THE DEMISE OF DISCRETIONARY TRUSTS?
01 09 2006
The Court is now prepared, in insolvency matters, to “look through” the discretionary trust structure to determine the ownership of assets. This has been done for some time in Australia in respect of Family Court matters but not insolvency matters until the decision of Australian Securities and Investments Commission In the Matter of Richstar Enterprises Pty Ltd (ACN 099 071 968) v Carey (No 6) [2006] FCA 814 was handed down on 29 June 2006 in the Federal Court of Australia.
The Judge commented that “the beneficiary who effectively controls the trustee’s power of selection because he is the trustee or one of them and/or has the power to appoint a new trustee has something approaching a general power and the ownership of the trust property”. On that basis the Court was prepared to extend the receivership of a director’s personal property to the assets of a discretionary trust of which that person was a beneficiary or a member of a class of beneficiaries of a trust. This was because the trustee was effectively the alter ego of the relevant beneficiary or otherwise subject to his or its effective control, the beneficiary had at least a contingent interest, if not effective ownership, of the trust property.
This decision is not the “death knell” of the discretionary trust. What it highlights however is that accountants should be reviewing their client’s trust deeds and structure as the assets of the discretionary trust are clearly at risk where the party at risk is:
- an Appointor of the trust; or
- a Trustee of the trust (or an officeholder or shareholder of the trustee).