If the trustees of a discretionary trust are the 'alter egos' of the trust's beneficiaries (or otherwise subject to their effective control), then a receiver order could be made over the trust's property.
The case, ASIC v Carey, arose out of the ongoing litigation over the collapse of the Westpoint group.
At ASIC's request, the Court appointed receivers over the property of a number of directors and companies in the Westpoint group (pending the outcome of further proceedings).
The judge accepted the traditional view — contrary to ASIC's ambition but then made an important leap in his reasoning.
The law The Corporations Act defines "property" as:
any legal or equitable estate or interest (whether present or future and whether vested or contingent) in real or personal property of any description and includes a thing in action. See Section 9.
The traditional view Generally speaking, a beneficiary of a discretionary trust would not traditionally be considered to hold an interest that amounted to 'property' for the purposes of the section 9 definition. Instead, in most cases, a beneficiary would have an "expectancy" which is not sufficiently certain or proprietary in nature to amount to "property".
The new leap The judge stated that if the beneficiary effectively controls the trustee's power to make distributions, then the beneficiary has something approaching a proprietary interest in the trust property for the purposes of the Act.
That is, if the trustees of the discretionary trusts were 'alter egos' of their beneficiaries (or otherwise subject to their effective control), then the beneficiaries would have an interest for the purposes of the section 9 definition. If so, then a receiver order could be made over the trust's property.
Situations in which the leap may be taken By way of example, the judge stated that in the case, he was willing to consider an application to extend the receiver orders to cover "expectancies" in the following circumstances:
Facts A family trust with:
Judge's reasoning The defendant had effective ownership of the trust property for the purposes of the Act.
Facts A trust:
Judge's reasoning The defendant had effective ownership of at least 39% of the trust property for the purposes of the Act.
Facts A trust with:
Judge's reasoning The defendant had at least a contingent interest in the property of the trust, if not a general power of selection that approached ownership of trust property for the purposes of the Act.
Importantly, French J explicitly cited and approved Family Court cases in which - for years - the court's have looked through formal trust structures (ignoring the legal niceties of trusts law) to make family settlements according to who had de facto ownership of the trust property.
Some thoughts on the implications of the case:
In summary, this is an important decision and developments in the area, including any appeal, should be carefully monitored by professional advisors.
For more information, you can:
Leigh is a partner in the Maddocks Tax & Revenue team.
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His advice covers both direct and indirect tax considerations.
Leigh advises Australian and multinational companies, high net worth individuals, accountants and financial advisers on all areas of taxation law.
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