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Inquiry Into Aspects of Agribusiness Managed Investment Schemes

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Inquiry Into Aspects of Agribusiness Managed Investment Schemes Parliamentary Joint Committee on Corporations and Financial Services Inquiry into aspects of agribusiness managed investment schemes September 2009 Commonwealth of Australia 2009 978-1-74229-186-4 Printed by the Senate Printing Unit, Parliament House, Canberra ii Members of the Committee* Mr Bernie Ripoll, Chairman QLD ALP Senator Sue Boyce QLD LP Senator Don Farrell SA ALP Senator the Hon Jan McLucas QLD ALP Senator John Williams NSW Nat Ms Sharon Grierson MP NSW ALP Ms Julie Owens MP NSW ALP The Hon Chris Pearce MP VIC LP Mr Stuart Robert MP QLD LP * Please note that Senator the Hon Brett Mason (Deputy Chair; QLD LP) remains a member of the committee but did not participate in this inquiry. * Senator Gavin Marshall (VIC, ALP) was a member of the committee during this inquiry, until 24.06.09. Senator McLucas was appointed to the committee on this same date. SECRETARIAT Dr Shona Batge, Secretary Mr Andrew Bomm, Principal Research Officer Ms Emina Poskovic, Executive Assistant With assistance from: Ms Toni Matulick, Secretary Ms Clare Guest, Executive Assistant Suite SG.64 Parliament House Canberra ACT 2600 T: 61 2 6277 3583 F: 61 2 6277 5719 E: [email protected] W: www.aph.gov.au/senate/committee/corporations_ctte iii iv Duties of the Committee Section 243 of the Australian Securities and Investments Commission Act 2001 sets out the Parliamentary Committee's duties as follows: (a) to inquire into, and report to both Houses on: (i) activities of ASIC or the Panel, or matters connected with such activities, to which, in the Parliamentary Committee's opinion, the Parliament's attention should be directed; or (ii) the operation of the corporations legislation (other than the excluded provisions), or of any other law of the Commonwealth, of a State or Territory or of a foreign country that appears to the Parliamentary Committee to affect significantly the operation of the corporations legislation (other than the excluded provisions); and (b) to examine each annual report that is prepared by a body established by this Act and of which a copy has been laid before a House, and to report to both Houses on matters that appear in, or arise out of, that annual report and to which, in the Parliamentary Committee's opinion, the Parliament's attention should be directed; and (c) to inquire into any question in connection with its duties that is referred to it by a House, and to report to that House on that question. v vi Terms of Reference Having regard to the recent collapses of Timbercorp and Great Southern, the Committee will inquire into and report by 7 September 2009 on agribusiness managed investment schemes (MIS), with particular reference to: 1. business models and scheme structures of MIS; 2. the impact of past and present taxation treatments and rulings related to MIS; 3. any conflicts of interest for the board members and other directors; 4. commissions, fees and other remuneration paid to marketers, distributors, related entities and sellers of MIS to investors (including accountants and financial advisers); 5. the accuracy of promotional material for MIS, particularly information relating to claimed benefits and returns (including carbon offsets); 6. the range of individuals and organisations involved with the schemes, including the holders of the relevant Australian Financial Services Licence; 7. the level of consumer education and understanding of these schemes; 8. the performance of the schemes; 9. the factors underlying the recent scheme collapses; 10. the projected returns and supporting information, including assumptions on product price and demand; 11. the impact of MIS on other related markets; and 12. the need for any legislative or regulatory change. vii Table of Contents Membership of the Committee ........................................................................ iii Duties of the Committee ..................................................................................... v Terms of Reference ...........................................................................................vii Chapter 1.............................................................................................................. 1 Introduction .............................................................................................................. 1 Terms of reference .................................................................................................. 1 Conduct of the inquiry ............................................................................................ 1 Acknowledgement .................................................................................................. 2 Note on references .................................................................................................. 2 Report structure ...................................................................................................... 2 Chapter 2.............................................................................................................. 3 Background information .......................................................................................... 3 MIS structure .......................................................................................................... 3 MIS regulation ........................................................................................................ 6 Agribusiness MIS tax arrangements ..................................................................... 11 Agribusiness MIS industry conditions ................................................................. 13 Chapter 3............................................................................................................ 17 MIS structural issues .............................................................................................. 17 Tax incentive issues .............................................................................................. 17 Scheme performance ............................................................................................ 25 Agribusiness MIS structural issues ...................................................................... 32 RE collapse ........................................................................................................... 40 Committee view .................................................................................................... 45 Chapter 4............................................................................................................ 49 Investor protection issues ....................................................................................... 49 Advice on agribusiness MIS ................................................................................. 49 Disclosure ............................................................................................................. 54 Other investor protection ...................................................................................... 60 Committee view .................................................................................................... 64 Appendix 1 ......................................................................................................... 67 Submissions received by the committee ............................................................... 67 Tabled documents ................................................................................................... 69 Additional information .......................................................................................... 69 Appendix 2 ......................................................................................................... 71 Witnesses who gave evidence at the public hearing ............................................ 71 Answers to Questions on Notice ............................................................................ 73 Chapter 1 Introduction Terms of reference 1.1 On 27 May 2009 the Parliamentary Joint Committee on Corporations and Financial Services resolved that: Having regard to the recent collapses of Timbercorp and Great Southern, the Committee will inquire into and report by 7 September 2009 on agribusiness managed investment schemes (MIS), with particular reference to: 1. business models and scheme structures of MIS; 2. the impact of past and present taxation treatments and rulings related to MIS; 3. any conflicts of interest for the board members and other directors; 4. commissions, fees and other remuneration paid to marketers, distributors, related entities and sellers of MIS to investors (including accountants and financial advisers); 5. the accuracy of promotional material for MIS, particularly information relating to claimed benefits and returns (including carbon offsets); 6. the range of individuals and organisations involved with the schemes, including the holders of the relevant Australian Financial Services Licence; 7. the level of consumer education and understanding of these schemes; 8. the performance of the schemes; 9. the factors underlying the recent scheme collapses; 10. the projected returns and supporting information, including assumptions on product price and demand; 11. the impact of MIS on other related markets; and 12. the need for any legislative or regulatory change. Conduct of the inquiry 1.2 The inquiry was advertised in The Australian newspaper and online. The committee invited submissions from interested organisations, government departments and authorities, and individuals. The closing date
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