No shelter for prospectus pain

Agricultural scheme pro-moters are reeling at the latest blow to their industry, with regulators chang-ing the rules about prospectus fore-casts in the middle of the key marketing period.

After a big review of the technology sector collapse, the Australian Securities and Investments Commiss-ion has tightened what it considers appropriate use of financial predictions.

ASIC will consider misleading any statement or projection based on hypothetical assumptions, which is not clearly differentiated from fore-casts based on expected financial outcomes.

And any prospectus with inform-ation appearing to be a forecast for anything beyond two years will find itself being closely scrutinised — with an emphasis on the need for independent experts’ opinions to support key assumptions.

The changes apply to any type of prospectus but the biggest impact is agricultural-based Managed Invest-ment Schemes such as those for bluegum plantations and vineyards which typically offer forecasts and projections going out anywhere from 10 to 25 years.

The ASIC move comes as promoters of these schemes swim against a tide of contrary news and opinion, led by the recent media coverage of investors in their fight against Australian Taxation Office decisions to rule against tax deduct-ions claimed years ago. But thousands of people facing steep bills from the tax office is not the only concern for scheme pro-moters.

New tax rules mean tax deductions are only available for expenditure made in the same financial year, which means the promoters’ needs to get money early is clashing with investors’ preference to leave the decision as close to June 30 as possible. There is also growing concerns that these schemes have been so successful they are in danger of being their own worst enemy.

The fundamental reason for these schemes’ existence — to take advantage of future shortfalls of certain commodities — appears to have gone full circle, with successful sectors such as bluegums and grape producers facing talk of gluts.

To top it off, there was the sud-den collapse of one of WA’s most successful promoters Satcom which throws into doubt the tax deductions of hundreds of investors, many of them high profile WA sportsmen, who face the possibility of collectively returning millions of dollars to tax authorities.

In this tough market, the watchdog’s new policy has not been warmly welcomed by all.

ASIC national coordinator for fund raising, mergers and ac-quisitions, Richard Cockburn, said the most heated response he had met was in Perth, the home of the retail tax-effective market.

“This (policy) has come from the dot.coms,” Mr Cockburn said.

“It applies across the board whether we are talking about dot.coms biotech, BHP or tax schemes.”

“The problem is most acute in the tax schemes because many of them are long-term investments before they become cashflow-positive.”

Mr Cockburn said he had received deputations from at least six promoters and their lawyers, mainly in the forestry business, appealing for the policy to be held off until at least the next tax year.

The timing of the changes means some prospectuses with full forecasts are already legally available while new ones wanting to get to market face the prospect of being knocked back.

“My problem is that it is difficult to put that off,” Mr Cockburn said. “The difficulty is some of them will be at a late stage.

“I have been talking to a large amount of agricultural scheme promoters and their legal advisers. Much of the angst is, of course, that there is change. Whenever there is change people are unhappy with that.

“What I have been doing is being perfectly honest and saying my staff have guidelines.

“If it looks reasonable and you don’t go outside of two years, my staff will accept that, if nothing hits them in the face.

“As soon as you go out to two to five years they have a judgment issue. Anything that goes out more than five years we are being more sceptical about.

“We talked to one of the accounting firms. They said they would never go past five years when looking at forward est-imates.”

Barrington Partners accountant Roger Sullivan said practitioners were worried about the apparent clash between the different regulators’ requirements.

Mr Sullivan said the ASIC clampdown on forecasting flew in the face of the Australian Taxation Office’s requirements for long-range forecasts under its product ruling regime.

“Product rulings with the tax office are required to give projections for the whole life of the project,” Mr Sullivan said.

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