THE path could be open for investors to launch a class action against failed managed investment schemes (MIS), the financial advisors who peddled them, or even the Federal Government for allowing them.
The Shareholders Association of Australia said there was precedent against companies which had created a misleading prospectus and poor governance.
With uncertainty now surrounding the future of some 500,000 hectares of land under MIS control, consultant Mike Stephens said it was "mind boggling" that the federal government had no immediate intention of changing the MIS tax ruling, allowing upfront tax deductibility for investors.
"The real villains are the members of the present and recent federal Government who allow the continuation of a flawed policy," Mr Stephens said.
"The MIS policy in the forestry industry has developed a false and unsustainable market for farming land, been responsible for the destruction of rural communities, created an oversupply of timber, cost the tax payer millions, failed to deliver a return for the investor and will leave a landscape which will cost thousands of dollars per hectare to rehabilitate."
He suggests such management in the private sector would deliver a class action.
Last year, financial auditor HLB Mann Judd raised serious governance questions with failed timber MIS Environinvest, after it appointed administrators in September.
A misleading prospectus, no due diligence and a lack of accurate and reliable management reporting were cited amongst the failings of the company.
Timbercorp last week also appointed administrators, who have declared the company has net debt of over $900 million and assets of just under $600 million.
It has more than 18,500 investors and employs about 170 staff.
Timbercorp administrators have suspended all forestry and horticulture operations but have allowed the current olive harvest to continue.
Two meetings have been planned for next Tuesday in Melbourne; one for creditors and suppliers, and a second for investor growers.
It is at this second meeting where the future of the company will be decided after the administrators make their recommendations.
Questions are still being raised about the financial viability of Great Southern Plantations, one of the largest landholders in Australia.
Between 2001 and 2006 more than $3.6 billion was spent on agribusiness managed investment schemes according to Great Southern, representing a compound growth rate of 36pc.
Back in May 2006, land valuer Patrick Mackarness and Melbourne University lecturer Bill Malcolm blew the whistle on the timber schemes to Rural Press, outlining the flawed model of MIS investment and the lack of power ASIC had to keep companies in check.
"Under the Act (Managed Investment Act 1998), investment managers are not required to give annual financial accounts to investors, or report specifically on annual productivity of investments," Mr Mackarness said at the time.
The comments were backed by Mike Stephens and Associates who, in a submission to a federal review of MIS 2006, also highlighted the structural problems associated with the largely tax driven industry.
Report author, agricultural economist and banker David Cornish, stated: "Independent forestry advice has shown that charging investors up to $9000/ha is expected to deliver a loss to the investor. Yet due to the government's tax policy the unsuspecting public is induced into these schemes by the availability of the upfront tax deduction."
Email a friend