Another case on trusts and insolvent corporate trustees was handed down recently, this time by Derrington J in the Federal Court.
Much longer decision than the Amerind, High Court, one recently!
Main things to take away:
— sham unit trust created when members of a community put money together for the purpose of purchasing properties
— trustee acted not only as trustee, but also in its own right
— unit trust declared invalid, and instead the Court ruled the subscriptions are held on “bare constructive trust”. Meaning the trustee’s duties were limited to possessing and maintaining the property.
— if bare trust, how do you sell the trust property? Derrington applied ‘Killarnee’ in saying that a Receiver should be appointed
— once sold, how should the trust assets be applied? Based on Amerind High Court case, the proceeds from the sale must go to the subscribers (trust creditors)
— what about non-trust creditors? Bad luck
— can the Liquidator be remunerated from the trust assets for general liq tasks? No!
Very interesting passage [204-206]: an “order allowing the Liquidator to discharge [trust debts] … out of [trust assets] is limited by the ‘clear accounts rule’.” Ie the trustee must make good any loss which it has caused to the trust.