Over the last few years, many ordinary investors were advised to invest in agribusiness schemes by their accountants or financial advisors. Those schemes were involved in growing timber, almonds, olives and avocados - along with other agricultural products. Some of those schemes have made headlines due to the spectacular nature of their collapse. Large companies such as Great Southern and Timbercorp are now in liquidation, leaving thousands of investors out in the cold.
Units in agribusiness schemes were sold to investors by financial planners and accountants as a way to minimise their tax. There were up-front tax benefits to investing; along with the promise of further profits once the trees matured –those profits in many instances never materialised.
Investors came from all sectors of the community. Retirees, small business people and younger investors have all been affected – in their tens of thousands. The common thread between investors was that they sought advice from accountants or financial planners who obtained commissions from the agribusiness scheme being sold. Financial planners and accountants stood to, and did make, substantial commissions when signing up investors. The schemes were aggressively marketed, especially to people who may have had a tax liability problem in any particular tax year. While the schemes were sold as a solution, they have created substantial burdens and ongoing problems, especially in cases where the agribusiness scheme has gone into liquidation.
Many investors borrowed to invest in these schemes – sometimes from ‘in-house’ finance companies set up by the schemes. Those debts are still outstanding, but the assets supporting those loans are long gone or have been sold for a pittance. Interest continues to accrue on those loans. Accordingly, for ordinary investors the solution to a small tax problem may now have morphed into an intractable debt problem, with interest continuing to accrue year by year. Investors feel understandably angry about their predicament.
In our experience, there are potential solutions. Investors may be able to recover losses against their financial planner or accountant in circumstances where the advice provided to them to invest in an agribusiness scheme was inappropriate, especially in circumstances where the risks of investing their scheme was not adequately disclosed.
In more recent times, the liquidators of some agribusiness schemes have made offers to investors to discount their loans if they pay off their loans up front. While these offers may sound initially attractive, there are potential pitfalls.
For example, Timbercorp has recently made an offer to some investors to discount their loans if they pay up front. The offer expires on 31 January 2014. The collapse of Timbercorp has already been the subject of close scrutiny, including litigation.
Investors should consider any offer by the liquidator of an agribusiness scheme carefully and in particular check whether the terms of the offer could preclude them from pursuing otherwise potentially valid legal claims against their financial planners or accountants. Investors should proceed with caution and if in doubt, obtain independent legal advice on their rights.