great southern probe on slow boil

Fin Review - 28/1/2011

"When Eddy Groves of ABC Learning fame appears in the Brisbane Magistrates Court today charges with breaches of directors duties, it will be 16 months since the company's creditors were first told of potential breaches of the Corporations Act.

Some will say the delay between going bust and getting people in front of a magistrate is an indictment of the Australian and Investments Commission.

In fact, the moves against Groves and former head of operations Martin Kemp are relatively quick by Australian standards given the complexity of the business structure, its international reach and the fact that ABC Learning did not go into liquidation until June last year.

The liquidation date is critical because it is the trigger for the accountants to use powers under the Corporations Law to examine directors in court and, in effect, gather evidence for ASIC. The move against Groves and Kemp should give heart to shareholders, investors and unsecured creditors in failed horticultural group Great Southern, which has moved a step closer to paying back its banks with the sale of 252,000 hectares of land.

In what is said to be the largest property conveyancing transaction in Australian history, Great Southern's receiver, McGrath Nicol, has sold the land to Canadian pension fund Alberta Investment Management Corp for $415 million.

Great Southern was arguably one of the most far-reaching corporate collapses in Australia. It affected about 42,000 investors in managed investment schemes and 53,000 growers, unsecured creditors, noteholders and shareholders. It is likely to result in losses to unsecured creditors of at least $350 million.

The banks might just recover their $600 million in debt. Either way, those affected by the collapse are entitled to ask what is happening to the directors who ran the organisation, particularly the founder and managing director, John Young.

We know from the report to creditors by Ferrier Hodgson in November 2009 that Great Southern may have been insolvent before it appointed voluntary administrators in May 2009, that preferential payments were probably made before the collapse, that there were several property transactions that warranted further investigation and that there may have been irregularities in certain projects and transactions undertaken in the lead-up to the company going under.

ASIC is understood to be vigorously pursuing its investigation into Great Southern and the role of its directors. Ferrier Hodgson has submitted a total of 17 reports and supplemental reports to ASIC based on its investigations in accordance with section 533 of the Corporations Act.

Those reports were submitted between April and December last year. One of the difficulties facing the ASIC investigators is the huge volume of transactions involved in a corporate entity that includes a holding company and subsidiary responsible entities overseeing the managed investment schemes that funded the horticultural business. About $2.2 billion of transactions were churned through the Great Southern accounts in the final year of existence.

Given the complexity of the business and the transactions entered into by the company in its final death throes, a 16-month time frame for any potential action against those involved in Great Southern would probably be ambitious. Also Ferrier Hodgeson has no money to fund court examinations of Young and his fellow directors. But at least there is evidence that the investigatory wheels at ASIC are still turning"