The carnage from the collapse of managed investment scheme company Great Southern will be huge.
The company has 12,000 shareholders, plus more than 40,000 investors in its agribusiness investment schemes, which included everything from timber and olives through to almonds and cattle.
Somewhere in Perth, Great Southern’s founder and major shareholder John Young is also likely to be reeling.
An accountant by trade, the notoriously media-shy Young started Great Southern in 1987, having sold his investment advisory firm Charthill just before the sharemarket took a dive that same year. Over the next 10 years, Young quietly built the company into Australia’s largest management investment scheme company
He floated it in 1999 at around $2, and built the shares up to almost $5 in 2005. Young’s personal fortune peaked in 2006, at $200 million according to BRW’s Rich 200 list.
But since then it has been all downhill. The Howard government’s decision to change the tax treatment of some managed investment schemes in 2007 hit the sector, and Great Southern, hard and the company’s share price halved in that year.
Young had recovered from tax changes before. Back in 2000-01, changes to the tax treatment of the managed investment scheme (MIS) sector saw Great Southern’s shares fall from above $2 to less than $1. At the company’s annual general meeting in 2007, Young told shareholders he was “acutely aware of the pain” they were feeling and was confident of turning things around.
But then came the credit crisis. Like other MIS companies, Great Southern borrowed heavily to invest in its complex agribusiness operations. Not surprisingly, banks suddenly want very little to do with the inherently risky, agriculture-focused MIS sector.
In late 2007, Young stepped down, citing the fact that he had just turned 60. He remained as a non-executive director and major shareholder. Today, those shares are worthless.
The phrase “managed investment scheme” has a rather grand ring to it, but in reality, buying into a company such as Great Southern involved a great deal of risk.
There was the risk associated with every agriculture business, including the risk of drought, flood, fire and pestilence. There was the risk associated with relying on governments not to change tax rules every few years. And there was the risk of carrying large amounts of debt in the most difficult business environment in more than 20 years.
The collapse of Great Southern is more proof of how quickly things can unravel for a risk-loaded business in this recession. The announcement of John Young’s retirement trumpeted the 20 years he spent building Great Southern into a $1.2 billion company. But it has taken just three years for him to fall from multi-millionaire to the director of a failed company.
James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
