There are questions as to whether a group of schemes managed by Elders has lived up to its moral responsibilities. After the GFC hit, Elders reassured its investors with letters of comfort to Elders Forestry. These effectively meant Elders was underwriting the operations. Source: The Brisbane Times
To understand what has happened it is important to understand how these managed investments schemes are structured.
A manager puts together a proposal based on planting an agricultural product that is either harvested or produces a crop, which is sold to investors who pay an amount to the manager of the scheme, and a responsible entity is put in place to look after the grower’s interests.
To maximise the appeal of these schemes the investments are sold with a large upfront cost and no ongoing fees. When a crop was harvested the manager of the scheme took a percentage of the sale proceeds to cover the harvest costs and also make a profit.
After the GFC hit, Elders reassured its current and future investors providing letters of comfort to Elders Forestry. These letters effectively meant Elders was underwriting the operations of Elders Forestry.
Unfortunately for Elders Forestry, and the grower investors who put their faith in Elders to bring their projects to harvest, the downturn in pulpwood prices and the high Australian dollar have meant its activities continue to be unprofitable.
Despite investors having paid large amounts of money to Elders Forestry, and Elders having committed to bring the projects to harvest, it now wants to walk away from its moral responsibilities.
Since late last year Elders has been looking for companies to buy the standing timber owned by the grower investors. It is also looking to have Elders Forestry replaced as the responsible entity and forestry manager.
In its published material Elders has made it clear it intends to exit the agribusiness sector no matter what the cost to investors. The Supreme Court of Victoria has approved Elders’ plans, providing legal justification for it to do as it wants while, as the owner of the responsible entity Elders Forestry, is ignoring its moral responsibility to protect growers’ interests.
The next hurdle Elders must clear is to have the growers in some of the schemes agree to the sell-off.
Unfortunately, those growers are really faced with only one option. That is to accept the pittance being offered for their trees. The alternative is to reject the proposal but be faced with Elders removing its funding. This would inevitably lead to Elders Forestry going into liquidation and those investors receiving nothing.
