IMF Bentham stands behind claimants in A$75 million court action against AET (a subsidiary of IOOF)

SYDNEY, AUSTRALIA: 11 MARCH 2019:  Backed by Australia’s leading litigation funder, IMF Bentham Limited (ASX:IMF), thousands of Australian retirees, who lost everything after investing in a forestry scheme in the 1980s, will finally get their day in court against IOOF. The Supreme Court of NSW has scheduled the hearing over eight days from 1 July.

The investors’ lawyers, Piper Alderman, allege that IOOF subsidiary, Australian Executor Trustees, failed in its duty as security trustee to protect the investors’ interests in the Southern Australian Perpetual Forests (Sapfor) scheme. Investors in Sapfor, known as “Covenantholders”, were promised a safe long term investment into land and trees in Mount Gambier’s green triangle area, but in 2012 saw their investments reduced to nil as a string of corporate blunders allowed the scheme assets to be consumed in the insolvency of Tasmanian forestry giant Gunns.

It is claimed AET acted negligently and in breach of trust by prematurely releasing the scheme’s security arrangements before receiving sale proceeds worth $55m. The money was due to the Covenantholders, but never reached them – instead Gunns used it to repay its debts to bankers.

Investor Anger
Covenantholder Peter Hickson, from Penrith, NSW, said:

  • “I purchased my 1983 covenant in early 1984 and paid it off over several years with some effort. The plan was deliberate to have a long-term investment in what I thought was a reputable company.
  • “I trusted them and feel betrayed. They wouldn’t tell me anything.”
  • “I rang them a lot of times and got absolutely nowhere. There didn’t seem to be anybody in particular looking after the matter. It seemed to float around the office.”
  • “I’m a registered nurse and if I ever stuff up I would have to go before the registration authority. These people should face the appropriate regulating body. They should be held accountable for their actions. They should have their credentials withdrawn.
  • “Following the sale of 30 years of timber plus land valuation naturally I expected a return.”
  • Mr Hickson said he and his family faced hardships in paying off the covenant.  “I had a young family at the time and I struggled to pay it off. I was delighted when I did.  My wife got sick during the middle of it all and then, in 1990, she died.  I didn’t have the money at the time and had two young children (two boys) and had to bring them up.”
  • “I didn’t do anything wrong but lost the lot because they pinched it,” Mr Hickson said.

Another Covenantholder said

  • We were a young couple with three small children and only one wage when we believed the SAPFORagent and his promise of benefits from growing trees which we love…my prayer is that there is justice for the many cheated of their rights”

The Legal Case
The Covenantholders are represented by leading law firm, Piper Alderman. Partner Simon Morris said:

  • “This is a remarkably simple case. The bundle of rights that protected Covenantholders’ investment included Covenantholders holding security over the scheme assets.  That security was to remain in place until Covenantholders received the proceeds from the sale of their assets. The negligence is that upon the sale of the scheme assets the security trustee, AET, as advised by Sparke Helmore lawyers, inexplicably consented to the security being released without the Covenantholders also receiving the proceeds from the sale of their assets. The result was the Covenantholders went from being secured for the full value of their investment to losing everything. These Covenantholders have been badly let down by the professionals whose job it was to look after their commercial interests. Fortunately our legal system allows third-party funding so these wronged individuals can afford to ‘have their day in court and achieve some redress’”. 

Providing Access to Justice
Oliver Gayner of IMF Bentham said:
Many Covenantholders lost their retirement funds when this scheme went under, but when they tried to enquire what had happened they were met with a ‘wall of silence’. IMF is proud to be standing behind the Covenantholders and Trustee David Kerr at RSM Partners. We hope with our support they will finally see the justice they deserve.”

The Sapfor scheme, established in 1926, was marketed to Australian investors as “truly a unique opportunity… your investment is little affected by industrial disputes or temporary economic downturns”.  Subscribing for a Covenant bought an interest in the scheme trees and land, and a right to the proceeds when the trees were felled, milled and sold as timber.  Back in 1964, Australian Executor Trustees (SA) Ltd in Adelaide had been appointed to protect the Covenantholders’ interests by acting as the scheme’s security trustee.  AET registered security instruments known as “encumbrances” which, similar to a mortgage, prevented the land from being sold until the Covenantholders were paid their due proceeds.

The genesis of the trouble can be traced to 2008, when Gunns, the Tasmanian forestry group run by controversial businessman John Gay, bought Sapfor and its parent company Auspine in a deal valued at nearly $350 million.  The deal would prove costly as the bottom fell out of the woodchip market following the GFC, and Gunns struggled to pay off its debts.

In 2010, two years after acquiring Auspine, Gunns granted fixed and floating charge security over all the Sapfor scheme assets to its lender ANZ Bank as a condition for a new loan of $340m. AET was unaware at the time this had occurred, despite the charge being entered on ASIC’s public register.  As Gunn’s cash troubles grew it sought to sell off assets to pay the ANZ back.  A buyer from overseas was found for Sapfor, and in March 2012 – by which time Gunns’ shares had been suspended from trading – a deal was signed with Gunns agreeing to sell the trees and land for $39m and AET agreeing to release its encumbrances with immediate effect.  AET consented for the money to be paid directly to Gunns’ overdraft account, and when only a few months later Gunns went bust the entirety of the scheme’s assets, totalling around $55m, were lost to receivers appointed by ANZ Bank.

The Covenantholders say that AET’s duty was to keep this security in place until the Covenantholders were paid their entitlements in full.

“Would your bank release its mortgage over your property until you’d paid them back every last cent?  Of course, they wouldn’t.  It’s really that simple.  The trustee had one job to do, and they stuffed it up”, said Mr Hickson.

Legal Proceedings
The current court stoush began in 2016 when an aggrieved Covenantholder, with backing from IMF Bentham, applied to the NSW Supreme Court to appoint a new trustee to investigate Sapfor’s affairs.

In July 2016, David Kerr of RSM Partners in Sydney was appointed additional trustee and a year later, with approval from the Court, Mr Kerr commenced proceedings on behalf of the Covenantholders – believed to number around 4500 in total – to recover the $55m losses plus interest from AET.

Court papers show AET sought to defend the case by blaming its then lawyers, Sparke Helmore, for giving allegedly negligent advice.  Meanwhile parent company IOOF has been fighting its own problems, including the Hayne Royal Commission and the Provident Capital class action which it agreed to settle for a reported $44.25m.

For Mr Hickson and his fellow Covenantholders, many of whom are elderly retirees, the court hearing can’t come soon enough. “We have waited since 1983 for these trees to come and now we have nothing, we are gutted down here”, said one. Others reported their frustration at the “wall of silence” as repeated enquiries to AET and IOOF led to nothing. “It would be wonderful if those responsible are penalised and held to account”.

Who is who

Sapfor – Southern Australia Perpetual Forests Ltd (ACN 007 872 120)
Was set up in 1926 for commercial timber production. For generations, it was marketed as a secure and tax efficient long-term investment suitable for retail investors, who could share in proceeds of timber growing in the green triangle area around Mount Gambier in South Australia and Victoria.  Sapfor later became part of the Auspine forestry group, and then part of Gunns following Gunns’ acquisition of Auspine in 2008.

Australian Executor Trustees (SA) Ltd (AET)
An Adelaide based subsidiary of the Australian Executor Trustees group, itself part of IOOF. AET’s role was to act as the scheme’s security trustee on behalf of the Convenantholders, overseeing Sapfor’s operation of the scheme, registering security (in the form of encumbrances over land), and ensuring that Covenantholders received their proceeds due from the sale of scheme land and timber.

The mainly retail investors who invested in the scheme via subscriptions for “Covenants”.

Tasmanian forestry group run by John Gay. Gunns bought Auspine in 2008, and in 2010 granted its principal creditor, ANZ Bank, a charge over the entirety of the Auspine scheme assets as collateral for further borrowing. Became insolvent in September 2012.

Piper Alderman
A commercial law firm with offices in Sydney, Melbourne, Brisbane and Adelaide. It has more than 60 partners and more than 300 staff.  Piper Alderman (partner Simon Morris) act for Mr David Kerr, the additional trustee of the scheme who is bringing the claim on behalf of the Covenantholders, and are instructing Alan Sullivan QC, David Sulan and Sebastian Hartford Davis of the Sydney bar.

IMF Bentham (ASX: IMF)
Litigation funder backing Mr Kerr and working with Piper Alderman (Investment Manager: Oliver Gayner).


The Sapfor scheme is established. For generations, it was marketed as a secure and tax efficient long-term investment suitable for retail investors, who could share in proceeds of timber growing the green triangle area around Mount Gambier in South Australia and Victoria.

The scheme was operated by two SEAS Sapfor companies, which were part of the Auspine group.

AET appointed as security trustee by a Deed of Trust.  AET’s core duty was to ensure that Covenantholders received their proceeds due from the sale of scheme land and timber.

One of the features that helped the stability of the investment was that AET held security instruments called encumbrances (similar in effect to a mortgage) over the scheme land securing Sapfor’s obligation to pay proceeds of timber sales to Covenantholders.

Additionally, Sapfor was prohibited from charging scheme timber and land without AET’s consent.

January 2008 
Auspine is bought by the Gunns Group in a deal reportedly valued at $348m (cash of $279 million with the balance paid in Gunns shares).

February 2010
In breach of the prohibition against charging scheme assets, and unbeknown to AET and the Covenantholders, Gunns granted its principal creditor, ANZ Bank, a charge over the entirety of the Sapfor scheme assets as collateral for $340m further borrowing.  The charge was registered with ASIC but its existence was initially not detected by AET.

June 2011
Gunns’ Annual Report shows loss of $355.5m.

February – March 2012
Gunns’ shares are twice suspended from trading on the ASX.

March 2012
In an attempt to repay its massive debts, Gunns sold the scheme trees and land to a third party investor for $39m. As part of the sale of the scheme assets, AET consented to the encumbrances in favour of Covenantholders being discharged, but received nothing in return as the proceeds were paid directly into Gunns’ overdraft account. The consequence was that none of the purchase price for the scheme timber, and other scheme assets totalling around $55m, ever reached the Covenantholders.

Instead, the proceeds became subject to the ANZ charge.

September 2012
Gunns is insolvent and receivers and administrators are appointed to take over the company. Having had their security forfeited by AET the Covenantholders were rendered unsecured creditors in the Gunns’ liquidation.
The result was that 4500 to 5000 Covenantholders lost their whole investment.  With Sapfor insolvent and AET not answering questions, Covenantholders faced a “wall of silence” when trying to understand where their savings had gone.

March 2015
High Court rejects AET’s attempts to argue that the receivers did not, in fact, have priority: Korda v Australian Executor Trustees (SA) Ltd [2015] HCA 6.

Mid 2015
Simon Morris of Piper Alderman takes up the case after being contacted by an aggrieved Covenantholder, Mr John Armour.

June 2016
A new trustee is appointed after Piper Alderman applied to the NSW Supreme Court on Mr Armour’s behalf. The new trustee is Mr David Kerr of RSM.  Mr Kerr is granted access to the books and records of the trust and conducts investigations.

June 2017
Mr Kerr receives judicial approval from the NSW Supreme Court (equity division) to commence proceedings against AET for negligence and breach of trust seeking to recover the Covenantholder losses, by now totalling around $75m including interest.

November 2017
AET files its defence denying liability and cross-claiming against its then solicitors, Sparke Helmore. for the losses.  Sparke Helmore also refuses to accept liability.

February 2019
A date is set down for the case to be heard in the NSW Supreme Court: 1 July 2019 (8 days).
IMF has a highly experienced litigation funding team overseeing its investments. We have a 90% success rate over 184 completed investments and have recovered over AU$1.4 billion for clients since 2001.

IMF is one of the leading global litigation funders, headquartered in Australia and with offices in the US, Canada, Singapore, Hong Kong and London. IMF has built its reputation as a trusted provider of innovative litigation funding solutions and has established an increasingly diverse portfolio of litigation funding assets at 31 December 2018, IMF has 80 active investments around the world.

For further information  regarding IMF and its activities, please visit

RSM Partners is one of Australia’s leading professional services firms, with advisers in 30 offices across Australia providing expert corporate financial and advisory accounting services. RSM is a member of the world’s sixth largest audit, tax and consulting network. This global nexus of member firms draws on more than 43,000 people in 800 offices, across 120 countries – including the world’s top 40 major business centres – to help guide clients through business challenges, both locally and seamlessly across borders. RSM member firms offer a wide range of specialist international services, such as wealth management, IT, consulting, legal and risk advisory, forensic accounting, human resource consulting, and global compliance reporting.

David Kerr is a Partner of the Restructuring & Recovery division and has over 25 years’ experience. He provides advice on and accepts appointments to both corporate and personal insolvency matters.
For further information please visit

Piper Alderman is a leading, national law firm, providing commercial legal services across Australia for over 160 years. We have achieved our impressive growth by listening to our clients, responding to their needs and creating practical legal solutions.

Piper Alderman Partner, Simon Morris, is leading the claim against AET and Sparke Helmore. Simon is a pre-eminent commercial litigation lawyer. He practises predominantly in complex disputes in the Federal and Supreme Courts and has a particular focus in securities class actions. He is the Head of Piper Alderman’s Sydney office and was formerly the national practice head of Piper Alderman’s commercial litigation division.

For further information please visit

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