Student Id: 159113604

Murugan Muthukrishnan

MSc In Business Administration
Corporate Turnaround: Avoiding Failure - Assignment
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Question: Identify and discuss the systemic weaknesses
The Investors are charged an up-front fee and additional fees for rent and management
of the project. However, this investment may not entitle the investor to any physical
assets, such as land or the planted trees. This means that if the responsible entity
becomes insolvent, or if the business scheme fails before the produce can be harvested
or sold, the investors investment may have not any value and hence the risk to the
investors of Timbercorp.
After the initial proceeds that are paid to the tax lawyers, tax accountants, fund
managers and the scheme promoters, only a small percentage (<35%) of the total MIS
investment dollars are actually being used in the venture. This small amount could,
sometimes, not be enough to do agribusiness for a long period of time, which increases
the chance of not getting the required yield. Hence, the returns to the investors are not
assured.
Weather changes that might bring in severe drought or floods carry a risk to
Timbercorps business, thus reducing or destroying the entire cultivation. In this case,
the investors might lose the entire money invested.
Agribusiness Managed investment schemes are often designed to deliver tax benefits
to investors. These tax benefits are promoted as a key advantage of the scheme.
However, if the scheme ceases to comply with the rules and regulation at any stage, tax
deductions could be stopped and then the unpaid taxes have to be paid to the regulatory
authorities. Hence, future investments are bound to reduce thus increasing the risk of
the cultivation and the yield.
The Timbercorp agribusiness schemes are very long, in the case of olive plantations it
is 23 years, with no immediate short-term returns. This makes it difficult for the
investors to predict the actual returns.
Timbercorp, as mentioned in the case, is involved in export sales. Hence, the
appreciation of Australian dollar might reduce the profits and hence the returns to the
investors.
Student Id: 159113604
Murugan Muthukrishnan

The Agribusiness managed investment schemes do not have high standards of
regulations. Hence, Timbercorp was able to securitise their loans, thus acquiring fees
and passing off the inherent risk of bad debts. Now, this becomes a riskier bet when the
economy starts to dwindle and the debtors default on their loans.