One only need to look at the litigation surrounding Timbercorp as a reminder of why investors can be a little gun shy of the agribusiness sector.
Yesterday the High Court dismissed an action by aggrieved 'grower’ clients of failed group Timbercorp, refusing to grant them leave to appeal against an order to pay back some $515 million.
Timbercorp collapsed and was placed in liquidation in 2009 but the borrowers, who now number 3244 and owe an average of more than $15,000 each to liquidator KordaMentha, have seen their disputed debt accruing interest at rates of between nine and 13 per cent since the collapse in 2009.
Their class action, which was run by law firm McPherson and Kelly, alleged that Timbercorp management failed to disclose a number of material issues and made false and misleading claims in relation to Timbercorp’s managed investment schemes.
The schemes were typicalof many such rural MIS, as they were called, offering instant tax breaks to investors and earning advisers commissions often as high as 10 per cent.
KordaMentha liquidator Craig Shepard, whose job includes calling in outstanding debts, welcomed the decision and noted that because of the accruing interest, many of the borrowers “now owe substantially more under their loans than they did at the time that the class action was commenced in 2009’’.
On his appointment five years ago in April 2009 there were 7756 borrowers owing $475m but there are now less than half that number owing a bigger number, $515 million.
Slater & Gordon partner Mark Walter, whose firm is not involved in the class action, noted that the decision had narrowed borrowers’ range of options.
“It’s always best to try to deal with these issues via class actions but we also deal with individuals who have claims against advisers for poor advice,’’ he said.
His colleague James Naughton said investors might consider whether they could recover losses “in circumstances where the advice provided to them to invest in an agribusiness scheme was inappropriate, especially in circumstances where the risks of investing in their scheme were not adequately disclosed.’’
A number of rural MIS collapsed in 2008 and 2009 because a crackdown by the ATO reduced the flow of funds coming in, and because of the business model, they could not sustain operations by any other means.
A further complication was that while many 'growers’ were not actually shareholders in the listed schemes, the schemes’ collapse also caused the collapse of the responsible entity, the supposed trustee of the schemes.