Vital Healthcare Property Trust's rebel investors have scored a symbolic victory with the trustee saying the trust's manager shouldn't have voted at December's annual meeting.
The manager, NorthWest Healthcare Properties Management, says the trust's supervisor, Trustees Executors, has asked it to restate the voting results - NorthWest owns almost 25 per cent of Vital.
As was already apparent, without NorthWest's votes, all five of the resolutions proposed by the rebels, ANZ Funds Management, Mint Asset Management and ACC, were carried with 82-96.3 per cent of the votes cast being in favour. Three of the five resolutions had succeeded even with NorthWest's votes.
The rebels own 10 per cent of Vital's units between them.
Trustees Executors cited section 163 of the Financial Markets Conduct Act 2013 which says that "the manager of a registered scheme and its associated persons are not entitled to, and must not, vote their interest on a resolution of scheme participants if they have an interest in the resolution or matter other than as a scheme participant."
At the Dec. 20 AGM, former independent chair Graeme Horsley, who resigned last May, asked the new independent chair, Claire Higgins, if she had taken legal advice on whether NorthWest had the right to vote.
Higgins said she had asked for advice from NorthWest's lawyer, Bell Gully, which had said NorthWest's legal position with regards to voting was unclear, but that it thought NorthWest did have the right to vote.
She didn't answer whether she had obtained advice from the law firm that had previously represented Vital's investors, Harmos Horton Lusk – Andrew Harmos had attended the 2017 AGM but wasn't at the 2018 meeting.
NorthWest later confirmed that Harmos Horton Lusk hadn't been invited to the meeting or asked for its advice on NorthWest's voting rights and Harmos has confirmed his firm no longer acts for the manager.
Today, NorthWest says it has restated the votes, even though it doesn't accept "that is is the correct position."
"Each of these proposals were non-binding under the terms of Vital's trust deed and their purpose is to allow unitholders to convey a message to the board," NorthWest says.
"That message is being acted on, with fee and governance reviews already underway. We expect to be in a position to update unitholders on the outcome of those reviews by March 31."
The proposals related to the election and removal of independent directors, board composition, management fees and other policies and procedures.
At the nub of unitholders' complaints is the amount of fees NorthWest has charged Vital. There are also questions about NorthWest's intention to buy 11 properties from ASX-listed Healthscope for A$1.258 million.
Since it bought the management contract in late 2011 for $11.5 million, NorthWest had charged Vital nearly $100 million in gross fees up to June 30 last year.
Vital's first-half results released at the beginning of this month showed NorthWest's fees jumped nearly 75 percent to $22.1 million while net distributable income to Vital's investors fell 18.7 percent.
While Vital isn't yet a party to the Healthscope transaction, NorthWest borrowed A$81 million from Vital to take an effective 13.4 percent stake in Healthscope via a derivatives contract with Deutsche Bank. If Vital does participate in the Healthscope transaction, it will need to raise fresh capital because current and committed future borrowings mean it is approaching the debt limits stipulated by both its banks and its trust deed.
The fees review is being conducted by all five directors who sit on the manager's board – Vital itself has no officers or directors and its actions are entirely directed by the manager – in contravention of the board's own charter which says such a review should be conducted by the independent directors only.
Higgins, Andrew Evans and Graham Stuart are deemed to be the independent directors, despite a clause in the trust deed saying that NorthWest can fire them at will – NorthWest has suspended that clause of the trust deed until the fees review has been completed.