PLANTATION group Timbercorp's collapse yesterday has thrown a major part of Australia's rural industry into disarray.

The Australian reports that the collapse has raised questions about the sustainability of urban-based schemes designed to minimise investors' tax liability.

The group's board has called in insolvency specialists KordaMentha as voluntary administrators, having realised that even if Timbercorp did manage to beat a deadline to repay financiers $20 million on May 1, there was still a debt of $40 million looming for payment by the end of May.

"That will put them in a better position than if the financiers called in the receivers," said Jim Blackburn, head of agribusiness at Melbourne consultancy Lonsec.

The company has been hurt by the combined forces of declining asset values, tightening credit, the economic downturn and drought.

Timbercorp revealed in November that its net debt exceeded net assets at $903 million to $595 million.

Its lenders are ANZ Bank, Commonwealth Bank, Westpac Bank and Bank of Scotland. ANZ is reportedly by far the biggest, with an exposure of between $450 million and $500 million.

Timbercorp was founded in 1992 and owns or manages 120,000 hectares of forestry, olive, citrus, grape and almond plantations, many of them along the Murray River.

It has about 170 staff in Perth, Hamilton (Victoria), Penola (South Australia), Mildura and Melbourne.

It has 14,000 shareholders, who are unlikely to see any distribution once secured creditors are paid, since ordinary shareholders rank behind secured creditors unless they can prove they were misled.

The price of Timbercorp shares, which had been under pressure for months and dropped through 50c in November, fell 17 per cent on Wednesday to 4.4c, taking its loss over the past year to 96 per cent and imputing a total value to the company of $15.5 million.

Under the managed investment scheme model, Timbercorp is the responsible entity (R/E) for about 45 managed investment schemes whose 18,500 investors -- or "growers", as Timbercorp calls them -- have a management agreement with Timbercorp, but not a direct financial one.

Mr Blackburn said it was possible that the managed investment schemes would be able to carry on operating as long as a substitute R/E was found.

"The risk to shareholders is very much greater than the risk to unitholders in the Managed Investment Schemes," said Mr Blackburn, who noted that the administrators were looking to "develop a stategy for each forestry and horticulture product, project by project".

He noted that after similarly structured company Australian Plantation Timber collapsed in July 2001, the management was successfully taken over by Futuris subsidiary Integrated Tree Cropping.

KordaMentha spokesman Mike Smith said last night that Timbercorp and some of its managed investment schemes had been "hit by an almost perfect storm" of negative factors, not least that although Timbercorp owned a huge water extraction right from the Murray River, it had been forced to buy in water from elsewhere over the past two to three years and then billed the MIS unitholders.

He said many of the assets were "world class" and that the 6500ha olive plantation at Boort in Victoria represented about 20 per cent of the Australian olive annual production.

"It would be hard to imagine, even in these difficult circumstances, that these assets would be allowed to wither," he said.

At Boort, Timbercorp owns the land, the plantation is managed by olive company Boundary Bend and the relevant MIS unitholders own the olives harvested.

Timbercorp management had been trying to sell assets, particularly land, with an aim of raising $280 million from forestry land and $200 million from horticultural land.

But as chief executive Sol Rabinowicz said last week, the bids were "substantially below book value".