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Economics References Committee - 12/11/2014 - Forestry managed investment schemes

BYRNE, Mrs Meredith, Private capacity

HALPERN, Ms Naomi Alexandra, Private capacity; and Spokesperson, Holt Norman Ashman Baker Action Group

KELLY, Mr Bernard James, Private capacity

McDONALD, Mr John Denis, Private capacity

Committee met at 09:03 .

CHAIR ( Senator Dastyari ): I declare open this first hearing of the Senate Economics References Committee's inquiry into the structure and development of forest managed investment schemes. The Senate referred this inquiry to the committee on 25 June 2014 for report by 31 March 2015. The committee will be accepting submissions until 15 December 2014. These are public proceedings. I remind all witnesses that in giving evidence to the committee they are protected by parliamentary privilege. It is unlawful for anyone to threaten or disadvantage a witness on account of evidence given to a committee, and such action may be treated by the Senate as a contempt. It is also a contempt to give false or misleading evidence to a committee. If a witness objects to answering a question, the witness should state the ground upon which the objection is taken, and the committee will determine whether it will insist on an answer having regard to the ground which is claimed. If the committee determines to insist on an answer, a witness may request that the answer be given in camera. A request to have evidence heard in camera may also be made at any other time.

I would like to welcome everyone today who is either giving evidence or observing the proceedings. Today we are going to discuss some very personal and deeply emotional matters and I would ask that visitors assist the committee to keep the proceedings orderly by refraining from interrupting proceedings. I also urge witnesses to exercise care when recounting their experiences and not to unnecessarily name people for alleged wrongdoings unless the name of such persons are already on the public record for the misconduct. This precaution does not stop the witnesses providing names to the committee in private. Any person who believes they may have been subject to adverse comment should contact the committee.

Finally, but most importantly, I would like to take this opportunity to thank the witnesses who have taken the time to appear before the committee today. I acknowledge that some have travelled long distances and that we have people here from as far as Western Australia and Northern Queensland who have travelled just to be part of proceedings today.

Before the committee proceeds to questions, I invite the people at the table to make a very brief opening statement, but, before doing so, I also want to acknowledge that, while we have a full contingent of senators here, we also have Senator Xenophon the phone and Kelvin Thomson, the federal member for Wills, with us here today. I want to acknowledge their presence, even though they are not at the table.

Mrs Byrne, Mr Kelly, Mr McDonald and Ms Halpern, thank you so much for coming. Thank you for being prepared to come and tell us your story. Before we proceed, you could say a few words. Perhaps each of you would like to recount your story and your experience. A set of questions will be led by Senator O'Neill as well.

Ms Halpern : I am happy to start. I came to be in the Timbercorp scheme via my ex financial adviser and planner, Peter Holt, who repeatedly discouraged me from putting money into super, saying that Timbercorp and other agribusiness products that he was recommending would be a far superior way to build my security for retirement. From 2000 until 2008, he advised me to invest in numerous MIS schemes, including FEA, ITC, Rewards, Timbercorp and TFS—a total of seven projects—at a cost of nearly $486,000. All of them except for TFS project have failed now. In 2009, when Timbercorp collapsed, my debts for Timbercorp comprised $57,000. He also advised a whole lot of other things: margin lending and investment loans against my house. The point is that I went into these schemes because I trusted him. I had been with him for many years and I thought that he was looking after my future.

By the end of 2008, when everything collapsed, I was left in the region of $650,000 in debt, with $11,000 in my superannuation fund. I could not believe what had happened. I had no idea how it happened. I did not know I had all these loans until I started to get calls from creditors—companies telling me that I was behind in payments. Because Peter Holt managed everything, all documents went to his office. I had no idea what was going on, and I trusted him. I was terrified, totally panic-stricken, filled with dread. I did not know what to do. I was just completely overwhelmed and out of my depth. I have worked hard all my life and I was trying to do the right thing to secure a safe and comfortable retirement, and suddenly my world and everything that I have worked for collapsed completely around me.

I had to try to refinance the home that I had paid off to try and assist with the debt. In fact, I have refinanced it twice since 2009 and I am paying for it 4½ times over. My retirement, even if I do get to retire, looks grim. I experience periodic insomnia, anxiety, times of depression and total loss of any kind of hope for a secure future. I actually find it very hard to put into words the utter devastation over the six long years, and it continues to be.

If it is all right with the committee, I would like to say a few things about some members of our group who are not able to speak here today because they are too emotionally fragile, because they may have been advised for legal reasons not to speak, or because they have concerns about their public reputation. I want to tell you about the emails, the phone calls, the private conversations, that I and other members of the executive team of the group have had with our members.

Some in our group have already lost their homes and gone bankrupt and been left with absolutely nothing. There are also people who are poised now, if ANZ keep pursuing this, to lose their homes. We know of a retired couple who are now living in a caravan park. Another person, who lost her home and her life savings, has been living with a friend for the last three years because she is homeless. We keep hearing stories of hopelessness, despair, anxiety, depression, people feeling totally isolated, feelings of shame and worthlessness, loss of confidence, loss of self-respect and dignity, people turning to alcohol, to antidepressants, to sleeping pills. There are a lot of people who are reporting stress-related physical and mental health problems. We have members who, on top of what they are already going through, are fighting cancer, and people who are so stressed that they have been unable to work. We know of marriage breakdowns, loss of friends and family members. We have heard too many people tell us that they have thought of suicide as being the only way out of this nightmare. After my interview on Lateline in June, I got a call from a woman who said that she watched in horror, with feelings of panic rising, and she thought she was going to throw up, because she said that my story was exactly the same story that she had, and she had not known about our group previously. Another member told us that she went to her mailbox to find a letter telling her that she had lost everything and that she urinated all over herself at the mailbox, in front of her neighbours, because she was just so petrified about what this meant for her future.

We have been living in this nightmare now for six years, except we do not ever get to wake up and say, 'Oh, it was only a dream.' We live it day in, day out, week in, week out—on and on for six years. We are physically, emotionally and mentally exhausted. We are sick of the banks telling us that we are greedy high-end-of-town earners who were seeking tax breaks and now we are crying crocodile tears that it is not fair. We are people who have always paid our taxes. We are sick of people telling us that we have brought it on ourselves and, 'What responsibility do you take for your situation?' We went for advice because we were trying to take responsibility and we trusted our adviser. We have been betrayed by our adviser and his associates. We have been betrayed by the ANZ, who either knew that Timbercorp was corrupt and are therefore complicit, or, if they did not, then they are guilty of failing in their due diligence to their customers and shareholders.

We the victims are now being left accountable for everybody else's greed and failures, so we are here imploring that the ANZ will hear our stories—that we are not just outstanding loan balances in their book but we are people with real lives, with families, with responsibilities, with commitments, who had hopes and dreams that have been shattered into a million pieces. We are here bleeding, and the ANZ have the power to stop that blood loss. Surely, with $7.3 billion profit, they can afford to take the right and just action and let us go, to end this nightmare for all of us. Thank you to the committee for hearing our stories.

Senator HEFFERNAN: Can I just ask a question? I want to say one thing first. Some people involved in this did have a tax problem. The government ended the tax problem. If you get a headache or something, you go to the doctor and he gives you a script to go to the chemist and you take the pill, because you believe the doctor. A lot of people were in that situation with their financial planner. My question is: are the ANZ bank in the room, and, if they are, would they have enough guts to stand up and say they are here observing this?

Can I just say I think it is a bloody disgrace that the bank would not show the respect to this meeting to at least send an observer here to hear these stories face to face. It is easy to send an email to someone telling them to go and get stuffed, but it is more difficult to do it face to face. It happens to me all the time.

CHAIR: Mr McDonald, do you want to say a few words?

Mr McDonald : Yes, I would like to start by thanking the Senate committee for having the inquiry, bringing it to Melbourne and allowing us to have our say today. My story is not dissimilar to Naomi's, but I actually predate Timbercorp, because I went to a financial adviser—the same company that Naomi already mentioned—to have my tax done, just as thousands of other people do, I guess—millions in Australia. They were actually very good at it, to give them credit. I would go in there, I would take a bit of advice, he would say what I should keep receipts for and what I should plan for, I would hand over the receipts and give him the figures, and magically—to me—the tax return would appear. He would hand it to me: 'X marks the spot; sign here.' I would sign there, and two or three weeks later the tax return appeared. 'How easy was that?' I thought. They were very good, very efficient and very competent. I had no reason to have any doubts about them at all, and this continued for 20-odd years.

In that time, two things happened: (1) I built up a large amount of trust in the company doing the tax and the individual himself; and (2) I got into the habit, I guess, because I trusted him so much, of just, when the tax return was put in front of me, signing there. I did not even read it, to be honest. I glanced through it. I saw tables about depreciation and things. I had no idea how they worked, but I did not need to. I just had to sign the form, and the tax return would appear.

That trust developed over 20-odd years, and the habit of not reading documents properly before signing them built up over a similar period. It was a habit I would later come to regret, because some time later—I must have been in my late 40s or early 50s—my adviser called me in and said, 'You know, we should be planning for your retirement.' I had no great plans to retire, but hey. He said, 'You can't start these things too early,' and he had a great idea. He said, 'There are these things called managed investment schemes—notably one run by a company called Timbercorp.' He explained how it worked to me, and the explanation went something like this: you bought avocado and mango lots and you put money into a bank account, which he set up for me with Macquarie Bank. You paid money into these accounts, and over time you would reap the benefits of the sale of these products. He did warn me that in the first few years you would actually lose money, because the proceeds of the sales would not be enough to cover the annual fees. But not to worry, because over time—in fact, within three or four years—they would break even and after that, in every year up until 2026, when I would turn 70, the proceeds from the sales of the avocados and mangoes would be greater than the management fees. Furthermore, he took control of this bank account so that my tax return would automatically be paid into it, any GST rebates were paid into it and the management fees for the avocados and mangoes would come out of it. I did not have to do a thing.

That was fine until—we all know what happened—Timbercorp collapsed. Soon after that, I discovered that the forms I had signed, barely reading them—as I said, each time he would hand me the forms and say, 'Yes, you want to buy these mangoes; just sign there.' It was pages thick. Stupidly, I did not read it, or at least not properly. Every year there was something new: 'Sign here; sign here.' It was a done deal. When Timbercorp collapsed, my first thought was, 'Oh, I've lost a bit of money here,' but you know what? I could deal with it. I figured that with every investment you make there is a risk. I understand that there is a risk. So I had lost money, but it was mitigated a bit by the fact that other responsible entities had volunteered to take over the avocado and mango projects, and we were told that in time they would still produce some sort of dividend, which would be not a huge amount of money but a supplement to my retirement income over a period of 20-odd years.

A few weeks after that, though, I got correspondence telling me that I owed Timbercorp $240,000. 'It must be a mistake,' I thought. 'How do I owe money when I've already put this money into it?'

Apparently the forms I was signing, I later learnt, were not just buy-in forms but were loan applications. I was borrowing money I did not know I was borrowing. It can be argued that I signed these forms and no-one held a gun to my head. Some will argue that there is a loan application and it has your signature on it, so it is a loan application. It is hard to argue against that, except for the fact that it all came down to trust over years—two decades even—of signing forms without having to read them and having total faith in the financial adviser. I had got into that bad habit. It is a habit I will never repeat, but it is too late now. I owed Timbercorp $240,000 and they wanted their money back. That figure has now almost doubled.

As I am sure you all know we have lived through a court case and an appeal, both of which were unsuccessful. I have not yet had a writ from KordaMentha, but I am expecting one any day. Several other people I know have done so. Ms Halpern explained better than I ever could the effect on our wellbeing, and the stress and anxiety. I cannot say it any better than she did. Suffice to say it is very similar both for me and for other people in the group we have met. I was reminded not long ago in a meeting with my local MP that there are parallels here to be drawn between this debacle and the child sex abuse allegations of 20 and 30 years ago. As we know with those allegations only now are people starting to receive compensation for all the suffering and pain. In some cases people have died since then. It is too late. What I am hoping will happen here is that rather than suffer a human tragedy and look at it in years to come and say, 'Oh, we could have prevented that,' let's prevent it now. Let's get ANZ to come to the table and explain the situation and say that they have the power not only to compensate people for the pain and suffering but to prevent a possible human tragedy. In the past few months I have met people through the group that Naomi is a part of and I have looked into their eyes and I have seen the fear and the stress they are under, and I fear that if we do not do something soon there will be a human tragedy, and we will all be mortified by that.

Mr Kelly : I would like to start by thanking the Senate for the inquiry. It is so important for us to get our word out there. For the record I would like to thank the HNAB Action Group, which is a group through which I have fortunately met some of the nicest people I have met in my life. It is for the wrong reasons, but we have come a long way.

My story is that I am just a simple family man who went out to invest, because we had a bit of equity in our home. We have four children. I am single now, through a divorce, mainly because of financial pressures and what it put us through. We were referred by relatives to Peter Holt, a financial adviser, to look at doing some sort of investment. Before I went there I went and spoke to my bank first, and then I rang up ASIC and the ACCC to confirm that Peter Holt had a reputation. They said they had nothing on record that would show he was not. He had never changed offices or phone numbers or anything like that. He presented us with several of these things they call our portfolio, or whatever it may be. When I have had these re-looked at later, I have found that they are double-geared and triple-geared, of which I had no idea, and they were doomed to fail from the word go.

I have five loans, which I did not even know existed. Most of the information on these loans was filled in by other people and signed by witnesses I have never met—I assume they work for the Holt group. Some of the information that I see on these forms is stuff that we were asked to present, as a family, on our financial position, in the early stages when he was setting up our portfolios, and that has been transferred over onto these. Some of the pages throughout this you will see are normal—just white pages—and then some are copied and duplicated, and there are even some that have had alterations on them through liquid paper and no signatures against those. Up until I started getting chased for the money, I had no idea I even had a loan. All we thought was we had what they call an invested interest in an agricultural business, and, from that, our portfolio would cover any management funds and any running costs towards it, and we would not have to pay anything towards that.

Since then, I have lost both projects. One was shut down by the RE; the other project I had debt collectors chasing me for, and I had to make a financial deal with them on how to pay that out, which is done. That was the Huntley project, and, on that project, I was told by the seniors there that we should never have been entered into these projects; we were not funded enough and we did not have the money behind us and we had no idea what we were into. I would probably have liked to have known that beforehand.

Senator WHISH-WILSON: Sorry, Mr Kelly—you said 'seniors'; what did you mean by that?

Mr Kelly : I spoke directly to the head people at—

Senator WHISH-WILSON: Seniors Australia?

Mr Kelly : No, at the Huntley Group.

Senator WHISH-WILSON: Oh; sorry—the seniors at Huntley?

Mr Kelly : Yes.

Senator WHISH-WILSON: Their own company sold you that?

Mr Kelly : Yes, one of the head guys—I do not know if I can say that name on the record, but if you want I will.

CHAIR: It is not necessary.

Mr Kelly : I suppose the situation I am in now is: I have been through a divorce; I have had a payment settlement out of that. I have managed to keep my home, and I still have quite a bit to pay off on that home. I have had a PEEK cage inserted into my back, and I cannot physically work again; I sit here half full of morphine, but still aware of what I am saying. I am on antidepressant medication at the moment, and I currently see a psychologist once a month, and I got so low that I was sitting out behind the airport one day and ended up ringing the men's helpline because I had decided that enough was enough and I did not want to be here—it was only the fact that my son rang me that day and came and got me. At some stage I was at a meeting of our group, and one of the ladies in our group said, 'We need to draw a line in the sand,' and I think at that stage I decided, 'Yes, it is true; we will step up and we will talk.' I had always felt like we would never be heard, because we are not a big powerful group of people, but I needed to do this to show my children that you do not give in without a fight. I have limited the information given to my parents because they are ageing and I do not want them to know too much.

At the moment I cannot really afford to fight any of the costs, with the writ and things like that. I have had to do what I have had to do.

I was hoping to be a self-funded retiree, and I assume now that, through this, I will end up on a pension at some stage. I hope these are accurate enough—I have printed off that I am probably going to cost the government around $20,000 a year on a pension, whereas I never wanted to take a cent. I have always prided myself on working hard and supplying for my family and living as a good Australian.

What also worries me is that, if these laws get backed off again, our kids are going to suffer with this, and at some stage there is going to be no ongoing future for anyone. As the banks announce their bigger profits, the little people get crushed underneath. We have just given away everything. I have really been to the point of giving up and I still often consider it is an easy option, but I do not want to do that. The only option I have now, I believe, is to fight it legally with the support of the Senate inquiry, which is fantastic for us. I have this great lump of paper that Timbercorp have asked me to fill out and there is a hardship group of sheets that want to know every time I have scratched myself in the last 10 years. I am not willing to do that. I just do not know where this is going to end up. I am really disgusted that the ANZ Bank could not show their face here today. Thank you.

Senator HEFFERNAN: Could I just intervene. If you hear the bugle blowing, it is the cavalry coming. I have just got onto the bank and given them a heave-ho and they are on their way.

Mrs Byrne : Thank you very much for convening this inquiry I am very, very grateful along with the members that here today. I cannot speak for everybody, but my story and my husband's story do not differ from any of the other three stories that you have heard this morning. My husband went to see Peter Holt at the age of 18 years—he is now 49—to have his taxes done. Over this period of time, Peter groomed my husband and me into investing well beyond our means. We invested in Timbercorp. We had no idea of the deceit and the lies that Mr Holt was telling us. We signed what we thought were three loans for Timbercorp. We now find out that we have eight. Originally, our loan amount was for $25,000. As it stands today, it is more than $200,000.

Two weeks ago, we sold our home in anticipation of ANZ knocking on our door and wanting their money. We are just average wage earners. We do not have the capacity to borrow any more money to pay anything back. We worked hard for what we had and we do not have that anymore. We believe that we were deceived into signing the Timbercorp loans. As John said, papers were put in front of you and it was, 'Sign here, sign here.' We trusted Peter. We trusted this man with our future and he has financially violated us.

We wanted to invest to secure our future. We asked repeatedly, 'Why are we investing in a scheme like this and not in real estate?' We were told that this was a government backed scheme. We trusted this man. He is a professional. It is like when you send your children to school: you put your children's future in the hands of their teacher and the educators at that school. We put our trust and our future into this man's professional practice—some might not call it that and I certainly do not now. But he has decimated our financial future. Our children do not have a financial future. We sold our home two weeks ago. I have three children and I am very lucky we have a very close family. We told our children back in June about our issues before my husband and I appeared on 7.30. Unfortunately, this year my youngest son has also had to suffer through this as well as focus on his final year of schooling. Last week, he completed his VCE exams while we had our home on the market and while our house was to go to auction. I have contacted our local member and, unfortunately, we have heard nothing back. We contacted him two days before our house was due to be sold. Again, two days before our house was due to be sold, my husband received a writ from KordaMentha. As I have said, we are not huge wage earners. We do not have any more money to fight. What we want is a fair and reasonable outcome for everybody. Thank you very much for giving me the opportunity to speak here today.

CHAIR: I have just had a brief conversation amongst the committee. We have received correspondence from Gerard Brown, the Group General Manager of Corporate Affairs at the ANZ bank, who says he is going to be here in half an hour and they wanted the opportunity to make a statement. I think it is a courtesy that we as a committee will extend to them. But I do want to make a couple of observations. We have been in repeated contacted with the ANZ about trying to get them to get someone here today. I have had several conversations—including speaking to the deputy CEO on several occasions. I think it is important that we provide that kind of courtesy to them.

So I welcome Mr Brown, Group General Manager, Corporate Affairs, ANZ, who is at the back of the room. Mr Brown, we will be giving you an opportunity to address the committee. We will have to hold a brief meeting before we do that, because it will be altering our agenda. We will not change the order events, as people have travelled across Australia to be here and to share their stories and to tell what has gone on. I think it is important and a good sign that the bank is prepared to come here and listen to these stories, but we are not going to alter our agenda to simply allow the bank to speak and then leave. So, Mr Brown, I would ask you to stay. I think we are finishing at around 1.30 today, and we will certainly be giving you an opportunity at the end of the day to make a statement. We would also like the opportunity to ask a few questions as well.

Senator HEFFERNAN: Chair, could I table a document for the committee? This is a recording, a transcript, of a meeting to do with a financial planner and a group of clients—which is Great Southern. I think we ought to get it into the system, so I would like to table it.

CHAIR: With the consent of the committee, we will table the document.

Senator O'NEILL: On behalf of all the people who are here listening to your story today and the people who are listening to the broadcast, can I first commend you on your courage and your eloquence in the way that you spoke of the, clearly, very personal and tragic experience that each of you have had and the civic duty that you are enacting now by being an advocate for the other people who are sitting behind you and who are no doubt very, very proud of the way your have represented the stories that you share in common. So thank you for your efforts.

As a fellow Australian listening to your story, to have heard the words 'anxiety' and 'suicide ideation' and to have heard, Mr Kelly, your particularly story about the power of seeking help—and you mentioned the men's helpline—I would like to say for all of us in this space that your stories are being heard. We can never predict the outcome, but we are certainly on this journey with you. There are agencies around the country that people who are feeling low—which seems to be a very reasonable response to the experience of stress that you are under—can seek help from. That would be the will of everybody here, and I want to encourage anybody listening or anybody feeling anxious to seek that assistance.

I would like to clarify a couple of things. Ms Halpern, you indicated an amount that you had in terms of debt and an amount of superannuation. Could you just restate that?

Ms Halpern : Yes. I was placed in seven MAS projects. I was also advised to take out an investment loan against the equity in my house and the margin loan that matched the investment loan of $150,000. When everything collapsed at the end of 2008, the debt that I was left with was $650,000. Because I had been advised by Peter Holt not to put money into a superannuation fund, other than the legal minimum requirement, all I had at that time was $11,000 in that super fund.

Senator O'NEILL: A very significant amount of money. Ms Halpern, you have spoken quite eloquently about refinancing your house a number of times and ultimately the loss of your home. I noticed in each of the testimonies we have heard from you this morning you have spoken about the impact on your families and yourselves personally. Ms Halpern, what is the situation for you right now as a consequence of the challenges you have faced because of this situation with Timbercorp?

Ms Halpern : Currently I am in around $500,000 worth of debt. Essentially, all the money that I am earning now goes to repaying debt as opposed to building up for my retirement. I have days when I feel like I have a normal life and I go about and do all the things I have to and then, out of nowhere, a wave of panic or dread can come over me when I realise how desperate my situation is. At 55 there is no way I can rebuild the kind of security that I imagined I was going to have upon retirement. Like everyone else here, I also signed blank forms because I trusted Peter Holt. I had been with him for 16 years. He said what he was doing here was safe. He said that my home would never, ever be at risk—that he would never put my home at risk. And it was the exact opposite.

Senator O'NEILL: Each one of you have spoken about the nature of the trust that you built up with a person and the whole idea about getting advice from a professional. There are concerns about watering down the laws with regard to financial advice. There is a concurrent inquiry into the standards of the people who give financial advice. But in this case you are talking about a person who was an accountant as well. So they did have a degree. So there is something about the ethics of this situation and clearly the language you have used around trust is very, very important for us to understand.

You said, Ms Halpern, that people say that you brought this on yourselves. Mr McDonald, I think your story about how trust turns into signing documents for your professional accountant who you think has a licence to practise and is operating above the law puts you in a situation where you find yourself today. Mr McDonald, I wonder if might tell us what your situation is right now, today, as a consequence of the journey you explained to us.

Mr McDonald : One thing that precedes that, which I never mentioned, is that I bought five Timbercorp products that I know of; yet I have discovered I now have 12 loans. How that is even possible, I do not know. Those 12 loans, as I mentioned, totalled $240-odd thousand at the Timbercorp's collapse and are now almost double that. I actually will not lose my home, because I already have to a degree. We have sold our family home and have rented for a year or so in a much cheaper environment and have since bought another home—much cheaper than the one we sold. It is smaller—about a third of the size of the property.

So I have a roof over my head and I have steady employment at the moment—although, at age 58 and working for a company that has been downsizing recently, I do not know how long that will last. So there is a lot of insecurity there. If I have to pay back this loan, somehow I would have to borrow money to pay back a loan—which never sounds like a very smart financial plan, but I would have no choice. But whether at age 58 someone would lend me money, I do not know. I could be in the situation where I have to sell another home—even the smaller one, the cheaper one, that I bought—unless a resolution can be achieved.

Senator O'NEILL: That is because you now owe $480,000?

Mr McDonald : Something like that. There is a 15 per cent discount offer on the table, so that would knock—

Senator O'NEILL: How did you feel, Mr McDonald, when you got the 15 per cent discount offer?

Mr McDonald : Because we had done a bit of research on this, we discovered that in most cases companies like KordaMentha settle for whatever the total of the loan book is, which is often only like 20c to 30c in the dollar. We figured: if we got a deal like that, yes, maybe we could somehow manage to scrape that together. Once the debt got over $300,000, whether it is $300,000, $400,000, $500,000 or $600,000, it was simply beyond our capacity to pay, so it was almost irrelevant. If, as we had been led to believe, it had been 20c to 30c in the dollar, we may have been able to do that but 15 per cent—I was going to say laughable but I certainly wasn't laughing. I do not know how to describe it, but it was clearly inadequate and contrary to everything we had learnt in our research about other companies in similar situations.

Senator O'NEILL: We talk a lot about financial literacy, and there are efforts now to try and help people more. Each one of you is very articulate. You probably understand a fair bit about finance but still, with regard to the general population, I often think that people believe that if you get into a situation, a compassionate response from a bank might be something like, 'You would pay 20c or 30c in the dollar.' There is clearly a very big gap between a 15 per cent concession and 'We'll ask you for 20c in the dollar returned, because of the situation.' I think that it is a space where many Australians would have no idea about how these processes work, because liquidation and going into insolvency is something that many people do not talk about, which is another reason why what you are doing today is so brave.

Mr Kelly and Mrs Byrne, both of you have mentioned your children. Congratulations to your son for completing school in what must have been a pretty tricky home environment—my son just finished last week too, so I understand the journey you have been on. Mr Kelly, your son obviously cared for you at that time of need. For the record: what is the situation you find yourselves in today? What is your reality today?

Mr Kelly : Financially?

Senator O'NEILL: Yes. Where are you living and how are you managing?

Mr Kelly : I am living in what was our family home. I had to pay out my ex-wife through divorce. I currently owe—it was originally around $80,000—$170,000. At the start, I was told by Holt not to worry and that there was going to be a class action: 'You won't have to pay anything through all this.' Not understanding the process, we just went into the class action and paid money for that. The interest has accumulated over that time and is accelerating at a massive rate. I currently cannot earn any money. I still owe a little on the house but I have put the mortgage on hold—what I pay back to the bank; they have been kind enough to put that on hold for me. I am hoping to get through to some sort of pension or something at some stage which I never really wanted to do.

The kids are really good to me. I don't know what else to say apart from that. I don't know where it is going or what is going to happen.

Mrs Byrne : We will move out of our home in January. Our settlement is at the end of January. We have had to refinance our home loan to also cover a Viridian line of credit that Mr Holt also put us into. Currently, both my husband and I work to pay back debt. We work full time to pay back debt. We don't have a lifestyle at all, if you would like to call it that.

We don't know what the future will hold. Our current debt with Timbercorp, as I said, is over $200,000. My husband has asked me not to admit how much he owes because he is ashamed of how much it is. We have refinanced the Viridian line of credit with our bank. They were kind enough to refinance our home. That was over $250,000. Originally our loans with Timbercorp were $25,000. As I said, as of today they are over $200,000. I do not know what the future holds for us.

Senator O'NEILL:    Mrs Byrne, I want to say to you again how brave you are to come forward and give us so much personal information for the record so that we can actually get the stories of what is going on behind the scenes, because, as Ms Halpern said, you are not just a line on somebody's loan book; there is a really significant impact happening on the lives of real Australians living in and around our communities today. Please convey to your husband that to trust an accountant, to trust a financial adviser, is a natural thing that people want to do. They want to be able to take professional advice and believe that people are going to act in their best interest. There is no shame in the situation that he finds himself in. I think we would all want to convey to you that support to him.

Mrs Byrne : He is a very proud man.

Senator O'NEILL: Absolutely. It sounds like you are working very hard to try and do the right thing. Can I just close by inviting each one of you to make a recommendation, if you could, about a way in which the situation you have found yourselves in might be prevented. I am sure you have given it plenty of thought: 'If only this hadn't happened; if only that hadn't happened.' One of the things we clearly want to do is not only to resolve this issue but to prevent it from happening to other Australians who are at risk from people who would exploit them. That is my last question, Chair, if I could: to ask each one of you to say, if there were one thing that you could ask for in terms of a change to the structure or the processes to prevent this happening, what would it be? We might start with Ms Halpern.

Ms Halpern : Timbercorp paid Peter Holt in the region of $7 million worth of commissions—flew him to the states on all-expenses-paid trips, as well as various other perks that he got. That is a very high incentive for someone to be looking for their own interests and not their clients' interests. So there needs to be a situation where people cannot receive those kinds of commissions for selling products that are not in people's best interests and a way for people to really understand the information that they are given. We are all intelligent people, but we are not financially sophisticated. I went to school in England and I failed O Level maths. That is why we went for advice. The issue around commissions, however it is done, whether it is commissions or bonuses—those kinds of things really need to be knocked on the head.

CHAIR: I am very conscious of time, and we are now trying to squeeze in some extra people as well. Do you mind, Senator O'Neill, if the witnesses take that question on notice and have a think and write us a letter with a considered response?

Senator O'NEILL: I think Ms Halpern has probably said something that each one of you would agree with, so, yes, Chair, I am very happy to proceed in that way. That means you can all actually write something down for us, because clearly you have expert knowledge about a system that is failing people. Thank you.

Senator WHISH-WILSON: I will be quick. Ms Halpern, did Mr Holt disclose his commissions to you?

Ms Halpern : What he would say to us was that he was not going to make money unless we made money. So, no, he did not. The bottom line is that he did not actually let us know all the commissions that he was getting from various sources.

Senator HEFFERNAN: Do you think you would know a professional spiv when you meet one now?

Ms Halpern : I think so!

Senator HEFFERNAN: They are around.

Senator WHISH-WILSON: Did he mention any risks at all or give you your documentation? I am just fascinated, looking at the rate of interest you guys were paying. It was at a significant premium to the standard rates at banks at the time, and your loans were non-recourse, so clearly they were higher risk. Did he point out any of these types of things to you at all?

Ms Halpern : He would minimise any kind of risk. It would just sort of be glossed over. The point is that we did not know the interest rates of those loans.

As has already been said, many of us did not know that we were being put into loans. We signed documents thinking that we were buying a product, but we did not realise we were entering into a loan for that. He had all the documents, so it was not until everything fell apart that we realised the interest rates that we were paying. It is only in the last few weeks, when I recalled all my loan documents—which I had never seen before—from Timbercorp that I also discovered that he had power of attorney. That is how he was able to put me into several loans over several years. It was witnessed by someone I had never met.

Senator WHISH-WILSON: Obviously that rates significantly higher than liable or other existing rates as a sign of danger and risk. There is a reason these rates are charged. Did you go through Timbercorp Finance or were you aware whether he was going through Timbercorp Finance?

Ms Halpern : Yes, it was through Timbercorp Finance.

Senator WHISH-WILSON: Did any of the other panel members go through different finance providers, or was it all through Timbercorp Finance?

Senator HEFFERNAN: Did you understand that Timbercorp Finance was like Great Southern—just a shell company with nothing there but the finance vehicle?

Ms Halpern : No, I had no idea.

Senator HEFFERNAN: And, of course, what has happened in the case of Great Southern is that Bendigo Bank suddenly thought, 'Oh my god, we're going to do our dough here; we'll take the book.' It was a complete bullshit operation.

Senator WHISH-WILSON: Were any of you aware of who Timbercorp was going to for their financing? Was it ANZ?

Mr McDonald : I had no idea. As Naomi said, I did not even know I was taking out loans, let alone who was financing them. I kind of laugh when I say it—

Senator HEFFERNAN: Why didn't you know you were taking out loans? Did you think money was growing from heaven?

Mr McDonald : I thought we were putting money into these products—actually buying the products.

Senator HEFFERNAN: But, if you were borrowing, they were leveraging it, which was where this all turned to custard. Where did you think that money came from if you had so much? How much did you put in?

Mr McDonald : It was not a huge amount.

Senator HEFFERNAN: What is that? Ten thousand? Fifty thousand?

Mr McDonald : It was over a period of time, so it is hard to put a figure on it, but it was probably $30,000 maybe. But over a period of time it did not seem so bad.

Senator HEFFERNAN: What was the investment worth when you discovered what it was worth?

Mr McDonald : Zero.

Senator HEFFERNAN: But how much did you borrow that you did not know about?

Mr McDonald : At the time of the collapse, $240,000.

Senator HEFFERNAN: Credit does not fall from heaven. Surely you thought, 'I wonder where that's coming from.'

Mr McDonald : Until that time when it collapsed, I did not realise I had any loans.

Senator WHISH-WILSON: You mentioned earlier that you did not look into this detail. You are open about the fact that you did not check and you trusted your financial planner. You did not scrutinise that.

Mr McDonald : Absolutely.

Senator WHISH-WILSON: So he was leveraging you into this product, and you were getting a tax deduction not only for the up-front amount but also for the interest payments?

Mr McDonald : The tax deduction—

Senator WHISH-WILSON: was not the key issue?

Mr McDonald : I could not even tell you, because the tax forms were that thick. Again, I did not read them. Any time you put money into something to earn income off it, there is a tax deduction. I understand that. And there were very small amounts of GST rebates. But, in the overall scheme of things, that was a very minor point. The major point to me was the fact that I did not know I was taking out any loans at all, let alone 12 of them to buy five products. It still baffles us how that was possible.

Senator WHISH-WILSON: I notice Justice Judd in his deliberations in the first Supreme Court case here in Victoria found that Timbercorp was not required to disclose the risks identified by growers and that there had been no misleading or deceptive conduct from Timbercorp. I am interested in whether you considered pursuing action against the accountant we have been discussing here today. Clearly he had a fiduciary duty to you. Have you considered action on those lines as well?

Mr McDonald : The way I understand it—you can probably explain it better than I can—his liability insurance expired very quickly after and there was none left. He informed select clients, we are told, 'There's a bit of trouble here; if you want to make a claim, make it now.' They did make it. We tried to deal with the Financial Services Ombudsman. By the time we got to that stage, the liability insurance had long since—

Senator WHISH-WILSON: Has he been investigated by ASIC or any other—

Mr McDonald : He has been suspended by ASIC.

Ms Halpern : He has had a three-year ban. That is it. It is nothing to him. He only had $2 million worth of professional indemnity insurance. I myself and my business partner, who was put in exactly the same schemes, went to Morris Blackburn with our case. They investigated and said, yes, there is definitely a case here to run. They said they would take us on as no win no fee, but apparently no win no fee means you have to pay about $100,000 to $200,000 worth of disbursements regardless of whether you win or lose, so we could not go ahead with that. By the time they got their case together, all his insurance had gone anyway, and then he declared bankruptcy, so there was no way to actually pursue him and see any recourse from the person who put us in the situation.

Senator HEFFERNAN: It is a bit like the chemist, the doctor and the prescription when you take the pill. Unfortunately, over the years I have dealt with a lot of people who have gone to court thinking they will win if they tell the truth. The courts are about the law, not the truth. If you want to go to court, you get a good lawyer, if you are guilty, to avoid the truth and not tell a lie. Courts are completely driven by the law and have nothing to do with the truth in real terms. That is a fact.

CHAIR: Senator Xenophon.

Senator XENOPHON: Perhaps you could take this on notice. I wanted to explore the relationship or interaction that the witnesses had with KordaMentha. Did they think it was satisfactory? Did they think KordaMentha was discharging their duties in pursuing directors of Timbercorp and their conduct?

CHAIR: Thank you for that. We might actually take that on notice. I do know that later on today, when we are talking to the different action groups, there will be a better opportunity to explore some of that with the more organised structures of the groups.

Senator O'NEILL: Can I get on the record one thing? We have had a lot of questions about the legal capacity and decision making that involves high levels of financial advice et cetera. My understanding is that there are people—lawyers and quite financially substantial people—who are not here who are not representing themselves in this public way, because they do not want their professional reputation to be impugned. These are people who know about the sorts of things we have had questions about. Is it a fact that there are professional lawyers amongst the people you are representing here today?

Ms Halpern : Yes there are.

Senator O'NEILL: Thank you.

CHAIR: I know it is not easy to come to a room of 200 people to share what have been very personal stories. On behalf of the committee I thank you for the trust you have shown us and for the bravery with which you have come forward. I thank you for taking the time and for being brave and strong. Thank you for participating in our inquiry.