Chapter 2

Chapter 2

Managed investment schemes

2.1        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.[1]

2.2        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.[2]

2.3        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.


2.4        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.[3] They have the following features:

2.5        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.

Responsible entity

2.6        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.[5] 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.[6] 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.[7] In exercising its powers and carrying out its duties, the RE of a registered scheme must:

2.7        It should be noted that these requirements were in force during the period covered by this inquiry.

2.8        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.[9]

2.9        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.[10]

Agribusiness MIS

2.10      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.[11] 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.[12]

2.11      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:

2.12      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.[14]

Figure 2.1: A typical MIS structure

Figure 2.1: A typical MIS structure[15]

Growers' rights

2.13      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'.[16] ASIC explained:

...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.[17]

2.14      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. [18]

2.15      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.[19] 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.[20]

Tax benefits

2.16      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.[21] 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 reach maturity'.[22] 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.[23]

Financing investment through borrowing

2.17      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 MIS

2.18      Forestry schemes refer to plantation forestry projects which may be ready to harvest in 8–25 years, necessitating a long period between investment and return.[24] 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 ventures.[25]

Plantations 2020 Vision

2.19      In the 1990s, Australia faced a growing trade deficit in wood products.[26] 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 statement explained:

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.[27]

2.20      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.[28]

2.21      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.[29]

2.22      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'.[30] The expectation was that private investment would take on a bigger role in helping to boost the national plantation estate.

2.23      Following the release of the 2020 Vision, Australia's plantation estate increased significantly to around 2 million hectares by 2008.[31] 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.[32]

Structure of forestry MIS

2.24      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.[33] 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.[34]

2.25      Each lease was for a term of years and some leases gave the tenant an option for a further term.[35] 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 years later.[36]

2.26      Also, a single forestry scheme could be conducted on multiple plantations, which were distant from each other. Again using Willmott as an example:

The growers' individual woodlots may be adjacent to woodlots in other schemes, and land used in the schemes is intermingled, creating a 'chequerboard' effect.

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.[37]

2.27      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 behalf.[38] The grower would enter into a land management agreement with GSMAL.

Fee structure

2.28      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 fee.[39]

2.29      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 its costs.[40]

Horticultural MIS

2.30      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 wheat.[41]

2.31      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.[42]

2.32      Horticulture projects, however, are labour and capital intensive in comparison to forestry MIS.[43]

2.33      While each horticultural MIS was structured differently, it is possible to make generalisations on how they operated.[44] In the main, agreements in an MIS comprised a constitution, a management agreement, a head lease and sublease and a compliance plan.[45] Normally, the schemes were structured around a contract between the grower and RE.

2.34      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 allotment.[48]

Fee structure

2.35      Generally horticultural projects require an upfront fee from growers and either:

2.36      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.[50]

Agribusiness MIS collapses

2.37      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 projects.[51] 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.[52]

2.38      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.[53] 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.[54] Overall, ASIC informed the committee that since the introduction of the MIS regime in 1998 agribusiness schemes had raised approximately $8 billion.[55] 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 decline thereafter.

Table 2.1: Estimates of amounts invested in Agribusiness MIS 2000–2012[56]


Amount invested Agribusiness MIS ($)

Timber ($)








































































Source—Australian Agribusiness end of year reports for 2000 to 2010 income years, Data for 2011 and 2012 income years estimated from ATO data.

2.39      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.[57] ASIC produced the following breakdown of the funds raised by major schemes:

2.40      Timbercorp was the first major agribusiness MIS to fail followed by Great Southern.[59] Based on ASIC's analysis, the majority of investors in both the Great Southern and Timbercorp schemes were retail investors.[60] 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 registered schemes.[61]

2.41      In this report, the committee refers mainly to four of the main agribusiness MIS—Timbercorp, Great Southern, Willmott Forests and Gunns.


2.42      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.[62]

2.43      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.[63]

Financing arm

2.44      As mentioned above Timbercorp Finance Pty Ltd was a subsidiary of the parent company and provided finance to investor growers.


2.45      On 23 April 2009, TSL, its ASX-listed parent Timbercorp Limited (Timbercorp) and around 40 other associated entities appointed KordaMentha as voluntary administrators.[64] 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.

2.46      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.[65] 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 $477.8 million.[66]

Great Southern

2.47      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.[67] 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.[68] 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.[69]

Financing arm

2.48      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.[70] Great Southern Finance Pty Ltd (GSF) was the financing arm of the Great Southern Group.[71]


2.49      The Great Southern Group collapsed in May 2009 and joint and several voluntary administrators were appointed.[72] At that time, the Great Southern Group comprised the parent company, GSL, and 34 subsidiaries.[73] 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.[74]

2.50      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. [75]

2.51      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.[76]

Willmott Forests Limited (WFL)

2.52      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.

2.53      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 documents'.[77] 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.[78]


2.54      Gunns Plantations Limited (GPL) was formed in 1999 and, as noted above, also acted as the RE for the Great Southern Pulpwood Forestry Schemes

2.55      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'.[80] 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.

2.56      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.[81]

2.57      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'.[82]


2.58      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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