The wood for the trees

A sense of order is starting to emerge from the mess left by the directors of Timbercorp and Great Southern as activist investors, financial advisers, accountants, lawyers and, believe it or not, the corporate regulator, take action to help rescue timber and horticultural projects.

The biggest problematic issue is the insolvency of the responsible entities that were formed by the two companies to both watch over the interests of investors and manage the projects.

The conflict of interests inherent in the original scheme structures are coming back to haunt the grower investors as administrators and receivers act to recover funds for secured creditors of the parents of the responsible entities.

Timbercorp grower investors are well organised thanks to the efforts of financial adviser Chris Garnaut, who is a member of the Timbercorp creditors committee and a driving force behind the Timbercorp Growers Group (TGG).

The TGG website is being used to raise a $300,000 fighting fund from advisers and accountants who tipped people into the MIS schemes. But so far only 200 of the estimated 1800 advisers who made money from Timbercorp have contributed funds.

Separate to that fighting fund, Garnaut has been seeking feedback on an offer for forestry assets from the TC Consortium, which includes First Super, former Timbercorp forestry workers, Penola Pulp Mill and an international investor.

The TC Consortium has a three-pronged offer. Allow investors to remain in the scheme and pay the rent and maintenance until harvest, call on the "hardship provisions” under the present contract and ask the manager to pay the rent and maintenance in return for a lien against the sale proceeds or sell the trees to the consortium.

On the horticultural front, Timbercorp's grower investors have until next week to come up with a plan to rescue various almond and olive projects.

Timbercorp administrators KordaMentha have applied to wind up the almond and olive projects. That matter returns to court on July 15.

In a positive development, the Australian Securities and Investments Commission has written to Timbercorp's horticultural growers seeking their views on what they want to happen.

An ASIC survey of growers went out yesterday. The survey includes a question about the preferred outcome including either appointment of a temporary responsible entity or winding up.

ASIC says it will make submissions to assist in the court deliberations.

Investors in Great Southern are not as well organised as those in Timbercorp. They have tended to cluster around a handful of advisers trying to salvage value from the wreckage or lawyers trying to fight off financiers trying to recover loan funds.

Timbercorp Finance and Bendigo and Adelaide Bank are being hit with waves of letters from investors refusing to pay principal and interest on loans taken out to finance investments in MIS projects.

The potential financial impact on Bendigo and Adelaide Bank is starting to filter through to the analyst community. Bendigo's earnings could fall by 90 per cent if half the $615 million in loans to Great Southern MIS investors are written off, according to Andrew Lyons and Matthew Davison at Merrill Lynch.

The Merrills analysts questioned how a bank could have 4.5 per cent of its non-housing loan book exposed to one entity. However, they said there were a number of uncertainties that would impact the ultimate loss incurred by the bank.

Bendigo has appointed the Perth office of heavyweight lawyers Allens Arthur Robinson to ensure the loans are repaid and, if necessary, it will move to bankrupt any of the 8,200 investors in the Great Southern projects that renege on loans.

But Ron Willemsen from solicitors Macpherson Kelley says there are very strong grounds for the loans to be declared void and unenforceable. If that action is successful nothing further will have to be paid to Great Southern Finance Pty Ltd or Bendigo and Adelaide Bank.

It is claimed that the actions of GSF rendered the loan transactions unlawful either on its own behalf or on behalf of Bendigo and Adelaide Bank.

Secondly, the investors are seeking to recover money they put in either from their own funds or under allegedly invalid loans.

Willemsen says he has 600 Great Southern clients who owe about $45 million, which is being contested.

Macpherson Kelley also represent 1,400 Timbercorp clients who owe money to Timbercorp Finance. They are fighting legal action from KordaMentha's solicitors Mills Oakley Lawyers in the Victorian Supreme Court.

Willemsen wants to shift this to the Federal Court so that a definitive ruling can be obtained for the benefit of investor borrowers across the country.

Meanwhile, the receivers of Great Southern, McGrathNicol have written to grower investors notifying them of their plan to set up a consultative committee of stakeholders to assist in determining the solvency and viability of MIS projects. This review process is expected to take three to four weeks. The committee will comprise investors, Bendigo and Adelaide Bank, ASIC and the voluntary administrators and the Tax Office.

The only thing missing from the Timbercorp and Great Southern debacle is the involvement of a federal politician but it is believed moves are afoot to get the Minister for Financial Services, Superannuation and Corporate Law, Chris Bowen, involved.