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Monday, 7 September 2009
Page: 8747

Mr RIPOLL (8:38 PM) —On behalf of the Parliamentary Joint Committee on Corporations and Financial Services, I present the committee’s report on an inquiry into agribusiness managed investment schemes, together with evidence received by the committee.

Ordered that the report be made a parliamentary paper.

Mr RIPOLL —A resounding unanimous carrying of the vote!

Mr McMullan —I was enthusiastic!

Mr RIPOLL —An enthusiastic, unanimous carrying! I am pleased to speak tonight on the Parliamentary Joint Committee on Corporations and Financial Services report Aspects of agribusiness managed investment schemes. These schemes are also known as MIS. The committee initiated this inquiry in response to the recent collapses of Timbercorp and Great Southern, which together affected more than 60,000 MIS investors. However, the inquiry was not into the details of those collapses per se but into the structural features, the taxation treatment, the marketing and the performance of the agribusiness MIS more generally.

The committee received evidence on a range of MIS structural issues, including the taxation incentives for agribusiness MIS investment and related market distortions, the effect of high costs and uncertain revenue assumptions on scheme performance, the ability of the MIS structure to withstand restricted access to capital, potential measures to prevent responsible entity failure and arrangements for managing competing interests when a responsible entity collapses. The committee also examined the financial advice that leads people to invest in agribusiness MIS, the accuracy of disclosure material provided to potential investors and the importance of educating consumers about investment risk.

The committee makes three recommendations in this report. The first relates to the potential for market distortions to be caused by the current tax deductibility arrangements applying to non-forestry agribusiness MIS investment. On balance, the committee considers that the tax deduction for non-forestry agribusiness MIS under the general business deductions rule is not unreasonable, where there is a clear focus on scheme profitability. But where investor focus is on minimising tax, there is a risk that capital will be directed away from profitable uses and that traditional farming enterprises will be disadvantaged. The committee believes that such distortions would be reduced if deductions for non-forestry agribusiness MIS investment were only permitted to be offset against future taxable income from the same MIS, and therefore the committee recommends that the government consider investigating and modelling the effects of amending the Income Tax Assessment Act 1997 to ensure that tax deductions for MIS investment under the general business deduction provisions of the act only be permitted to be offset against future taxable income from the same MIS.

The committee’s second recommendation is that the government amend the Corporations Act to require the regulator, ASIC, to appoint a temporary responsible entity when a registered managed investment scheme becomes externally administered or a liquidator is appointed. Committee members are concerned that, under current law, insolvency practitioners, as officers of the responsible entity, have conflicting obligations to scheme members and to the insolvent corporate entity and related parties. The committee acknowledges that the Corporations Act already clearly states that the insolvency practitioners are required to act in the best interest of scheme members, but conflicting obligations are difficult to manage in practice, and generate an understandable lack of trust amongst investors.

The committee also received evidence about why investors chose to enter agribusiness MIS. Under some financial services licensing arrangements, product retailers are licensed to sell only one type of product—that is, the MIS. The committee is concerned that clients who are funnelled into MIS through such arrangements may mistakenly believe they are receiving appropriate financial advice, when sometimes what they are really receiving is just a sales recommendation. The committee also heard evidence of conflicts of interest in the commission arrangements underpinning the sales of MIS. These concerns are not unique to MIS, but affect the financial products and services sector more broadly. The committee is currently holding a parallel inquiry into financial products and services and will therefore reserve recommendations relating to potential regulatory change in the financial advice industry more generally until it has completed its work on that inquiry and tables its report in late November.

However, the committee had a specific concern about the accuracy of disclosure material made available to MIS investors in relation to predicted scheme performance. In particular, the committee considers it important that the qualifications of independent third parties used to justify claims about scheme performance are disclosed. Otherwise, there is potential for less qualified opinion to be used preferentially where it provides a more generous assessment of likely scheme performance. In order to better assist investors in judging the quality of the information being put before them, the committee recommends that ASIC require agribusiness MIS to disclose the qualifications and accreditation of third parties that provide expert opinion on likely scheme performance.

In the short time I have left I want to thank on the record all of those who wrote submissions and appeared in the public hearings for their contributions—they are much appreciated. I also want to place on the record my thanks to the very hard-working team which is the secretariat of the committee; they do great work. I also want to thank the committee members themselves. (Time expired)