FOR anyone thinking of making a tax-effective investment during the final weeks of this financial year, a review of the collapse of Tuart Resources should prove a timely eye opener.
Tuart’s shares have been suspended since mid-January, following the appointment of John Carrello as administrator, pending a recapitalisation plan, that will be put to investors this week.
They will be asked to vote on a proposal to heavily water down their holdings in what is now little more than a shell company that will be re-listed soon as Extract Resources under the direction of corporate salvage team Ascent Capital.
So what has this got to do with tax-effective investments?
Tuart was a $2.6 million resources listing when the company’s shareholders agreed to a backdoor listing of the Nelson Ridge group of companies, the parent of two management companies overseeing two tax-based vineyard projects valued, at the time, at about $37 million.
While it will never be known if Tuart would have done well as a resources company, there appears to be no doubt the decision to allow a reverse takeover by Nelson Ridge was disastrous.
The vineyard part of the business has now largely been cut adrift and those involved say it will be some time before anything is recovered from the insolvent and debt-ridden assets near Donnybrook.
In contrast, Tuart has already managed to raise some cash from a private sale of manganese and gold assets in a deal understood to be worth about $500,000.
However, original Tuart shareholders have lost little compared to the potential losses of investors in the biggest project associated with Nelson Ridge, the 204 hectare Preston Vale vineyard at Donnybrook that raised about $27 million through a managed investment scheme prospectus.
Rumoured to be worth between $8 million and $9 million, Preston Vale’s investors have been desperately trying to revive the scheme and find some $2 million needed to keep it alive.
The irony is they have already paid more than most vineyard investors.
In 1999 it was widely reported that Preston Vale was among the most expensive vineyard-focused tax-effective investments, taking almost $160,000 per hectare over the first three years of the project life.
In comparison, Agriculture WA suggested the cost of putting a vineyard together at the time was about $50,000 a hectare and several other rival schemes were seeking between $60,000 and $85,000 a hectare.
Little wonder that Preston Vale investors may be reluctant to dip into their pockets at a time when the prospectus says their investment will be starting to show an operating profit this financial year.
If their attempts to save the scheme fails, including plans to change the responsible enitity from Southern Wine Corporation, it would most likely result in its dissolution and the end of their leases over the property.
This would leave the land unencumbered and allow Mark Reilly of Featherby Reilly, the liquidator of Southern Wine, to realise the value of the land.
Arguably, this would be the best thing for investors in Tuart, which owns Southern Wine and which, in turn, owns 56 per cent of the trust that owns the land. Preston Vale’s scheme investors own the other 44 per cent of the trust.
Of course, some Tuart shareholders, such as Dean Scook, were involved in the fundraising efforts for Preston Vale and, as shareholders of the scheme’s manager Southern Wine, ended up with significant stakes in Tuart through the reverse takeover.
In February it was reported that Mr Scook, along with financial adviser Jeff Braysich, was charged with market manipulation in relation to shares in a matter unrelated to Tuart.
According to the Australian Securities and Investments Commission, Mr Scook faces 279 charges of creating a false or misleading appearance of active trading in Intrepid Mining Corporation NL, now known as Cobra Resources NL, during January and February 1998.
Mr Braysich has been charged with 21 counts of creating a false or misleading appearance of active trading in Intrepid during February 1998.
Most of Preston Vale’s investors came through the promotional efforts of Mr Braysich’s Sydney-based financial adviser Saxby Bridge, which recently fought off an ASIC ban related to tax-effective investment advice.
Some of those Preston Vale investors, perhaps those who struggled to get finance from traditional sources, ended up being funded by a company associated with Clifton Partners, which was embroiled in the finance brokers scandal.
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