By Dan Mackay, Partner, Jacqueline Wang, Associate and Jane Leong, Lawyer
After its ninth extension of time, the Senate Economics Reference Committee (Committee) is due to report on its inquiry into the structure and development of forestry managed investment schemes (MIS) on 14 March 2016.
The inquiry was initiated to investigate the high profile collapse of a number of forestry MIS such as Timbercorp, Great Southern and Gunns which have affected tens of thousands of investors (who invested at least $6 billion ), rural enterprises and communities, as well as business interests across Australia, and is the ninth Government lead consultation since 2009 to consider issues relating to MIS and/or forestry MIS.
These consultations have been prompted by the collapse of a number of large scale agricultural and property MIS between 2009 and 2013 which exposed flaws in MIS related law, policy and regulation. Moreover, these collapses not only affected investors in the schemes themselves but also broader interests in the agricultural, property, banking and investment sectors, and led to a large volume of complex litigation in the Courts (which continues today) and the forced sale of significant assets, often to foreign owned entities.
However, in spite of the numerous inquiries and consultations, there has been very little in the way of reform to the legislative and regulatory landscape concerning MIS since the late 2000s. One of the few exceptions, the Future of Financial Advice (FOFA) introduced in July 2012 sought to address issues surrounding the quality of financial advice given to investors and was aimed at reforming the sale and marketing process, and the provision of financial advice given in respect of products including MIS.
However, such reforms do not address structural flaws in MIS law and regulations, or the limitations of the current legislative and insolvency regime in this respect. In 2012, CAMAC delivered a comprehensive report concerning MIS in circumstances of distress, which contained specific proposals for reform of mechanisms for changing the responsible entity in a viable MIS, restructuring of distressed MIS, winding up and proposals to improve the operation of Chapter 5C of the Corporations Act. CAMAC was unable to complete the second stage of its review of MIS structure and operations more generally prior to withdrawal of its funding in 2014.
Although CAMAC’s report and discussion papers have generated engagement by regulators, professional associations and industry, and delivered in one respect detailed proposals for reform, it has yet to translate into any substantial legislative or regulatory reform.
At present it has been all conversation, no action.
However, in its response to the Financial Systems Inquiry Report released in December 2014, the Federal Government indicated that it would ‘develop legislative amendments to enhance the regulatory framework for managed investment schemes drawing on the CAMAC report and a forthcoming Senate Committee Inquiry report’. As part of what the Government refers to as ‘Consumer Outcomes Measures’ it has indicated that measures would be taken to ‘improve the regulation of managed investment schemes’ within a timeframe it specifies ambiguously as ‘beyond 2016’.
This suggests that the pending Senate Committee Inquiry report is a key step in the final delivery of reform in this area.
So we await next Monday 14 March 2016 (absent a further extension) to learn detail of the Committee’s latest contribution to the dialogue on MIS reform.
What remains to be seen is how much of this conversation translates into action, and what form that action ultimately takes.
For more information, please contact:
 14 March 2016 is a public holiday in Canberra.
 It was originally referred to the Committee on 25 June 2014 and due to be reported on by 27 October 2014.
 Including up front contributions, fees and loans associated with the investments.
 Public Consultation on Superannuation and Managed Investment Scheme Disclosure (2009), Parliamentary Joint Committee on Corporations and Financial Services (PJC) Inquiry and Report on Financial Products and Services in Australia (2009); PJC Inquiry and Report on Aspects of Agribusiness MIS (2009); PJC Inquiry and Report on the Collapse of the Trio Capital) (2011); House of Representatives Inquiry into the Australian Forestry Industry (2011); Corporations and Markets Advisory Committee (CAMAC) Investigation and Report – Management Investment Schemes (2012); CAMAC Investigation and Discussion Paper – The Establishment of Operations of Managed Investment Schemes (2014); Senate Economics References Committee inquiry ‘Scrutiny of Financial Advice (2014).
 Reforms made in response to the Parliamentary Joint Committee on Corporations and Financial Services’ Inquiry into financial products and services in Australia.