Image for Insolvency, disclosure and FT.  Ruth Forrest’s forensic eye

If there are times when Forestry Tasmania’s appears secretive, maybe it’s because it doesn’t always know what’s happening.

It was unaware of its possible insolvent status until it was pointed out by its Lender, Tascorp, the State Government’s finance arm.

Forestry Tasmania’s recently released 2010 financial statements revealed that it had breached lending covenants. The breach which had been overlooked by the Directors was discovered by Tascorp when reviewing the 2009 financials.

This was disclosed by Treasurer Michael Aird in answer to a Question on Notice from Ruth Forrest MLC: 
http://www.parliament.tas.gov.au/HansardCouncil/isysquery/d29954a8-6db3-4052-ba83-e3e338f98e1a/1/doc/

The Treasurer stated that without his subsequent Letter of Comfort to Tascorp guaranteeing Forestry Tasmania’s debts, Directors would have been unable to sign their solvency declaration that debts would be paid as and when they fell due.

Coincidentally the Secretary of the Department of Treasury, Don Challen is also the Chairman of Tascorp.

Barely a month after the Letter of Comfort was provided, Mr Challen in an address to Directors of Government businesses, outlined several principles of good corporate governance, one of which was the principle of appropriate disclosure to shareholders.

“Businesses should ensure that they have due procedures and policies in place to ensure that the information is timely, accurate, and meaningful, and the communication method is appropriate”, he said: http://www.treasury.tas.gov.au/domino/dtf/dtf.nsf/LookupFiles/20100910-DWChallen-address.pdf/$file/20100910-DWChallen-address.pdf.

Forestry Tasmania needed to be told by its Lender that it was in breach of a lending covenant. Its public response was to bury the disclosure in an obscure Note to the Accounts.

Mr Challen also described the two models for government businesses; State owned Companies (SOCs, Aurora Energy for instance) which fall within the ambit of the Federal Corporations Act and GBEs (like Forestry Tasmania) largely covered by the GBE Act as well as other enabling legislation.

The shortcomings of the GBE model drew the following remark: “Although from time to time amendments have been made to the Government Businesses Enterprises Act, it has been left behind somewhat and would require a major overhaul to bring it back into line with the Corporations Act.”

On the matter as to whether the insolvency provisions of the Corporations Law applies to GBEs like Forestry Tasmania, Mr Aird told Parliament last week “that there is always an expectation that all State owned companies or GBEs should be adhering to the general solvency provisions.” Trading in a solvent manner is usually a mandatory responsibility of Directors , not just an expectation.

Mr Aird explained that “if any GBE was acting in a way which indicated to me that they were trading while insolvent, it would require some action to be taken by government.”Not by the Directors apparently but by the shareholders. At times GBEs can be a law unto themselves.

Mr Challen further commented that “Treasury has therefore been considering for some time whether it is still necessary and worthwhile to continue to maintain two government business governance models.”

Given the likelihood that the 6 current GBEs will become SOCs, it appears to be an opportune time to consider which of Forestry Tasmania’s functions are best transferred to a SOC and which are best transferred elsewhere.

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Boost to scrutiny
Source: Stateline Tasmania
Published: Friday, October 15, 2010 7:46 AEDT
Expires: Thursday, January 13, 2011 7:46 AEDT

Two new Upper House committees look set to be established to beef up Government scrutiny.

AIRLIE WARD, PRESENTER: Tasmanian Government businesses are about to enter a new era of increased scrutiny.

This week, a push by independent legislative councillor Ruth Forrest to set up two permanent scrutiny committees was successful but, as Lucy Shannon reports, the Government is concerned about how they might operate.

LUCY SHANNON, REPORTER: The independent member for Murchison Ruth Forrest has been ruffling government feathers ever since she was elected in 2005.

To taunt her, the Premier David Bartlett calls her a closet Liberal and last month, Labor recruited a popular north-west mayor to face off against her in elections next May.

RUTH FORREST, MURCHISON MP: I would take that as maybe I’m doing a good job.

LUCY SHANNON: Her latest move is unlikely to win her any new friends in government. Ms Forrest wants two permanent Upper House committees set up to boost government scrutiny.

RUTH FORREST: The Labor Government, before the last election, made it very clear they were wanting to be open and transparent and that it means being willing to be scrutinised at any level.

LUCY SHANNON: The committees will run for the life of the Parliament and could be convened within days. They would be able to call upon heads of government businesses or departments much more frequently for questioning.

RUTH FORREST: I believe it’s appropriate that the Parliament is keeping an eye on what’s happening on behalf of the people of Tasmania.

LUCY SHANNON: At the moment, Legislative Councillors can establish a select committee to look into a particular matter, such as last year’s committee on ethical conduct, but it can be a time consuming process. Independent members can only set them up on a private members business day.

RUTH FORREST: This year, for example, only had six private members days, which doesn’t allow a lot of time for establishing an inquiry.

LUCY SHANNON: That means issues are often being examined months after they first become relevant.

RUTH FORREST: For example, this year during the budget session we had several months all up where we had no private members time and all the issues around the challenges with Aurora came to the surface then and it would have been an opportunity, if this committee had existed at the time, to actually call in the relevant people.

LUCY SHANNON: Despite the timeframes, the amount of scrutiny taking place in the Upper House has increased dramatically in the past decade. Ten years ago, one select committee a year was normal; last year there were eight.

RICHARD HERR, POLITICAL SCIENTIST: Recent events, in terms of just the issues that have become of public concern, have drawn attention to the need to have a quicker, more efficient resolution of these issues.

This may be inconvenient at times for government but, on the other hand, it does help to keep everyone on their toes and it’s allowing the Upper House to do its job more efficiently.

LUCY SHANNON: Government businesses represent about half of all of Tasmania’s assets and liabilities. Given that, Ruth Forrest believes the amount of time set aside to scrutinise their performance is woefully inadequate.

RUTH FORREST: It’s once a year in December, more than six months after the annual reports have been or their financial years closed.

We’re looking at information significantly out of date potentially, so and we only get two or three hours depending on which GBE it is to actually undertake that scrutiny.

And it doesn’t actually give the opportunity to test some of the things that you’ve been told, we have to wait another two years effectively before our house gets that GBE back again.

LUCY SHANNON: Last year the Government put its betting business TOTE Tasmania on the market. Ruth Forrest says the legislation was rushed through the upper house and members were in the dark on some crucial matters.

RUTH FORREST: It would have been helpful to have more information about the value of the company. The profitability that was expected, their forward estimates.

LUCY SHANNON: A buyer couldn’t be found so, nearly a year later, the profitable business was taken off the market.

RICHARD HERR: We can tell that the Upper House has had to fix up hasty legislation because a fair share of the amendments that come through to amend legislation come from the Government’s side. Which means that they’ve had second thoughts or they’ve had further information or whatever.

That’s a lot of burden for the Upper House to carry.

LUCY SHANNON: Ruth Forrest also points to the failed Tasmania Tomorrow education changes. She says, with proper scrutiny, the outcome may have been different.

RUTH FORREST: It could have created some delay, as it turns out it could have been in the best interests of the young people of Tasmania and the young people who are now in the middle of this turmoil yet again while changes continue.

LUCY SHANNON: While Governments may fear delays, Richard Herr says the experience in other areas has been positive.

RICHARD HERR: Government is afraid that they will be asked for information all the time and that’ll tie up the work of public servants and people working in the GBEs, who ought to be doing perhaps other things. But, as we’ve seen in the jurisdictions, once the bureaucracy gets used to the process, it doesn’t really impact on them very much at all.

DAVID BARTLETT, PREMIER: I thank the honourable member for his question.

LUCY SHANNON: It could also provide benefits to a government struggling with a PR problem.

RICHARD HERR: It becomes something that governments can use to scotch rumours, to authoritatively and independently verify that what they’re doing is indeed entirely in the public interest as they would wish it to be.

LUCY SHANNON: Stateline approached a number of GBEs to gauge their response to the proposal.

In a statement, Aurora Energy said it welcomes public and parliamentary scrutiny but that the current processes are comprehensive and are also resource intensive.

Forestry Tasmania’s statement says scrutiny was already pretty much on a daily basis and, while it doesn’t have any real concerns about a permanent committee, perhaps the Parliament might first consider the mechanisms that are already in place.

Hydro Tasmania said it welcomes scrutiny but that adding a further layer would seem unnecessary.

The Government’s businesses might be cautious because they’ve been copping it from all directions lately. The outgoing Treasury head Don Challen is scathing about their performances.

In an address to GBE directors last month he told them they were not only underperforming but difficult to scrutinise. He said “the fact that there is no trading in shares, and consequently no quoted share price, makes the daily market scrutiny of a listed company impossible in the case of a state-owned business” and that “the publication of annual financial statements is a very poor substitute”.

This week, Ruth Forrest’s motion passed the Upper House without the support of government members. The committees could be established by the end of the year.

Read, Watch, Listen HERE

Meanwhile ...

MIS a ‘disaster’ for Elders

Kate Dowler, Weekly Times
ELDERS CEO Malcolm Jackman says the plantation industry is a “complete disaster in Australia right now” due to managed investment schemes.

“And you’re talking to a man responsible for 180,000ha of plantations,” he said.

Mr Jackman made the comments at a company function attended by almost 200 clients in Hamilton last week.

“The MIS schemes we’ve had over the last 20-odd years have basically evaporated into nothing and we’ve seen five companies go bust in the last few months,” he said.

Mr Jackman admitted Elders had become distracted chasing new ventures such as MIS and had lost focus on its core business.

Mr Jackman said the real question the forestry industry needed to answer was “who will continue to plant plantations in Australia and why?”

“Our view on MIS is there’s no investment demand for it at the moment ... the banks who bank-rolled the schemes have no appetite for it at all.

“At the same time we have the Federal Government, with Labor leading that chase, saying MIS still have a role to play.”

Mr Jackman said he thought a US plantation model may be applied in Australia, involving longer rotations and different ownership models, but which still supplied Asian paper mills.

“I think forestry as a whole has a very shaky and uncertain future over the next couple of years.”

However, he said long-term demand for bluegum woodchip would grow.

Mr Jackman added that Elders would like to see the MIS situation stabilised.

Meanwhile, Mr Jackman said Elders’ figures had started to lift in the past few months and the short-term goal was, simply put, to “make money”.

“There’s no radical silver bullet, I’m just very focussed on the basics of the business - sales, people and cash - and getting it to grow again.”

He said the planned 10 per cent cuts to staffing levels were on track, through natural attrition and performance management.

He said farm input costs would continue falling as the Australian dollar rises but agribusinesses such as Elders would be hit by reduced margins.

“The Australian dollar will help imports from a farmer’s point of view as it will continue to put pressure on pricing, so you will expect to see prices stay down, if not fall,” he said.

“The difficulty for a distributor like us is we make a margin on that, and we’re now making a margin on a much lower dollar.

“For example, in glyphosate, in August last year it was $529, this August it is $366, and we make a margin on that as a percentage and so were making less money on the same product.”

Read the full article HERE