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Another misfire for investors -

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Another misfire for investors

The World Today - Monday, 18 May , 2009 12:18:00

EDMOND ROY: Another managed investment scheme and agri-business has collapsed, with hundreds of
millions of dollars in debt.

More than 40,000 investors could stand to lose everything after Australia's biggest agricultural
investment scheme manager, Great Southern, appointed voluntary administrators on the weekend.

It's less than a month since the collapse of Timbercorp which also offered managed investments in
forests and horticulture.

Observers say they were not surprised and they warn there will be more financial disasters unless
something is done to end the tax breaks for managed investment schemes.

Simon Lauder reports.

SIMON LAUDER: Over the past 22 years the area of forest under the management of Perth-based company
Great Southern has grown to cover 240,000 hectares of land. The group also owns more than 150,000
cattle on one-and-a-half million hectares.

The reputation of the managed investment scheme as one of the best tax offsets going attracted
43,000 investors to 45 different schemes run by Great Southern.

The business model is a complex one - so complex that the administrators Ferrier Hodgson are too
"snowed under" to record an interview.

It's understood the listed company's debts are somewhere in the ballpark of $700-million, and a
spokesman for Ferrier Hodgson says it's way too early to say how much money investors will get back
or which assets may be sold off.

Stuart Wilson of the Australian Shareholders' Association isn't optimistic.

STUART WILSON: I think if you are a Great Southern investor it is highly likely you can kiss your
money goodbye.

SIMON LAUDER: The collapse of Great Southern is yet more proof that trees can easily outlive the
profits that grow on them. It's less than a month since the collapse of Timbercorp, which also
offered managed investments in forests and horticulture. It owes more than $900-million.

It's unlikely that imbued confidence in Great Southern's major lenders. Timber industry analyst
Robert Eastment, from IndustryEdge, says both companies got too big.

ROBERT EASTMENT: Really, at the end of the day, they began to be diversified. They had the
forestries there but they also got other agricultural products. If you are good at something, stick
to it.

SIMON LAUDER: Melbourne based agribusiness specialist, Sam Paton, says the managed investment
scheme goes against some basic rules of economics.

SAM PATON: It always happens about the middle of May when the normally high network investor in the
city is told by his accountant he has a tax problem.

There is this romantic thought that, oh let's go into an agri-business scheme and the preoccupation
with the immediate tax break overrides the fact that they then have these ongoing obligations to
pay fees and charges and the issue of the viability of the project is never even on the agenda.

SIMON LAUDER: So what needs to change to stop this happening more?

SAM PATON: Unfortunately, the Rudd Government seems to have been preoccupied with so many other
things and there is this traditional Labor Party disconnection with the bush. They don't seem to
understand the bush and how ag-economics works. You know shut them down.

SIMON LAUDER: Another critic of the managed investment scheme is the Federal Member for Mallee, the
Nationals John Forrest.

Mr Forrest says the actions of Timbercorp and Great Southern have made it hard for independent
farmers to buy water and harder to sell their produce.

JOHN FORREST: Their capacity to buy water and their lack of concern about what they paid for it
drove the price of high security water through the roof. The second impact is the saturation of
marketplaces with commodities already struggling, just didn't make sense.

SIMON LAUDER: Mr Forrest has written to the Federal Government asking it to hold a formal inquiry
into managed investment schemes which flourished under the former government.

He says the tax breaks need to end.

JOHN FORREST: There has been a pretty bitter debate out in my part of the world. Growers pitted
against the other. Given that these things are created by governments in making inappropriate
decisions regards to the way that investment is driven, that is not something I can now support.
But there is enormous amount of pain out here.

SIMON LAUDER: And how do you feel about the fact that they were created by a Coalition government
that you are a part of?

JOHN FORREST: Yes, I accept some culpability with that but there are quite a few of us as
backbenchers, railing against the concept right through that period and the chickens have now come
home to roost and there are a lot of my constituents now saying well we told you so.

SIMON LAUDER: The administrators say they will be contacting Great Southern's creditors this week
and will hold a creditors meeting in Melbourne on the 27th of May.

EDMOND ROY: Simon Lauder reporting.