Federal Court dabbling in insolvent trustee company law

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.


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