The global financial crisis provided many lessons for investors. One of the hardest is how their interests have been sacrificed to feed the greed of individuals and companies meant to be looking after their investments.
Investors caught up in the recent failure of many agribusiness schemes have suffered as a result of corporate greed and the rapacious activities of banks and liquidators.
A group of schemes managed by Elders are not in this category, but there are serious questions as to whether it has lived up to its moral responsibilities despite having complied with the letter of the law.
To understand what has happened, and is about to happen, it is important to understand how these managed investments schemes are structured.
A manager puts together a proposal, based on planting an agricultural product that is either harvested or produces a crop, which is sold to investors who pay an amount to the manager of the scheme, and a responsible entity is put in place to look after the grower's interests.
To maximise the appeal of these schemes the investments were sold with a large upfront cost and no ongoing fees. When the crop was harvested the manager of the scheme took a percentage of the sale proceeds to cover the harvest costs and also make a profit. In the past three years there have been many examples of where those charged with looking after growers' interests have instead used investors' funds to pay directors' salaries and prop up ailing companies.
One of the few responsible entities involved in agribusiness investments still surviving today started operating as Integrated Tree Cropping in 1990. The company listed publicly in 2004, was taken over by Futuris Corporation, which eventually changed its name to Elders, and ITC then changed its name to Elders Forestry.
After the GFC hit, and many agribusiness management companies were going into liquidation, Elders reassured its current and future investors, providing letters of comfort to Elders Forestry. These letters effectively meant Elders was underwriting the operations of Elders Forestry. Unfortunately for Elders Forestry, and the grower investors who put their faith in Elders to bring their projects to harvest, the downturn in pulpwood prices and the high Australian dollar have meant its activities continue to be unprofitable. Despite investors having paid large amounts of money to Elders Forestry, and Elders having committed to bring the projects to harvest, it now wants to walk away from its moral responsibilities.
Since late last year Elders has been looking for companies to buy the standing timber owned by the grower investors. It is also looking to have Elders Forestry replaced as the responsible entity and forestry manager. Given the current economic and financial climate, it is not surprising that the deal that has been struck will return little or no value to many investors.
Elders in its published material has made it clear it intends to exit the agribusiness sector no matter what the cost to investors. The Supreme Court of Victoria has approved Elders' plans, providing legal justification for it to do as it wants while, as the owner of the responsible entity Elders Forestry, ignoring its moral responsibility to protect growers' interests.
The next hurdle Elders must clear is to have the growers in some of the schemes agree to the selloff. Unfortunately, those growers are really faced with only one option. That is to accept the pittance being offered for their trees. The alternative is to reject the proposal but be faced with Elders removing its funding. This would inevitably lead to Elders Forestry going into liquidation and those investors receiving nothing.
Max Newnham has invested in several agricultural schemes, including two with ITC.