'Common enterprise' schemes face axe

Under the plan, operators would be banned from using the legal structure employed by failed timber plantation groups Great Southern and Timbercorp.

Around $48 billion is held in managed investment schemes, which are commonly used in passive investments such as managed share funds. However, there have been calls for changes in the provision of these schemes after the collapses of Great Southern and Timbercorp in 2009 affected thousands of small investors.

In a new report to be published today, the Corporations and Markets Advisory Committee calls for a ban on new "common enterprise" schemes, where members play a more "entrepreneurial" role for tax reasons.

With forestry schemes, for instance, investors could receive hefty tax deductions if they were able to show they were closely involved with the plantations.

But the committee, made up of independent corporate law experts, said this created a minefield of complexity when the schemes ultimately collapsed. There was an "intermingling of the affairs and property of the scheme with that of its members", the report said, and this sparked confusion after the schemes had imploded.

"CAMAC considers that this intermingling problem could be avoided if only pooled investment schemes were permitted, where members act in a matter similar to shareholders in a company," it said.

The report also proposed giving small investors more rights in the event of a collapse, by allowing them a direct claim on the assets owned by the scheme. Under the existing laws, small investors face a complex process of applying for access to the assets through the responsible entity of the scheme.

The proposed shake-up follows extensive political scrutiny of agribusiness management investment schemes, with one 2009 parliamentary committee concluding the schemes had a "Ponzi-like character".

The Australian Securities and Investments Commission has also said it will target managed investment schemes in agribusiness.

Earlier this year, ASIC said 138 agribusiness schemes worth more than $4 billion had collapsed since 2009, affecting 93,000 investors.