Timbercorp collapse turns focus on oversight of agribusiness plans

KordaMentha, the administrator of the collapsed managed investment scheme operator Timbercorp, concluded last week that Timbercorp Securities, the "responsible entity" for the company's dozens of MIS projects, was insolvent.

Accounts filed with the Australian Securities and Investments Commission show that Timbercorp Securities suffered a drastic dwindling of cash in its last full financial year from $2.15 million in 2007 to just $158,000 by September 30 last, although its total reported assets remained almost static.

It now has no money, no access to money and no staff, according to KordaMentha. Up to 10,000 growers now face losing any claim on their almond and olive investments if the Timbercorp schemes which need more than $300 million to keep operating for another year are wound up.

The situation has highlighted what some argue are deep-seated problems with the way managed investments which include agribusiness schemes, mortgage trusts, property syndicates and a host of other "pooled" investments are regulated.

The chairman of ASIC, Tony D'Aloisio, last week explained that the sector estimated to manage some $350 billion worth of investors' funds involved a "high level of self-regulation".

MIS products must be registered with ASIC, and the responsible entity must be licensed, but there was no assessment of the "merit" of the offer, he said.

"The basic philosophy behind [MIS regulation], similar to a number of areas, was to leave it to the market with oversight and market-conduct supervision from ASIC.

"ASIC's role is that we have functions of licensing responsible entities, and we register the schemes. We don't actually vet or approve it. We are monitoring ongoing disclosure, but there's no requirement that product disclosure statements be filed with ASIC."

The present system, which is now about 10 years old, rests on the role of the so-called responsible entity the entity charged with managing the scheme and, importantly, with protecting investors' interests. Under this system the investment manager such as Timbercorp appoints a responsible entity. Previously, an independent trustee company was charged with acting on behalf of investors a situation that still exists with superannuation and debentures.

Ian Ramsay, a corporate law professor at Melbourne University, said the laws were changed because trustees were "falling down on the job". He did not think returning to trustees was the solution, but said "no one suggests there aren't problems".

One of the most significant problems was that investors in managed investments did not get the same protections as shareholders in companies.

Professor Ramsay said there was "probably a strong argument" to increase legal protections for investors, and to review regulations around the sector.

Last week the then corporate law minister, Nick Sherry, would not be drawn on the issue of responsible entities, saying he would "assess the outcomes" of a parliamentary committee inquiry into agribusiness MIS, chaired by the Labor MP Bernie Ripoll.

The inquiry's terms of reference include the need for any legislative or regulatory change.

"We will be looking at all of that, in terms of what works and what doesn't work," Senator Ripoll said. Submissions close on June 26.