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Court rules IOOF subsidiary neglected investors

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The courts have ruled in favour of a group of retirees over lost investments in a forestry scheme, in a decision that could see IOOF subsidiary Australian Executor Trustees (SA) cough up compensation of around $80 million plus costs.

The proceedings backed by litigation funder IMF Bentham saw IOOF face a $75 million court action in July.

Investors in the Southern Australian Perpetual Forests (Sapfor) scheme, known as covenantholders, were promised a safe long-term investment into land and trees in Mount Gambier’s green triangle area. 

The additional trustee, David Kerr, acting on the behalf of an estimated 4,500 investors in the proceedings, sought around $55 million losses plus interest from AET, making the case that the company had failed in its role as security trustee to protect investors’ interests. 


The court ruled in favour of the covenantholders, who are expected to be awarded around $80 million compensation plus costs from AET.

IOOF noted the judgement in a release to the ASX, commenting the maximum exposure to it, net of insurance proceeds, is around $16.5 million. 

While final orders are awaited, the wealth group also indicated it expects to appeal the ruling. IOOF sold the AET corporate trust business in November last year. 

Simon Morris, partner of law firm Piper Alderman, has led the claim against AET and its lawyers Sparke Helmore. 

He said the outcome was hugely satisfying and long-awaited for the covenantholders.

“For lawyers and corporate trustees this decision will rebound for the things it says about the responsibilities of corporate trustees, their advisers and equitable compensation,” Mr Morris said. 

“There are salutary lessons here for corporate trustees about the consequences of their failures when but for their breach a loss would not have been suffered.”

Tasmanian forestry group Gunns bought Sapfor and its parent company Auspine in a deal values at almost $350 million in 2008, but then struggled to pay its debts following the GFC. AET was said to be unaware at the time.

After granting fixed and floating change security over all the Sapfor scheme assets to lender ANZ as a condition for a new loan of $340 million in 2010, a deal was signed with a buyer from overseas in 2012, with Gunns agreeing to sell the trees and land for $39 million. 

AET consented for the money to be paid directly to Gunns’ overdraft account on top of agreeing to release encumbrances on the Sapfor assets. 

A few months later, Gunns went bust and the entirety of the scheme’s assets, totalling around $55 million, were lost to receivers appointed by ANZ.

AET was being accused of acting negligently and in breach of trust by prematurely releasing the scheme’s security arrangements before receiving sale proceeds worth $55 million – which IMF said was due to the covenantholders but never reached them, instead being used to repay debts.

The court dispute began in 2016, when an aggrieved covenantholder, with backing from litigation funder IMF Bentham, applied to the NSW Supreme Court to appoint a new trustee to investigate Sapfor’s affairs. 

David Kerr of RSM Partners in Sydney was given the job in 2016 and a year later, with court approval, he commenced proceedings on behalf of the covenantholders. 

Court papers showed AET sought to defend the case by blaming lawyers Sparke Helmore for giving allegedly negligent advice. 

One of the investors, Western Sydney-based Peter Hickson bought his 1983 covenant in early 1894 and he recalled paying it back over several years. 

“The plan was deliberate to have a long-term investment in what I thought was a reputable company,” Mr Hickson said.

“Following the sale of 30 years of timber plus land valuation, naturally, I expected a return.”

He said his family had faced hardships in paying off the investment, with his wife becoming sick and passing away.

IMF Bentham investment manager Oliver Gayner said the covenantholders had been shocked to learn the entirety of their investments had been lost. 

“Naturally we are delighted on behalf of the covenantholders that the injustice they have suffered has been recognised by the court, and the trustee whose sole job was to protect their interests has been found liable to pay them compensation,” Mr Gayner said.

“Given the court’s clear and unambiguous ruling we hope the matter can now be quickly and finally resolved in the interests of all stakeholders.”

IMF expects, subject to appeal, to gain net income of around $30.5 million, resulting in net profit before tax and after capitalised overheads of around $28.1 million.

Court rules IOOF subsidiary neglected investors

The courts have ruled in favour of a group of retirees over lost investments in a forestry scheme, in a decision that could see IOOF subsidiary Australian Executor Trustees (SA) cough up compensation of around $80 million plus costs.

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Sarah Simpkins

Sarah Simpkins

Sarah Simpkins is a journalist at Momentum Media, reporting primarily on banking, financial services and wealth. 

Prior to joining the team in 2018, Sarah worked in trade media and produced stories for a current affairs program on community radio. 

You can contact her on [email protected].

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