NSW AG Asks NSWLRC to Review Laws Relating to Beneficiaries and Trusts
Wednesday 17 May 2017 @ 1.14 p.m. | Corporate & Regulatory | Legal Research | Trade & Commerce
In a Media Release dated Thursday, 11 May 2017, the NSW Attorney General, Mark Speakman (the Attorney General) announced that he had asked the NSW Law Reform Commission (NSWLRC) to review ". . . important aspects of the state's laws relating to the liability of beneficiaries of trusts".
Reasons for the Review
In making the announcement, the Attorney General stated the reasons for requesting a review were as follows:
"Trusts often involve individuals or businesses investing in a common asset - such as a large property, infrastructure project or shareholding - that is administered by a trustee, . . . There has, however, long been uncertainty about what liability, if any, investors face if the trustee fails to fulfil obligations of the trust, for example, by entering into debt that cannot be satisfied."
In addition the Attorney General said:
"The government wishes to ensure trust beneficiaries are protected in appropriate cases, but not provide an opportunity for company directors to avoid responsibility for insolvent trading, . . ."
The NSWLRC's Brief Generally
The NSWLRC's brief as announced by the Attorney General is to examine:
- whether there is a need to introduce laws to limit or remove the liability of beneficiaries to indemnify trustees or creditors when trustees fail to meet the obligations of the trust;
- whether it is appropriate to restrict the liability of investors to the amount outstanding on their share of the investment, in the same way as holders of fully paid shares have no further liability; and
- whether oppression remedies available to shareholders under company law should be extended to beneficiaries of trading trusts.
- Note that on the question of oppression remedies the NSWLRC have been "specifically asked to consider whether to adopt the proposals in the Victorian Law Reform Commission's Report on Trading Trusts - Oppression Remedies, Report (2015)".
The Full Terms of Reference
In its full terms of reference, the NSWLRC is asked to review certain aspects of the law of trusts in NSW and report on whether:
- there is a need to enact statutory provisions to limit the circumstances if any in which the beneficiaries of trusts, as beneficiaries, should be liable to indemnify the trustee or creditors of the trust, if the trustee fails to satisfy obligations of the trust, or remove such liability; and
- it is appropriate for the liability of investors in unit trusts to be limited to the amount (if any) unpaid on their units in the same way that the liability of investors in shares is limited to the amount (if any) unpaid on their shares.
As part of this review, the NSWLRC is to have regard to:
- the perceived uncertainty of the case law on the liability of trust beneficiaries in New South Wales and elsewhere;
- the widespread use of trusts in commercial contexts as well as in the community generally; and
- the need for safeguards to ensure that any legislation limiting or removing such liability does not support the avoidance of responsibility for insolvent trading.
The NSWLRC is also asked:
- to propose the terms in which any legislation should be enacted; and
- to consult and report on whether New South Wales should adopt the recommendations of the Report, Trading Trusts - Oppression Remedies, January 2015, of the Victorian Law Reform Commission.
Process of Review and Reporting by NSWLRC
The NSWLRC are inviting preliminary submissions from interested stakeholders. The deadline for preliminary submissions is Friday 14 July 2017. The NSWLRC is due to report to the State Government by 30 April 2018.
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