Investors in Costa-Rican tree plantation investment scheme Ethical Forestry are uncertain whether they can receive compensation from the Financial Services Compensation Scheme (FSCS) because Sipp firms have provided different valuations.
The difference in valuations means that some investors have received pay-outs over advice given to invest in the scheme, whereas those with a different provider have not.
Despite the insolvency of the UK marketing firms earlier this year, Liberty Sipp has claimed Ethical Forestry ‘remains a viable long-term investment’.
At least 3,000 UK investors are thought to have invested a minimum of £18,000 each into Ethical Forestry, meaning it could have over £50 million invested in it.
These investors were left uncertain about their investments when the UK firm promoting the scheme collapsed earlier this year.
The Costa Rican company running the plantation, Ethical Forestry SA, is understood to be still running but 80% of its shares were owned by the UK firms, meaning they were passed to the liquidator HJS Solutions when they collapsed.
A deal is currently being worked on between HJS Solutions and the individual who was running the scheme in Costa Rica, to buy the assets from the liquidator. Despite the liquidator's claim that a deal was four weeks away in July, this deal is still to be reached. When contacted, HJS Solutions said it will know if a deal is going to go ahead by next week.
When a claim comes through over an advice firm, the FSCS will in normal practice ask the Sipp provider for a valuation of the underlying investment in order to work out how much compensation the individual is due.
In a letter, seen by New Model Adviser®, the FSCS says it cannot ‘fully quantify’ any possible loss in Ethical Forestry until the client ‘sells or assigns ownership interest in the property’.
As such the FSCS said it would base its compensation of the investment on the valuation given by the Sipp provider.
Liberty Sipp is giving a book value, meaning the amount the investor initially paid, for Ethical Forestry.
John Fox, director of Liberty Sipp, said this was because the investment was still viable, despite the collapse of the UK companies.
‘Despite the insolvency of the UK firm that marketed Ethical Forestry in Britain, the underlying investment is still viable,’ he said. ‘It’s an ethical and well-run forestry company in Costa Rica that continues to trade as normal.
‘Nothing about the insolvency of the UK marketing firm linked to Ethical Forestry has changed our assessment of the underlying investment. It remains a viable long-term investment and we feel the correct and responsible way to value investments in Ethical Forestry is at book value.’
If a Sipp firm provides a book value of the investment then the FSCS will put this into its compensation calculation, meaning the client is likely to get less.
However when asked by the FSCS, another Sipp firm, who did not wish to be named, gave the Ethical Forestry a valuation of £0. As a result, the FSCS has paid out over the Ethical Forestry investment.
That Sipp firm said it gave this £0 valuation not because it thought the investment was worthless, but because it did not know what the potential value actually is.
‘Because [the UK firms] are in liquidation and we have liquidator communication that they are looking for a solution, our valuation is nil because we can’t value it. We don’t know what the value is for benefit crystallisation purposes so we would deem it to be nil,’ a spokesperson said.
‘We are not saying it’s worthless, but we can’t value it. Also the investment is illiquid, and the liquidator is saying your loss, if any, will be established in the fullness of time. That is the reason why we have a nil valuation.’
When asked if the investment has been impaired, insolvency practitioner at HJS Solutions, Shane Biddlecombe, said: ‘I don’t know at this stage and no one will know until the final term.’
He said the company in Costa Rica managing the investment is still continuing to manage the trees but it is now operating on a ‘lesser scale’ as it has not had the source of funds coming in from the UK companies.
The FSCS was unavailable for comment.