diligence to ascertain whether or not any breach of the terms of the Trust Deed, the Deed of Participation, or any offer of units has occurred and except where it is satisfied that the breach will not materially prejudice the interests of the Unitholders (investors), to do all such things as it is empowered to do to cause any breach to be remedied. The role of the Statutory Supervisor differs from that of a Trustee. The Statutory Supervisor can request information to satisfy itself that an issuer has not breached an obligation in a material respect and if not satisfied, has the power to seek orders or directions of the Court, including under the Securities Act, in order to remedy breaches of the Trust Deed. Statutory Supervisors can only issue directions to a Trustee after such directions have been approved by the High Court. Statutory Supervisors will only usually seek directions from the Court when a trustee has failed to co-operate in the remedy of material breaches of a Trust Deed.

Despite the fact that the Trustee of a Group Investment Fund may not be an external or independent trustee, the Trustee is still required to act in the best interests of investors and exercise their fiduciary obligations appropriately. Perpetual is the Trustee of the funds.

Details about Perpetual Trust ownership:
Perpetual Trust is owned by the NZX listed Pyne Gould Corporation Limited (PGC). Pyne Gould Corporation Limited is 76% owned by interests associated with George Kerr. George Kerr is a director of Torchlight and also a director of PGC. Torchlight is therefore considered by TEL to be a related party of Perpetual.

ENDS

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