On 25 June 2014, the Senate referred the matter of the structure and
development of forestry managed investment schemes to the Senate Economics
References Committee for inquiry and report by 27 October 2014. On
2 September 2014, the Senate granted an extension to report by 31
March 2015 and following a number of further extensions to 14 March 2016.
According to the terms of reference governing this inquiry into forestry
managed investment schemes (MIS), the committee was to consider in particular:
the motivation and drivers that established the framework for the
the role of governments in administering and regulating forestry
the current policy and regulatory framework of forestry MIS;
the role of some in the financial services industry in promoting
and selling forestry MIS;
compensation arrangements for small investors in forestry MIS who
have lost life savings and their homes in the face of the collapse of forestry
the burden on farmers and other agricultural producers who have
been left with the uncertainty of timber plantations linked to forestry MIS on
the options for reforming forestry MIS to protect investors and
rural communities; and
any other related matters.
Conduct of inquiry
The committee advertised the inquiry on its website calling for written
submissions. It wrote directly to a range of government departments and
agencies, organisations and academics drawing their attention to the inquiry
and inviting them to make written submissions. The committee also invited the
peak bodies for accountants, financial advisers and the forestry industry as
well as other people known to be interested in forestry managed investment
schemes to contribute to the inquiry.
Initially, the committee called for submissions to be lodged by 4 September 2014,
but, following the extension of the reporting date, the committee announced it
would accept submissions up to 15 December 2014.
The committee received 201 submissions, many supplementary submissions, and
additional information including answers to a series of questions taken on
notice by witnesses and responses to specific matters raised in submissions.
These documents are listed at Appendices 1 and 2.
The committee held five public hearings: in Melbourne on 12 November
2014 and 4 and 6 August 2015, in Launceston on 5 August 2015 and in Canberra on
14 October 2015. The committee also undertook a site visit to a property
at Birralee Road Westbury, near Launceston.
A list of the hearings and the names of witnesses who appeared before
the committee is at Appendix 3.
Terms of Reference
The terms of reference for the committee's inquiry clearly specified
that the committee was to inquire into the structure and development of forestry
managed investment schemes. Many of the people who made submissions to the
inquiry had invested in agribusiness MIS that included both forestry and horticultural
schemes. Furthermore, the two major scheme operators—Timbercorp and Great
Southern—were involved in ventures that covered not only forestry managed
investment schemes but more broadly agricultural schemes such as olives,
almonds, macadamias, stone fruit, citrus, mangoes, avocadoes and table grapes.
Because of this cross-over and the similarities in complaints about the
promotion and operation of these various schemes, the committee resolved that
it would receive submissions that dealt with both forestry and horticultural
schemes. They are known collectively as agribusiness managed investment schemes
(hereafter agribusiness MIS).
Background to inquiry
Although a number of high profile agribusiness MIS failed in 2008, 2009
and 2010—Environinvest group, Timbercorp, Great Southern group, Willmott and
Gunns—the consequences of their collapses are still reverberating. After years
of uncertainty and financial loss, many small investors currently face the
prospect of even further hardship. Not only have they lost their original
investment but a number now find they are required to repay significant loans. Moreover,
additional information is still coming to light about the promotion and selling
of these products. Indeed, recent years have exposed an aspect that has not yet
been fully investigated—the financing arrangements that allowed growers to
invest in these schemes, with many unwittingly committing themselves way beyond
their financial means.
Some farmers who leased their land to MIS are also suffering financial
loss from failed MIS and seeking clarity on their legal position with regard to
ownership rights over land and trees and liability for damage. The
administration and liquidation of MIS has given rise to a number of
difficulties again associated with ownership rights but also with conflicts of
Since the collapses, significant reforms have been introduced that
address some of the problems associated with the schemes, particularly the
provision of poor financial advice. They include the Future of Financial Advice
(FOFA) reforms, which have introduced robust measures to strengthen consumer
protection, such as the banning of conflicted remuneration and obligations to
act in the best interests of clients. Some of these major reforms have not yet
fully come into effect, while others are still under active and further
consideration. In this regard, the Australian Bankers' Association recently
stated that the financial advice industry was in a state of transition:
The implementation of the Future of Financial Advice (FOFA)
reforms, together with industry driven initiatives in relation to financial
adviser education and competency have triggered a substantial and structural
shift in the financial advice industry.
During this inquiry, the government also responded to a major report on
Australia's financial system indicating its intention to implement further
reforms such as conferring a product intervention power on the Australian
Securities and Investments Commission (ASIC).
At a time when reforms to improve consumer protection have been
implemented and further changes are contemplated, the committee's inquiry is
both timely and necessary. It provides an opportunity to critically evaluate current
and proposed reforms and consider whether they would adequately and effectively
address the failures in consumer protection exposed by the collapse of agribusiness
MIS and the consequent harm to investors.
During the committee's public
hearing on 12 November 2014, many investors who had sustained substantial
losses due to failed agribusiness MIS, packed the Melbourne Town Hall to hear
evidence and lend support to other investors similarly affected by the collapse
of the schemes.
The majority of submissions to the inquiry came from individuals or
groups of concerned investors or consumers who wanted to draw the committee's
attention to their specific grievance. Often their accounts involved
allegations of adviser misconduct that had resulted in significant personal
financial loss and sometimes financial ruin.
The committee was not able to investigate every individual matter that
was raised in submissions. Many submitters were hopeful that the committee
could assist them to right perceived wrongs. Unfortunately, this was neither
possible nor the committee's role. The committee, however, gave great weight to
their accounts and experiences: this evidence helped inform deliberations and
assisted the committee formulate recommendations.
The committee prefers to take evidence in public. With this inquiry,
however, a number of submitters requested that the committee receive their
submission in confidence or withhold publication of their names. In general, the
committee respected their wishes. In some cases, and without the submitters'
request, the committee itself resolved to receive submissions in camera or to
withhold sections from publication. Such decisions were based on a variety of
the matter was still under investigation or consideration by a
court or tribunal;
concern over publicising a person's private circumstances,
including personal health matters or those of their immediate family or
strained or broken relationships; and
reluctance to allow a person to be publicly denigrated or
embarrassed where their involvement in an alleged offence appeared to be
incidental or not relevant to the committee's inquiry.
Where the committee drew on in camera evidence for its report, it was
careful to ensure that such material was used to support information already
publicly available or where it had sought verification from other sources.
In some instances, the committee declined to receive submissions or
sections of submissions. The overriding reason in most instances stemmed from
the submissions' failure to address the committee's terms of reference. Some
submitters were disappointed with the committee's decision either to return
their submission or to remove names or sections of their submission before
publication. Where information was deemed to be outside the committee's terms
of reference, however, the committee could not accept it as evidence to the
Many people who made submissions felt as though they had been betrayed by
advisers in whom they had placed the utmost trust. Clearly, it was important for
them to be able to name those whom they believed caused them harm. On the other
hand, the committee was aware of the severe and irreparable reputational damage
that accountants or advisers could suffer if identified for alleged misconduct
In the interests of transparency and to enable a thorough public airing
of the allegations made about the misconduct of advisers, the committee
resolved that where an alleged offence or transgression was already on the
public record, it would allow the identity of that adviser to be disclosed. In
fairness though, the committee attempted to contact such individuals alerting
them to the adverse comment levelled against them and offering them the
opportunity to respond.
In cases where the committee formed the view that the allegations
against an adviser were not widely known, it resolved that it would not publish
the adviser's identity. This measure was not an attempt to sanitise the
evidence but to arrive at an appropriate balance between natural justice and
the public's right to know. Although, the committee's interest was in identifying
systemic problems with the marketing of agribusiness MIS rather than any
particular adviser, it took the opportunity to alert ASIC to any concerns it
had about specific individuals.
Scope and structure of report
Agribusiness MIS have had a chequered history and been the subject of
numerous parliamentary inquiries. For example, the high profile collapses of
major agribusiness MIS in 2009 prompted the Parliamentary Joint Committee on
Corporations and Financial Services to inquire into aspects of such schemes.
Two years later, the Corporations and Markets Advisory Committee (CAMAC)
conducted its own review of managed investment schemes.
The committee felt it was important to place the current inquiry in this
context. Although the committee took account of the evidence taken by, and the
findings of, previous inquiries, it did not seek to re-work ground already well
Introduction and background to MIS
This introductory chapter and chapter 2 provide background information
on MIS (forestry and non-forestry): their structure, responsibilities and
characteristics, with particular reference to the collapse, liquidation and
aftermath of Timbercorp, Great Southern, Willmott Forests and Gunns. The report
is then grouped into four sections.
Part I—Retail investors and
incentives to invest
Chapter 3 describes briefly, and provides insight into, the harm
caused to retail investors through the collapse of agribusiness.
Chapter 4 examines the MIS' taxation concessions; their promotion;
the extent to which they attracted investors; and the ATO's product rulings including
the government's perceived endorsement of the product.
Chapter 5 considers the increased risk to investors when they
borrow to invest. It looks at geared investments in agribusiness MIS: the
nature of advice on investment lending and loan arrangements; lending
practices; full recourse loans and their implications; loan application forms; pressure
selling; and responsible lending.
Chapter 6 focuses on retail investors; behavioural economics; the
trust that investors placed in their advisers; and the promotional practices
used to entice retail investors to invest in agribusiness MIS.
Part II—Promoters and producers of
MIS—advisers, product issuers, ratings experts, lenders and class action
Chapter 7 centres on the quality of investment advice and on fees,
charges, commissions and marketing techniques. It looks at the conduct of some
financial advisers, including accountants who provided poor advice; the factors
driving this advice; and recent legislation to remove commissions.
Chapter 8 considers the importance of recent reforms and, in
light of the lessons to be drawn from the collapse of high-profile MIS, whether
any further measures are required to strengthen consumer protection. It underlines
the role of investors themselves in protecting their interests and then
considers enhanced powers to ban unscrupulous advisers from the industry and the
overall culture that pervades the financial services industry.
Chapter 9 explores the role and responsibilities of the product producer
toward retail investors, the reliance on disclosure as a means of consumer
protection and its effectiveness when it comes to the promotion and selling of
Chapter 10 expands on the responsibilities and obligations of the
product issuer when providing general advice; the marketing strategies
involving promotional events; and the role of expert reports and research
houses in promoting MIS.
Chapter 11 contemplates the role of the banks in providing
finance through finance companies to investors to fund their agribusiness
scheme; due diligence when providing loans; debt recovery, penalty rates, hardship
arrangements and the relevance of new credit laws.
Chapter 12 deals with growers' class actions including advice by
lawyers not to repay loans.
Part III—MIS as a commercially
viable model and its suitability for retail investors
Chapter 13 questions the commercial viability of some agribusiness
MIS including the business model, the schemes' performance, management and
possible structural deficiencies including suggestions that the schemes were ponzi-like
Chapter 14 turns its attention to the appropriateness of
marketing agribusiness MIS to retail investors and whether there is a need to
strengthen legislation to protect retail investors from such schemes by placing
obligations on the issuer of a product and restricting the market for unsafe
Part IV—Winding up failed schemes,
compensation for losses and lessons to be learnt
Chapter 15 deals with the aftermath of MIS collapse; appointing a
replacement responsible entity; receivership and liquidation; the functions,
responsibilities, obligations of, and difficulties confronting, administrators
including disentangling the affairs of related entities and reconciling competing
Chapter 16 assesses the effects of failed MIS on the environment and
on farmers who leased land to such enterprises and, overall, the future for
agribusiness MIS in Australia with a particular emphasis on using tax
concessions as an incentive to invest.
Chapter 17 recognises the importance of compensation for people
who have suffered loss through the negligence, incompetence or wilful
deceptiveness of financial advisers and/or the inappropriate marketing of high
risk products to retail investors.
Chapter 18 underlines the role of the regulator in protecting
consumer interests and summarises the key findings of the report.
During the course of the inquiry, the committee benefitted greatly from
the participation of many individuals and organisations located throughout
Australia. The committee thanks all those who assisted with the inquiry,
especially the witnesses who put in extra time and effort to answer written
questions on notice and provide valuable feedback to the committee as it
But most particularly, the committee acknowledges the many people who
wrote to the committee recalling their experiences. They range from
whistleblowers, who placed their careers in jeopardy in order to expose
corporate wrongdoing, to individuals who found themselves in dire financial
circumstances. Without their personal accounts, the committee would not have
been able to appreciate fully the need for stronger action to ensure that
Australia's financial services regulatory framework is robust and focused on
protecting the retail investor and consumer from unscrupulous operators, poor
advice and high risk financial products.
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