public traded as asx gtp industry managed investment schemes founded 1987 public 1999 headquarters perth western australia key people david griffiths chairman cameron rhodes managing director john young founder and board member products pulpwood beef cattle revenue a 444 million 2008 1 net income loss a 63.8 million 2008 number of employees 430 2008 website www.great southern.com great southern group was a group of australian companies that was notable as the country s largest agribusiness managed investment scheme mis business . 2 the company was founded in 1987 and became a public company in 1999 . it expanded its mis business rapidly in the 2000s supported by favourable tax regulations for these types of investments . most of the group s business was in plantation forestry to supply woodchips for the pulp and paper industry but in the 2000s it diversified into high value timbers beef cattle olives viticulture and almond production . the company s after tax profit peaked at a 132 million in 2006 but by 2008 had deteriorated to a a 63 million loss . the great southern companies attracted debate and criticism associated with the operation of managed investment schemes generally and the environmental performance of their tiwi islands operation in particular . on 16 may 2009 as a result of worsening economic conditions and regulatory issues the gsl gsmal gsf and other subsidiaries of gsl entered into voluntary administration . ferrier hodgson was assigned as liquidator of great southern group . 3 the collapse of great southern group in conjunction with the failure of another high profile agribusiness company timbercorp led to three separate australian parliamentary committee inquiries into the mis industry . contents 1 business activities 2 rise 3 fall 4 great southern and the regulation of managed investment schemes mis 4.1 taxation treatment of mis schemes 5 great southern and australian politics 6 environmental and land use issues 7 analysing the group s failure 8 great southern class action 9 notes 10 references 11 bibliography business activities edit the great southern group in 2008 formed australia s largest managed agribusiness investment scheme operation . 2 4 the company comprised a parent entity great southern plantations limited from 2007 renamed great southern limited 5 and over forty subsidiaries almost all wholly owned . those subsidiaries held or operated great southern s businesses including providing management services . 6 at the centre of great southern s operations were management investment schemes referred to as mis schemes . mis schemes are a mechanism by which investors funds are pooled to invest in a common business enterprise . a responsible entity such as great southern controls the routine administration of the investments . 7 in primary production schemes such as those managed by great southern investors are the growers of products such as forestry plantations with an agreement with the company to manage the investment to plant establish and maintain the trees until they are harvested at maturity . 8 investors in great southern generally purchased lots typically of 1 hectare on land owned or leased by great southern . 9 10 thus investors owned the plantations but the land assets belonged to the company . while investors owned individual woodlots risks and returns were distributed across all investors in individual projects with growers sharing the average yield at harvest for the entire project ... rather than the return from their individual woodlot . 11 these were not high rates of return for the length of investment involved . 12 some of the schemes relied upon the rationale that investors would retire and therefore receive income from the scheme when their marginal tax rate was lower than at the time of initial investment . based on this premise some schemes were claiming a rate of return after tax of eight to nine percent . 13 others suggested the schemes were a poor investment likely to achieve only six percent return . 14 returns to investors comprised a tax deduction in the year in which they bought the products 15 and returns from the sale of produce over the life of the project 16 which was typically at the point of harvest 10 12 years later for plantations and up to 23 years for horticultural projects such as almonds . 17 great southern would deduct management fees from the final sale value . 15 a typical forestry investment in the early 2000s involved an initial payment of 3000 for one third of a hectare woodlot yielding a 2900 tax deduction at that time . returns on harvesting depended on many variables ; great southern forecast that investors would recoup their original investment and a further return of between 1923 and 4569 per woodlot however early schemes did not achieve these figures on the basis of the timber sales with some resulting in woodchip sales of only around a 1500 half the value of what was originally invested . investors received their returns when the product usually woodchip was harvested and sold . 15 while the majority of great southern s activity was in the sale of managed investment schemes in 2007 it diversified into funds management through the purchase of rural funds management ltd 18 retaining its diversified agricultural assets fund and offering a new share fund and a blended property fund . 19 in addition to retailing mis products to investors great southern also provided loans to investors wanting to borrow to invest . 15 by 2009 its loan book comprised 14 500 loans with an average value of approximately a 50 000 . 20 rise edit great southern s managed investment scheme sales 21 the great southern group began as the company great southern co founded in 1987 by accountant john carlton young 4 and microbiologist helen sewell . 22 23 it began by managing south east australian plantations of pinus radiata but in 1992 shifted to eucalytus plantations for woodchip production 24 dealing in blue gum woodlot investments . 25 through the 1990s it developed its plantation business in south western western australia including the great southern region after which the company is named leasing woodlots to investors on land owned by great southern . a related entity templegate finance pty ltd would also lend finance to investors . 26 27 28 29 30 31 young was great southern s executive chairman when it listed on the australian stock exchange in 1999 and co founder sewell remained in a full time role until her retirement in february 2001 . 32 when the asx200 a new stock exchange index comprising the top 200 australian companies by market capitalisation and liquidity 33 was instituted in march 2000 34 great southern was one of the stocks included . by 2001 the group had 66 000 hectares of forestry plantations in new south wales queensland victoria and western australia . 35 its performance on the share market was strong enough that it was shares magazine s number one ranked stock in its table of top 50 stocks by yield in january 2002 . 36 however the business faced some turbulent times with profits in 2001 and 2002 down on the levels of 2000 . 35 37 the company was delisted from the asx200 for a period from october 2002 to august 2003 38 39 although it was relisted and remained in the index until december 2008 . 40 in 2004 the group diversified into viticulture planting vines in western australia . 41 the company reported that it had been the asx200 s fourth best performer in 2004 and second best performer over the preceding two years . 42 in november 2004 young indicated to the company s annual meeting that harvesting of the first plantations had now commenced and forecast further mis sales growth . the shares in great southern peaked at a 4.76 at this time and young sold a significant proportion of his shareholding netting him a 32.6 million . 43 in 2005 great southern expanded into organic olives acquired some existing beef cattle mis businesses 44 and bought forest products company sylvatech including its a 700 million of assets . 45 the purchase of sylvatech meant the company now also had forestry plantations in the northern territory on the tiwi islands . 46 great southern s cattle properties included the 660 000 hectare moola bulla property in wa s east kimberley region the similar sized wrotham park 300 kilometres west of cairns and the 196 000 hectare blue ribbon station of chudleigh park near townsville as well as a further 2.4 million hectares of pastoral leasehold . 47 in 2007 the company also diversified its mis offerings to high value timbers such as mahogany the uses for which included furniture and flooring . 48 the following table outlines the expansion of the great southern group s operations . great southern s land and cattle holdings 35 49 50 51 52 53 54 55 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 plantation land holdings ha notes 1 029 238 047 774 066 894 67 012 070 329 174 859 200 516 235 000 240 000 240 000 head of cattle na na na na na na na 167 134 176 544 149 935 horticulture ha notes 2 na na na na na 000185 000793 003 986 004 537 005 093 fall edit in the mid 2000s great southern s business was growing rapidly with sales and market capitalisation increasing at more than 100 per cent per annum . 58 however in its 2005 annual report the company disclosed that it was subsidising the returns to its 1994 forestry scheme by approximately a 3 million and that it expected to have to similarly subsidise the 1995 and 1996 schemes by up to a 12 million in future years . 43 59 board chairman peter patrikeos and non executive director jeffry mews both expressed concern about the way in which great southern was funding shortfalls on the sales of timber products with the issue leading directly to mews resignation . 43 although the company continued to sell over a 800 million of mis products in the two financial years after incurring losses on its early offerings it was not meeting sales targets 18 and its share price was falling . 43 underpinning great southern s decision to subsidise returns to its early investors was a looming problem its forestry plantations were not performing to expectations . timber yields were poorer than had been projected . 15 great southern s baseline projection had been 250 tonnes of woodchips per hectare but an assessment in 2003 suggested that in most plantations yield would be reduced in some cases to less than half the planned figure . 15 the company itself considered that yields were proving to be disappointing with actual yields for the woodlots planted in the period between 1994 and 1997 and thus harvested by 2008 being between 120 and 200 tonnes per hectare . 60 plantation growth had been limited by drought conditions and issues with the site and seedling quality of early plantings . 15 the company s sales of mis schemes and its profits both peaked in 2006 with over a 450 million in sales and a net profit after tax of a 133 million . 61 however the 2006 harvest of 1996 plantations yielded a return of only a 1500 and 1750 for the woodlots that investors had bought for a 3000 . these plantations had not been productive enough to yield a profit for investors so great southern inflated the returns to a 4100 using its own funds . 15 in december 2007 young announced he would step down as managing director remaining as both non executive director and major shareholder . 18 saying that he wanted someone younger to implement the company s five year business plans 19 he handed over to cameron rhodes one of great southern s existing senior management team . 18 revenue and profit in a thousands