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Corporate Trustee Being Deregistered - Consequences and Remedies
Issue: 573 - Thursday, 26 August 2021
In this Issue
- Corporate Trustee Being Deregistered - Consequences and Remedies
1. Corporate Trustee Being Deregistered - Consequences and Remedies
By John Wojtowicz (Director - Law Central Legal)
Many of the family trusts established in Australia have a corporate trustee.
Sometimes the corporate trustee may become deregistered due to some event, the most common being the failure of the company to pay the annual review fee to ASIC.
Once the corporate trustee is deregistered then under section 601AD(1) of the Corporations Act 2001 (Cth) (“Corporations Act”) the company ceases to exist and under subsection (1A) all property that the company held on trust immediately before deregistration vests in the Commonwealth of Australia. This subsection also extends to property outside of Australia.
We note under section 601AE of the Corporations Act that:
“(1) If
property vests in the Commonwealth under subsection 601AD(1A),
the
Commonwealth may:
(a) continue to act as
trustee; or
(b) apply to a court for
the appointment of a new trustee.
Note: Under paragraph (1)(a), the Commonwealth may be
able to transfer the
property to a new trustee chosen in accordance with the trust
instrument.
(1A) If the Commonwealth continues to
act as trustee in respect of the property,
subject
to its obligations as trustee, the Commonwealth:
(a)
in the case of money--must credit the amount of the money to a
special
account
(within the meaning of the Public Governance, Performance
and
Accountability Act 2013); or
(b)
otherwise:
(i)
may sell or dispose of the property as it thinks fit;
and
(ii)
if the Commonwealth does so--must credit the amount of the
proceeds to a special account (within the meaning of the Public
Governance, Performance and Accountability Act 2013).
Note:
ASIC may, for and on behalf of the Commonwealth, perform all
the
duties
and exercise all the powers of the Commonwealth as trustee in
relation
to property held on trust by the Commonwealth (see subsection 8(6)
of the ASIC
Act).”
Does the Trust Fail Due to the Corporate Trustee Ceasing to Exist?
The short answer is no. It is a fundamental principle of equity that a trust will not fail for want of a trustee: Sinnott v Hockin 1882 8 VLR 205.
Croft J (at 25) in his judgment in the case of Charlesworth Nominees Pty Ltd v Charlesworth [2017] VSC 445 notes “the effect that the identity of the trustee is not a matter affecting the due administration of the Trust and not a matter with which equity is concerned, save to ensure that, if necessary, a new trustee is appointed to ensure the due, …., neutral administration of the Trust”.
How Does the Trust Function Without a Trustee?
If the trustee was an individual then the trust is in limbo until a new trustee is appointed or a court order is made.
If the trustee was a company that has been deregistered then
according to the ASIC website
“ASIC may for on and on behalf of the Commonwealth – but
is not obliged to – perform all the duties and exercise all the
powers of the Commonwealth as trustee in relation to any property
held on trust by the Commonwealth.”
In reality the trust will be in limbo as ASIC will in all probability not get involved in the due administration of the trust which is not merely limited to dealing with the property in the trust fund.
What is required to have the problem fixed?
There are numerous ways this problem can be fixed. Broadly, these are as follows:
- Apply to have the deregistered company reinstated.
- Subject the trust deed permitting, have the appointor (or such other person named in the trust deed) appoint a new trustee.
- Apply to the Supreme Court for an appointment of a new trustee and/or other appropriate orders relating to the trust property.
- Apply to ASIC to transfer the property to the beneficiaries where the trust has also been wound up.
Under point 2 above (and possibly point 3 – subject to the court orders being obtained) the new trustee will need to formally apply to ASIC to transfer the assets of the trust to the new trustee. The ASIC website outlines the requirements and applications needed to transfer the assets from the Commonwealth to a new trustee.
Having the Appointor Appoint a New Trustee
Most trust family/discretionary trust deeds have provisions that state that the trustee of the trust can be replaced by the Appointor.
The provisions typically allow the Appointor to undertake the removal and appointment of a new trustee on minimal or no notice. Most trust deeds require this to be done in writing.
In the case of most trust deeds, a deed poll duly executed by the Appointor would suffice. The deed poll would then form part of the evidence used in the application to ASIC to have the trust assets transferred to the new trustee.
A problem can occur if the position of the Appointor is vacant or not clearly identified. The case of Re Cooper Street Property Trust [2016] VSC 756 involving a bankrupt person holding the position of appointor is a case on point. Our platinum members can read the platinum content on this case.
Disclaimer: The content of this Bulletin is general information only. It is not legal advice. Law Central recommends you seek professional advice before taking any action based on the content of this Bulletin
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