Managed investment schemes
The passage of the Managed Investment Act 1998 (MIA) created a
framework that allowed for the establishment of an investment
structure—a managed investment scheme. This structure replaced the prescribed
interest schemes that, up to that time, were widely used as a collective
investment mechanism to 'pool' investors' funds.
The primary object of the MIA was to strengthen investor protection in
an era of unprecedented growth in collective investment schemes. The deregulation
of financial markets in the 1980s saw a proliferation of collective investment
vehicles, from the
largest commercial property and management trusts to small one-off schemes such
as pine forests, ostrich and yabby farms. The government's support for
self-funded retirement, following the introduction of compulsory superannuation
in 1992, further stimulated growth in this sector during the 1990s. According
to a review of the MIA undertaken in 2001:
A key driving principle behind the new framework was the
shortcoming evident under the dual trustee/fund manager structure of the former
[prescribed investment] regime, where it was difficult to determine who was
ultimately responsible for a scheme's operation.
Under the MIA, the managed investment sector continued to expand
substantially with new companies forming to offer products to the retail
market. In particular, agribusiness MIS grew. In this chapter, the committee
examines the structure, responsibilities and operation of agribusiness MIS.
As a structure, MIS allows for collective investments that enable a
large number of investors (either retail or wholesale) to pool funds, or invest
in a common enterprise, for large scale projects.
They have the following features:
people contribute money or money's worth as consideration to
acquire rights (interests) to benefits produced by the scheme (whether the
rights are actual, prospective or contingent, and whether they are enforceable
contributions are pooled, or used in a common enterprise, to
produce financial benefits, or benefits consisting of rights or interests in
property, for the people (the members) who hold interests in the scheme
(whether as contributors to the scheme or as people who have acquired interests
from holders); and
members do not have day-to-day control over the operation of the
scheme (whether or not they have the right to be consulted or to give
The MIA removed the requirement for an independent trustee. Under this new
legislation, a single responsible entity (RE) replaced the dual trustee/fund
manager structure of the prescribed interest regime and was directly responsible
to scheme members for the scheme's operation. The intention was to avoid the
confusion over accountability engendered by the dual trustee/fund manager
structure of the previous regime.
A registered MIS cannot operate without an RE, which must be a public company
that holds an Australian financial services licence (AFSL) authorising it to
operate a managed investment scheme.
As noted above, investors do not have
day-to-day control of the enterprise, rather the RE carries full responsibility
for a scheme and any liability for losses. One of the duties of an RE is to
hold scheme property on trust for scheme members.
As the operator of an agribusinesses MIS, the RE agrees to plant, manage and
harvest the product with the harvest proceeds net of outstanding costs and fees
returned to the investor.
In exercising its powers and carrying out its duties, the RE of a registered
exercise the degree of care and diligence that a reasonable person
would exercise if they were in the responsible entity's position;
act in the best interests of the members and, if there is a conflict
between the members' interests and its own interests, give priority to the
treat the members who hold interests of the same class equally
and members who hold interests of different classes fairly;
not make use of information acquired through being the responsible
entity in order to:
gain an improper advantage for itself or another person; or
cause detriment to the members of the scheme;
ensure that the scheme's constitution meets the requirements of
sections 601GA and 601GB (provisions governing contents of the constitution and
legal enforceability of the constitution);
ensure that the scheme's compliance plan meets the requirements
of section 601HA (provisions governing the contents of the compliance plan);
comply with the scheme's compliance plan;
ensure that scheme property is:
clearly identified as scheme property; and
held separately from property of the responsible entity and
property of any other scheme;
ensure that the scheme property is valued at regular intervals appropriate
to the nature of the property;
ensure that all payments out of the scheme property are made in
accordance with the scheme's constitution and the Act;
report to ASIC any breach of the Act that:
relates to the scheme; and
has had, or is likely to have, a materially adverse effect on the
interests of members;
as soon as
practicable after it becomes aware of the breach; and
carry out or comply with any other duty, not inconsistent with the
Corporations Act, that is conferred on the responsible entity by the scheme's
It should be noted that these requirements were in force during the
period covered by this inquiry.
An officer of the RE of a registered scheme is under similar statutory
obligations to, among other things, act honestly; exercise the degree of care and
diligence that a reasonable person would exercise if they were in the officer's
position; and act in the best interests of the members. If there is a conflict
between the members' interests and the interests of the RE, the officer is to give
priority to the members' interests. Officers of an RE must not make improper
use of their position as officers to gain, directly or indirectly, an advantage
for themselves or for any other person or to cause detriment to the members of
the scheme. In addition, officers must take all steps that a reasonable person
would take to ensure that the responsible entity complies with the Corporations
Act, any conditions imposed on the responsible entity's Australian financial
services licence, the scheme's constitution and compliance plan.
ASIC informed the committee that, although the legislative framework for
MIS has been 'the subject of a number of reviews and a significant amount of
work in developing potential refinements', the regime has remained largely unchanged.
Agribusiness MIS are essentially a means to finance agricultural
operations on a large scale. They allow small investors to pool their funds and
to invest in a large agricultural operation that can achieve significant scale.
This pooling of investment funds is most beneficial in those agricultural
industries where scale is necessary to achieve low cost production.
Individual investors then delegate their allotments to a single manager for the
efficient operation of the entire scheme. Investor fees provide the scheme
manager with the necessary funds to establish and operate the scheme.
According to the Australian Forest Products Association, the MIS
structure proved effective in 'leveraging private sector investment in
plantation development' and became a high profile source of investment in rural
industries. It suggested that this success was due to schemes being able to:
provide investment scale through pooling of investments funds;
provide economies of scale through year-on-year investment in the
address information deficiencies and lower transaction costs; and
improve cash flow to help offset high up-front establishment
During their early years, agribusiness MIS accounted for around $300
million per annum of investment in rural industries—mostly in forestry,
viticulture/wine, olives and almonds. Although, a minor source of investment
overall, agribusiness MIS have been important in the development of some
industries—notably blue gum forestry and olives.
Figure 2.1: A typical MIS structure
By and large, investors in an agribusiness MIS (known as growers) do not
own any physical assets, such as the land or trees. The growers' contributions
secure them an interest in the scheme, which, in effect, is a bundle of rights
over an area of land or allotment. These rights include 'a right to have
particular services carried out in a given area of land (such as the
establishment and maintenance of trees for growing a crop), and a limited right
to the trees and the crop that is grown'.
...investors acquire a right to derive profits from
agribusiness produce of the agribusiness enterprise (e.g. timber, wine, grapes,
olives, and almonds), net of management and lease fees paid to the
responsibility entity, and net of rent and other expenses incurred in operating
the agribusiness scheme.
Generally, on entering the scheme, investors assign their rights to the
crop to the manager in return for a share of the harvest proceeds. Researchers
have noted that:
Even though the investor may have 'ownership rights' to the
trees or crop on a specific acreage, the MIS agreement provides that the harvest
proceeds from the whole scheme are shared pro rata among investors according to
their relative investments—thereby diversifying risk. 
The Great Southern Plantations 2007 Project was one such scheme. The
scheme was registered with ASIC on 8 March 2007, at which time Great Southern
Managers Australia Limited (GSMAL) became the RE. Approximately 4,000 growers
invested in the scheme which took in 43,989 woodlots of about one third of a
hectare each. By May 2009, growers had invested around $132 million in the
scheme. The relationship between GSMAL and the growers was defined by a Product
Disclosure Statement (PDS), a scheme constitution, the terms of the sub lease
and management agreement whereby each grower engaged GSMAL to prepare,
establish, maintain and ultimately harvest the trees.
According to the Bendigo and Adelaide Bank:
A managed investment scheme was the logical investment
vehicle for Great Southern to offer pooled investments in plantation and
agricultural projects to investors.
For tax reasons, many agribusiness MIS were structured so that investors
were taken to operate their agribusiness investment in their own right. Thus,
an agribusiness MIS is a tax effective investment vehicle. With this type of
scheme, investors can claim a personal income tax deduction for the cost of
investing in timber plantation and agribusiness development activities—for the
up-front investment and any annual fees paid to the RE and its related parties.
According to ASIC, agribusiness schemes were designed around this tax benefit,
which is 'received at point of initial investment and then subsequent revenue
commencing at a variable time later, such as 4–5 years later when the crops
Although there have been changes to the tax regimes for forestry and non-forestry
MIS, the allowable tax deductions are a common characteristic of the schemes.
Financing investment through
The provision of finance is a marked feature of agribusiness MIS. While
some growers drew on their own funds to finance their investment, many chose to
access finance offered through their scheme, which provided finance for growers
to make their initial application fee. Repayments were to be made over the life
of the loan and fully discharged from the proceeds of the harvest. The scheme
allowed an upfront tax deduction of the loan application fee and of interest
payments on the loans.
Forestry schemes refer to plantation forestry projects which may be
ready to harvest in 8–25 years, necessitating a long period between investment
The Australian Forest Products Association noted the significant challenges in
attracting private investment into plantation forestry created by the large
scale required to achieve a viable resource, the asset's relative illiquidity,
high initial costs and long waiting period for return on these long-term
Plantations 2020 Vision
In the 1990s, Australia faced a growing trade deficit in wood products.
In 1992, the Commonwealth and state governments endorsed a plantation policy contained
in the National Forest Policy Statement (1992). Importantly, one of the policy
goals was to increase the total area of forest. In this regard, the governments
recognised that the long-term nature of plantation investments, often in excess
of twenty years, could cause difficulties attracting investment capital as the policy
When capital is committed for such a long time before a
return is received, companies, individuals and farmers may be reluctant to
invest in plantations.
Notably, under this policy, the Commonwealth recognised 'pooled development
funds' as a useful mechanism for promoting long-term investments, including
plantation development, and announced it would encourage the establishment of such
funds. Also, taxation was identified as one of the areas that could help
minimise impediments to plantation development and assist governments achieve
their plantation objectives.
In July 1996, the Ministerial Council on Forestry, Fisheries and
Aquaculture endorsed the plantation industry's target of trebling the
plantation estate by the year 2020. To achieve this target, the Ministerial Council
agreed, in consultation with relevant stakeholders, to develop a realistic and
achievable national strategy. Subsequently, in 1997, Plantation 2020 Vision was
released. This agreement was a three way partnership involving the Australian,
state and territory governments and industry.
In addition to trebling Australia's plantation estate, one of the
strategic gaols of the 2020 Vision was to have a plantation
industry with a sound reputation as a credible investment destination and to
have 'well-informed investors' willingly participate in 'well-run and
profitable managed investment plantations projects'.
The expectation was that private investment would take on a bigger role in
helping to boost the national plantation estate.
Following the release of the 2020 Vision, Australia's
plantation estate increased significantly to around 2 million hectares by 2008.
Mr Alan Cummine, who has extensive experience in the forestry industry,
attributed the growth in private plantation after 1997–98 to companies that had
been managing 'prospectus-financed' forestry schemes for some years responding
positively to the launch of the 2020 Vision.
Structure of forestry MIS
Although forestry investment schemes take on different forms, their core
activities involve establishing, managing, harvesting, processing and supplying
timber products from plantation grown on behalf of shareholders, unit holders
and scheme members.
For example with the Willmott Group:
Each investor leased an area on which trees were to be grown.
Generally, each investor made a forestry management agreement with a company in
the Willmott group, by which that company agreed to plant, maintain and harvest
the trees. Most forestry management agreements provided for the investor to pay
the relevant company an initial fee, but for the investor to pay no further sum
until the trees were harvested.
Each lease was for a term of years and some leases gave the tenant an
option for a further term.
The National Association of Forest Industries noted the special characteristics
that distinguish forestry MIS, including the significant proportion of the
total costs that are incurred during the plantation establishment phase. In
this regard, it noted that growers are required to 'wait a long time before any
returns on their investments can be realised'. It stated:
There is no annual source of income and in the most simple
forestry investments, the trees are established in the first year of the
project and income is received when the trees are harvested a minimum of ten
Also, a single forestry scheme could be conducted on multiple
plantations, which were distant from each other. Again using Willmott as an
The growers' individual woodlots may be adjacent to woodlots
in other schemes, and land used in the schemes is intermingled, creating a
The lots are divided and allocated to growers at random and
land in various schemes is intermingled. This is true of all regions. To access
its lot, an individual grower may have to cross other growers' land and to
identify a grower's land, GPS is necessary, but not always possible. Surveying
would be prohibitively expensive.
The Great Southern Plantation 2003 Project was another such scheme.
Members of the group (growers) participated in a scheme to grow and harvest
timber in forestry plantations. Under the schemes, a grower would acquire an
interest in a woodlot where trees would be grown and harvested on the grower's
The grower would enter into a land management agreement with GSMAL.
The fee structures for forestry projects generally require an up-front
fee from investors, and deferred rental and management fee out of proceeds of
the harvest, which can be many years later. Some forestry MIS, however, may require
growers to make annual lease and management payments as well as the up-front
ASIC observed that fee structures that rely on up-front payments and
payments out of proceeds from harvests have presented issues for the sector.
This structure requires the RE (or its ultimate parent) to absorb a sustained
period of negative cashflows until the project produces enough income to meet
Horticultural MIS were also operating before the MIS regime commenced in
1998 but increased significantly after 2004. According to ASIC, the growth was due
largely to Timbercorp's expansion into this sector. Non-forestry agribusiness
MIS have focused on horticultural crops involving olives (for oil), almonds and
wine grapes. Other horticultural crops include; macadamia nuts, citrus fruit,
stone fruit, tomatoes, olives, table grapes, mangoes, avocados, truffles and
The wait for a return on investment in these projects differs between
crops but is less than forestry MIS. ASIC explained:
Horticultural schemes (almonds, wine grapes and olives) are
marketed in Australia as being fully income producing after 5 years. They then
generally [are] expected to have a revenue producing life of up to 22 years.
Horticulture projects, however, are labour and capital intensive in
comparison to forestry MIS.
While each horticultural MIS was structured differently, it is possible
to make generalisations on how they operated.
In the main, agreements in an MIS comprised a constitution, a management
agreement, a head lease and sublease and a compliance plan.
Normally, the schemes were structured around a contract between the grower and
The MIS operator leases land and water rights from land owners
which are often associated with the MIS operator. The land owner usually funds
all land preparation and infrastructure necessary for the project and acquires
all necessary water licences. Most MIS projects are either fully or partially
developed by the landowning entity at the time MIS participants are accepted
into the project.
After leasing the land and water rights, the MIS operator then
divides these into allotments or plots, which are then subleased to individual
MIS participants to conduct agribusinesses.
The MIS operator then enters into a management agreement to
operate and manage the agribusinesses of MIS participants. As a rule, the
management agreement will be the same for all the MIS participants—there is a
master agreement to which a list of MIS participants is attached.
MIS participants pay the MIS operator an up-front fee as well as
annual rent and management fees in return for managing the MIS project—in other
words the growers enter into a contract with the RE to cultivate, maintain and
harvest their agribusiness enterprise on their behalf.
The MIS operator enters into an operations agreement with another
entity, the MIS manager, who is usually also associated with the MIS operator.
The MIS manager manages day-to-day operations, from preparing land to harvesting.
The MIS manager usually conducts these activities through contracting third
parties to undertake the work. Generally the contractor makes the major
decisions on how the farming activities are conducted with the MIS manager
Once the crop is harvested, the MIS operator contracts one or
more companies to pack, store, transport and market the product.
The MIS operator receives the proceeds from the sale of the harvested
product and once received, holds them on trust for the MIS participants. The
MIS operator keeps a proportion as a harvesting/marketing fee and distributes
the remainder to MIS participants in proportion to the funds contributed and
number of interests held. All produce grown on the project is pooled and the
amount that a MIS participant receives takes no account of the price received
for the variety grown on their individual allotment or of the yield from their
Generally horticultural projects require an upfront fee from growers and
on-going annual rental and management fees to the manager to
carry on the business as per the prospectus; or
rental and annual fees paid out of net proceeds from harvests
(for typical horticultural MIS, returns are generated after 4–5 years).
Most commonly the fee structure for agricultural and horticultural
public investment ventures was based on leasing an identifiable area of land to
an investor. In some prospectuses, ownership of an identifiable area of land
was offered to the investor.
Agribusiness MIS collapses
After the introduction of the MIA, the number of agribusiness MIS grew steadily
until the high profile collapses in 2009 and subsequent years. During the
lead-up to these failures, there was a notable surge in investment in agribusiness
MIS. In the peak year of 2006–07, investors placed over $1.2 billion in MIS
According to figures cited by the National Farmers' Federation, the MIS
industry managed to raise $1.079 billion in the 2007/08 financial year.
Non-forestry projects received 35 per cent ($378 million) of total MIS funds.
Statistics indicate that contributions to non-forestry MIS grew rapidly
from $160 million in 2003–04 to $256 million for 2004–05, $445 million in
2005–06 and $467 million in 2006–07.
With regard to forestry MIS, according to NewForests, the MIS sector established
almost 1 million hectares (2.5 million acres) of timber plantation in Australia
between 1998 and 2008.
Overall, ASIC informed the committee that since the introduction of the MIS
regime in 1998 agribusiness schemes had raised approximately $8 billion.
The following table provides detail on the funds invested in agribusiness and
shows the amounts invested during the peak years of 2006–2008 and the sudden
Estimates of amounts invested in Agribusiness MIS 2000–2012
Agribusiness MIS ($)
Agribusiness end of year reports for 2000 to 2010 income years, Data for 2011
and 2012 income years estimated from ATO data.
In 2008, the industry was highly concentrated with Timbercorp,
Great Southern and Gunns the major scheme operators. In the five years
leading up to 2009, ASIC estimated that 'approximately $5 billion had been
invested in agribusiness schemes by over 75,000 investors'. Forestry schemes
represented approximately $3.7 billion of the $5 billion.
ASIC produced the following breakdown of the funds raised by major schemes:
Timbercorp, around $1 billion;
Great Southern, $1.8 billion;
FEA Plantations, $426 million;
Rewards Projects Limited, $291 million;
Willmott Forests, about $400 million; and
Gunns Plantations, about $1.8 billion.
Timbercorp was the first major agribusiness MIS to fail followed by
Based on ASIC's analysis, the majority of investors in both the Great Southern
and Timbercorp schemes were retail investors.
Since then, there have been only a small number of forestry MIS offered to
retail investors. In addition, as a result of the winding up and deregistration
of a number of these schemes, there has been a reduction in the number of
In this report, the committee refers mainly to four of the main agribusiness
MIS—Timbercorp, Great Southern, Willmott Forests and Gunns.
Mr Robert Hance and Mr David Muir established the Timbercorp Group in
1992. They incorporated Timbercorp Eucalypts Ltd, an unlisted public company,
which became known as Timbercorp Ltd. At the same time, Timbercorp Finance Pty
Ltd was incorporated as a subsidiary to provide finance to investor growers. The
Timbercorp Group of companies carried on business promoting managed investment
schemes. Investors, known as growers, invested and participated in the growing
of trees, almonds, olives and other horticultural products.
On 4 April 2000, Timbercorp Securities Ltd (TSL) was incorporated and
replaced Timbercorp as the operator of the existing schemes and became the RE
of each new scheme. TSL held an AFS licence and became the RE for 34 registered
forestry and horticultural MIS, including eucalypts, almonds, olives, citrus,
avocadoes, mangoes and grapes. According to ASIC, the majority of TSL's
agricultural assets were in forestry plantations in Albany, WA and the Green
Triangle region spanning the Victorian and South Australian border. TSL's substantial
horticultural operations (mainly almonds and olives) were located across the country.
As mentioned above Timbercorp Finance Pty Ltd was a subsidiary of the
parent company and provided finance to investor growers.
On 23 April 2009, TSL, its ASX-listed parent Timbercorp Limited
(Timbercorp) and around 40 other associated entities appointed KordaMentha as
The creditors resolved to put each one of the group companies into voluntary
liquidation. At a meeting on 29 June 2009, the creditors resolved to wind up
the companies and the administrators became joint and several liquidators.
At the time of its collapse and liquidation, there were 33 registered
MIS and three unregistered private scheme offers. TSL schemes had approximately
18,400 investors who had invested $1.095 billion.
As a result of the collapse, the majority of the Timbercorp schemes could not
be carried to completion, meaning the investments were of limited or no value.
Following the collapse, liquidators also commenced or threatened recovery
actions against investors who had borrowed money from Timbercorp Finance.
Timbercorp Finance had outstanding loans to over 14,500 investors, totalling
The Great Southern group of companies grew to become the largest manager
of agricultural-based MIS in Australia and the largest owner of land for
commercially grown hardwood plantations.
Great Southern Managers Australia Limited (GSMAL) was an Australian Financial Services
(AFS) licensee and RE of 43 registered forestry and horticultural MIS and raised
around $2 billion between and 2004 and 2009 from 43,000 investors.
According to ASIC, the majority of GSMAL's agricultural assets were in forestry
plantations located in Western Australia and the Green Triangle region. GSMAL
also conducted substantial horticultural operations (olives, wine grapes and
almonds) which were spread across the country.
Many investors in Great Southern took advantage of finance offered by
Great Southern Finance, which was facilitated through Great Southern's
arrangements with Bendigo and Adelaide Bank.
Great Southern Finance Pty Ltd (GSF) was the financing arm of the Great
The Great Southern Group collapsed in May 2009 and joint and several
voluntary administrators were appointed.
At that time, the Great Southern Group comprised the parent company, GSL, and
On 19 November 2009, creditors resolved to appoint the liquidators as joint and
several liquidators of GSMAL. GSMAL and GSF were wholly owned subsidiaries of GSL.
The Bendigo and Adelaide Bank made it clear that at the time
administrators, receivers and liquidators were appointed to the Great Southern
group of companies, no administrators were appointed to the Great Southern plantation
schemes. It explained:
Following a competitive process largely financed on behalf of
investors by Bendigo and Adelaide Bank...Gunns Plantations Ltd was appointed to
replace GSMAL as responsible entity for most of the Great Southern plantation
schemes in December 2009 and January 2010. Gunns, and other bidders for the role,
intended to manage the schemes through to completion on behalf of investors. 
Unfortunately for investors in Great Southern MIS, Gunns also struggled
to make the schemes profitable and ultimately administrators were appointed in
September 2012. Put simply, the plantation managed investment schemes did not
have the resources to manage the plantations to completion.
Willmott Forests Limited (WFL)
Willmott Forests Limited (WFL), which was the RE for a number of managed
investment schemes, collapsed financially in September 2010 and receivers and
voluntary administrators were appointed.
On 26 October 2010, new voluntary administrators were appointed. They
determined that WFL was 'insolvent and without funds to meet its debts, comply
with its statutory obligations as owner/manager of the plantations and fulfil
its obligations to the growers and third parties under the constituent
Subsequently, in March 2011, the creditors of WFL resolved that the company be
wound up and liquidators appointed. The liquidators found that the Willmott
schemes could not continue to operate and that it was 'very unlikely' that 'a
party would be willing to take over as RE and manager of the schemes'. They set
in train a process to sell the assets.
Gunns Plantations Limited (GPL) was formed in 1999 and, as noted above,
also acted as the RE for the Great Southern Pulpwood Forestry Schemes
In September 2012, an ANZ-led syndicate of banks that were owed about
$560 million appointed KordaMentha as receivers. They were to carry out a
detailed analysis of plantation timber managed-investment schemes run by the
company, 'into which thousands of investors had pumped about $600 million'.
PPB Advisory, specialists in corporate recovery, restructure and insolvency,
were appointed as administrators of GPL on 25 September 2012 and liquidators on
5 March 2013.
Following, the collapse of the Gunns Group, the liquidators sought
expressions of interest for a RE, but, according to the court:
With the exception of the 2000 and 2001 schemes, no
satisfactory replacement could be found. GPL had no funds. The scheme
landowners were in receivership. The receivers had issued notices of default to
GPL under Forestry Right Deeds, adding further uncertainty to the growers'
position and their ability to recover any value from their investments.
Without a properly funded entity to assume all the responsibilities and
obligations of an RE for the schemes, the court was satisfied that 'the only
course open to the liquidators was to sell the schemes'.
Although the MIA was intended to strengthen investor protection, the collapse
of a number of high-profile agribusiness MIS has resulted in substantial financial
losses for investors in such schemes. Before looking more closely at the
failure and liquidation of agribusiness MIS, the committee seeks to highlight
the human dimension of the failure of these schemes and to bring to the fore
the lived experiences of the investors.
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